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Everything I Needed to KnowAabout Estonia Crypto Licenses and the New Regulations from an Expert
In twitter and social media, I am finding that crypto is becoming more and more popular and I finally came to understand that this is a business niche that needs to be exploited. While more conservative investors are still living in the old ages, new braver and more creative ones are open to new challenges and maybe a little risk. That is why I started to ask myself about Estonia which, as far as I know is one of the most advanced legislations for crypto in the world.
Realizing that my knowledge in the matter is smaller than it should be, I decided to contact our crypto expert Dmitry to ask him about the details of crypto licensing in Estonia and how can this help our readers at Mundo.
This year, the financial world was worried to hear that one of the crypto meccas in the world had changed its regulations. From July 2020 Estonia has tightened the regulations and many are wondering how this would affect crypto businesses and if it is still convenient to apply for an Estonian e-money license. I asked my expert all these questions This is my interview with him.
Firstly, let us recall that there used to be two types of licenses in Estonia:
Crypto exchange license: For providers of a service for exchanging a virtual currency against a Fiat currency. This license allows them to exchange Fiat to Crypto, Crypto to Fiat, and Crypto to Crypto.
Crypto wallet license: For providers of a virtual currency exchange service. This license allows you to provide a virtual currency wallet service for a company, the company generates security keys for its customers or stores their encrypted keys. These keys can be used for saving or transferring virtual currencies.
Now, these licenses have been unified into a single license called “Virtual Currency Services Provider”. Now, let’s read what our expert Dmitry has to say about these licenses. Is Estonia still an avant-garde innovative jurisdiction?
-Hello, Dmitry, it is a pleasure to have you among our Mundo experts. Can you please tell us why is Estonia considered to be an avant-garde jurisdiction when it comes to crypto legislation?
That is certainly a good question. The way I see it, the future of finances lies in crypto currency, which is basically a decentralized currency that can exist independently from banking institutions and governments. However, you can imagine the huge resistance that this industry finds. In the first place, nobody likes change, in the second place, governments feel threatened by this tendency that does not need a third party to confirm the transactions.
However, there are some governments that are seeing an opportunity in this, because at the end of the day nobody can stop the natural progress of things and the reality is that the crypto world is the future, the only question is what exactly this future will be like. From these countries, Estonia is one of the few that is trying to regulate cryptocurrencies with all the challenges this implies.
The regulations in Estonia when it comes to crypto are highly innovative, especially when we compare them with the rest of the EU. Cryptocurrencies are considered according to Estonian legislation a “value represented in digital form”. This means that cryptocurrencies are considered to be “assets”, not currency, and are taxed accordingly. However, they are not subject to VAT.
-I understand that Estonia offers a simplified licensing environment, with only two licenses that cover the most important services, crypto exchange, and crypto license. Could you explain why is the environment simpler here than in other crypto jurisdictions?
- Well, the simplicity of Estonia as a crypto environment lies in the fact that it has been able to organize a regulation system for the different operations into two single licenses, that have been even more simplified into a single license in 2020. Thus, you don´t have to apply for multiple licenses or go through endless processes for different operations. Moreover, Estonia is an EU member meaning that it has passporting rights. The license that you have acquired in Estonia allows you to operate in any member state of the European Union.
-What are the requirements for acquiring a crypto license?
- In simple terms, the process is like this: first you register a company, then open a bank account in order to deposit the initial shared capital, and finally submit the application for a license. I will list some of the documents needed in order to successfully apply for an Estonian crypto license, however, as each case is different, I strongly recommend a personal consultation and quotation.
List of documents:
● Detailed information on the owner of the business including CV, phone number, email, name, nationality, etc.
● Address of the web page and where the services will be provided.
● Detailed information on the person responsible for the offer.
● Information on the UBO (at least name, date of birth, address).
● In order to comply with the article 29 of the Money Laundering and Terrorist Financing Prevention Act, it is necessary to provide a contact person whose information must be submitted. This information needs to be thorough and includes name, place of birth, citizenship, position, and legal address.
