Crypto authorized activities in Lithuania – regulatory updates

[Gediminas]

Hey guys,

Will Lithuania remain a crypto hub in Europe?

After common discussions between parliament, service providers, and authorities (Financial Crime Investigation Service and Bank of Lithuania), the government of Lithuania introduced new changes concerning the virtual currency exchange operator and depository virtual currency wallet operator (“Operator”).

Following insights can be made from the regulatory update:

• Operators registered in Lithuania and meeting requirements will be publicly listed by the local companies’ register;
• Except for AML/CTF requirements, authorities remain neutral towards Operators – no need to submit a business plan to authorities for evaluation and approval, coordinate policies and operations with the authorities, mandatory perform audits, etc. to overcome long and costly licensing procedures;
• Considering that crypto regulatory framework changes/updates have been introduced only in 2019 and this year (2022), seems that the government of Lithuania does not accept new laws out of the blue. Operators and investors should not expect any new crypto regulations in Lithuania for a while;
• Local AML officers can mitigate the risks of Operator and UBO being involved in money laundering schemes. As of this day, many directors/UBOs themselves are assigned as persons, responsible for the implementation of money laundering rules, which makes them the main targets for Financial Crime Investigation Services in case of any incident related to money laundering or terrorist financing.

The most significant changes are as follows:

• An operator must have a head of AML (AML officer) who is a permanent resident of Lithuania, as defined by the Lithuanian Personal Income Tax Law.
  
  Key aspects:
  • Employing of AML officer does not require any initial approvals from authorities;
  • Law does not provide specific requirements for AML officers (like education, experience, licenses, etc.);
  • Not mandatory to have an AML officer employed full-time. Part-time employment is also allowed.

• An operator must have a registered authorized capital, which must be at least EUR 125,000.
  
  Key aspects:
  • It does not mean that Operator needs to maintain such capital at all times to ensure its obligations (like banks of EMIs), only a one-off increase of the capital is required;
  • An operator might use these funds for any business activities or a shareholder might take a loan back from the company;
  • If properly structured, only ¼ (EUR 31 250) of monetary contribution is needed to officially register authorized capital to EUR 125 000.

• An operator must not provide services to foreign clients only and should have substance in Lithuania in order to carry out at least certain activities in Lithuania.
  
  Key aspects:
  • By providing services online, they are (and should be) offered and made accessible to both local and foreign clients;
  • It does not mean that the Operator must have a Lithuanian customer – the Operator cannot force anyone to buy its services if no one buys them.
  • Having an AML officer who is a permanent resident of Lithuania will already create certain substances in Lithuania, especially if he/she is a senior manager (head of AML) as well.

• The list of criminal activities has been expanded, for which convicted persons cannot be appointed as management and supervisory bodies of the Operator, as well as UBO of Operator.

The changes listed above will become in force from November 1, 2022. In the light of the ongoing discussion on accepting EU Regulations on Markets in Crypto Assets (MiCA), the following requirements have been introduced in Lithuanian Laws:​

​

From January 1, 2023, identification and verification of the client and beneficiary will be needed irrespective of the amount of the transaction/currency (currently 1,000 € thresholds has been applied);​

From January 1, 2025, the Operator, will have to collect, store and transfer the personal information of the sender and recipient to another Operator or the financial institution (so-called Travel Rule).​

Both requirements are included in the draft of the MiCA Regulation. Some sources foreseen MiCA coming into force in 2024 or 2025, so implementation of the Travel Rule and customer identification from EUR 0 seems to be inevitable.

Countries such as Estonia, Latvia, France, Lichtenstein, and Singapore are already implementing customer identification from EUR 0.

Exchange of personal information of sender/recipient is already required or at least planned to be applied in Japan, Singapore, Thailand, Canada, Switzerland, US, Canada, Estonia, UK, Germany, etc. Even though the current implementation of the Travel Rule is difficult, no central institution which would participate in the exchange of this information is created. It is most likely that the implementation of MiCA will solve the practical issues of implementing the Travel Rule.

On top of this new regulatory overview, it’s worth mentioning Binance Lithuanian company Bifinity UAB. This company in Lithuania has been operating in Lithuania since 2020. Recently it has been announced that for the previous year Binance paid Lithuania more than 27 million EUR in profit tax. Considering that the profit tax rate in Lithuania in Lithuania is not dramatically high (15 %) and various tax incentives set, the amount paid to Lithuania is quite amazing. Probably due to this and previous successes with the Fintech sector, Lithuania has a very favorable attitude towards crypto services providers, compared to other countries. Recently implemented regulatory changes seem to show that Lithuania is willing to retain existing and attract new businesses engaged in cryptocurrency operations.


Thinking about setting up a crypto-authorized business in Lithuania? Check my previous thread: Crypto activities in Lithuania (How-To)

 

[Martin Everson]

Very informative thanks .

 

[Dreamwalker]

Thanks for the information

 

[latindev]

does anybody know how much does it costs to incorporate and maintain yearly a crypto crowdfunding project in Lithuania? now with these changes I'm not sure if what I was preparing to pay this month is going to be correct specially because of the 125k capital and local AML officer... also, does it means that having the AML officer there will generate enough presence in Lithuania to avoid european countries to claim they should be taxed where you are managing them from?

 

[Gediminas]

does anybody know how much does it costs to incorporate and maintain yearly a crypto crowdfunding project in Lithuania? now with these changes I'm not sure if what I was preparing to pay this month is going to be correct specially because of the 125k capital and local AML officer... also, does it means that having the AML officer there will generate enough presence in Lithuania to avoid european countries to claim they should be taxed where you are managing them from?

Basically, annual expenses on a minimal level consist of i) address (Virtual, Flexi, or Dedicated Desk), ii) employment (salary and taxes), iii) accounting (payroll and bookkeeping) and iv) legal setup. Establishment and maintenance of all setups vary between 20 000 to 30 000 EUR.

With the proper legal structure, capital to the required amount can be increased with the monetary contribution of slightly more than EUR 30 000. Even though the funds can be easily taken back from the company.

The existence of the local head of AML (AML officer) creates a significant amount of substance even though it is legally required to create local substance for certain business activities (not specified). Considering the head of AML would have powers to discretely authorize/deny onboarding of the customers, it creates part of local substance in managing the business. Even though, if the manager is an EU citizen, setting up residency in Lithuania for this person is quite easy.