● This same information needs to be provided for the person responsible for applying international financial sanctions.
● If one of the important members of the business (a board member, the owner, the UBO, etc.) is a foreign citizen, it is mandatory to submit proof of having a clean criminal record. The document must be issued in the past three months and duly legalized or apostilled (Estonia is member of the Hague Convention).
-Is it necessary to create a previous structure such as a local company?
- Yes, setting a company is the first step towards acquiring the license, like I described in my previous answer.
-Can you please list the activities you can do with this license?
- With the new unified and unique license, a business can carry out the main activities involving crypto which are: mining, storing and exchange (crypto to fiat, fiat to crypto, crypto to crypto).
-How long does it take to set these licenses up?
- After submitting the application in a proper way and the supporting documentation, the FIU takes around 60 days to make a decision. It can be 120 days in some cases. This is a very important point. In order to quickly get a license, it is vital to fill the application correctly and to present the documentation in due form. This is honestly very hard to do, for this reason we recommend hiring the help of experts who have done this many times and know exactly what is needed.
-I have heard that there have been changes in crypto regulating legislation. Could you please tell us what are the main changes and how do they affect the crypto environment, especially for international entrepreneurs?
- Well, the main change, like I said before, is that the two previous licenses have been unified into a single one called “Virtual Currency Service Provider”. However, the main change lies in due diligence requirements and fees, which have both increased. The minimum shared capital of a crypto company has increased from 2,500 euros to 12,000 euros and the government fee from 345 euros to 3,300 euros. The AML and KYC requirements have also toughened and now, besides from the required documents and background checks, the applicant must go through an interview in order to prove being duly qualified for the job.
Also, from now on the place of business and board of directors must be located in Estonia and the company director must have Estonian nationality.
-We hear that the government has revoked 1,000 licenses! Is this true and can you explain? Is this something to worry about?
- Not at all. The actual reason why these licenses were revoked is not because of major money laundry scandals or failing to pass the due diligence process, but because simply there were many companies that did not even start their operations. Maybe they were frightened by the new regulations, I am not sure, but what I do know is that it is important to think carefully before starting a business such as an e-money company.
This kind of process should not be done for sport, I mean, you should not get a company just in case. If you want to apply for an e-money license please conduct the correct research in order to make sure that you will be willing and capable to properly run and develop the business, otherwise, why bother? Sure, the new regulations are a bit scary because they are much closer to a classical financial environment, but this is the global tendency now and those who want to conduct business will have to adapt to them and play by the rules.
Luckily, there are still many experts, such as Mundo experts that can help you play by the rules and still benefit from the system. I recommend asking a consultation with Mundo experts on asset protection structures.
-I have heard amazing things about Estonia as a place of great culture, talent, and business opportunities. Why, in your opinion, is Estonia a great jurisdiction for business?
- You are absolutely right. Moreover, with the new regulations you will probably have to live in Estonia for running a crypto business and this is great. Personally, this is the part of Europe I love the most. The weather is great, with cold winters (but with great heating services) and the summers are mild. The Baltic sea offers beautiful views, and the country presents the same cultural and historical richness as the main European capitals but with better prices and lifestyle, highly educated population and great internet services. Come to Estonia and I will gladly show you more!
-In your opinion, is the crypto business the future of business and why?
- Of course! The question is in what way. Progress cannot be stopped, and the same way industrial revolution could not be stopped and replaced the power of landlords for the power machines, now the power of machines is replaced by the power of knowledge and IT. This is the future. The only question is how highly regulated this environment will be.
Will governments win the race to eventually fully control the crypto environments or there will remain some places with a certain amount of freedom to exchange? We have to wait and see. Either way, for an investor who wants to be at the top of the wave, it is vital to consider a crypto busines or investment in their portfolio.
If you want to get a consultation with our experts in crypto licenses or any other financial services, please contact us.
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