Cryptocurrency Licence in Lithuania

Both licenses granted are controlled by the Lithuanian Financial Crime Investigation Service (FCIS)

Lithuania crypto license requirements 2022/2023

Based on amendments to the Law on the Prevention of Money Laundering and Terrorism Financing of June 30, 2022, the regulation of virtual currency exchanges and the depository of virtual currency money operators will be changed in Lithuania.

Major changes

• Registration of cryptocurrency-related activities will remain mandatory in Lithuania, and the supervisory authority will be the Commercial Register (Registrų Centras), to comply with the requirements (availability of authorized capital, local exclusive AML officer, etc.)
• The authorized capital for VASP companies will be increased to 125,000 euros
• VASP will be required to have an exclusive (employment/cooperation with only one company) local AML officer
• In accordance with the amended legislation, increased requirements for the reputation of the company’s and UBO’s management board will be applied.

Amendments to the articles of the Law on the Prevention of Money Laundering and Terrorism Financing

From November 1, 2022, new requirements for virtual currency exchanges and the depository of virtual currency money operators with respect to the size of the authorized capital, the senior manager of the company (restrictions if there is a criminal record) and the need to employ a local AML officer will come into force in Lithuania. For companies that are already registered and have started operations, the changes will come into force later – on January 1, 2023.

Article 25 – Lists of virtual currency exchange operators and virtual currency wallet operators depository

1 . The administrator of the Register of Legal Entities (Registrų Centras) will compile a list of virtual currency exchanges and virtual currency money operators established in the Republic of Lithuania and publish them on its website.

2 . The list of virtual currency exchange operators and virtual currency depository wallet operators will include the following data:

1 ) Name of the legal entity

2 ) Code of the legal entity

3 ) Location address

4 ) Start date of activity

5 ) E-mail address

6 ) Website address

Article 25 – Supplement 5

A legal entity that has started working as a virtual currency exchange operator and/or a virtual currency depository wallet operator must have an AML officer who is a permanent resident of Lithuania, as defined by the Law on Income Tax from the Population of the Republic of Lithuania.

Article 25 – Supplement 6

A legal entity established in the Republic of Lithuania, whose organizational and legal form is a joint-stock company or a closed joint-stock company, intending to carry out the activities of a virtual currency exchange operator and/or a virtual currency depository wallet operator, must have a registered authorized capital, which must be at least 125,000 euros.

Article 25 – Supplement 7

In accordance with paragraph 1 of Article 22 of this Law, the management staff of a virtual currency exchange operator and/or a virtual currency depository wallet operator may not simultaneously represent more than one virtual currency exchange operator and/or a virtual currency depository wallet operator, except in cases when these operators are part of the same group of companies.

Article 25 – Supplement 8

A virtual currency exchange operator and/or a virtual currency depository wallet operator shall not carry out activities and provide services in other countries to such an extent that only fictitious functions or services that are not essential in nature and volume within all the company’s operations remain in Lithuania.

Legal entities established in the Republic of Lithuania that started operating as virtual currency exchange operators and/or virtual currency depository wallet operators before the date of entry into force of this Law must comply with all the requirements of this Law no later than December 31, 2022.

Legal entities established in the Republic of Lithuania that fail to provide the information specified in paragraph 7 of this Article by December 31, 2022, from January 1, 2023 lose the right to continue operating as virtual currency exchange operators and/or virtual currency depository operators in the Republic of Lithuania. Not later than January 31, 2023, the administrator of the Register of Legal Entities will remove the information about the activities of the legal entity as a virtual currency exchange operator and (or) a virtual currency depository wallet operator from the Register of Legal Entities.

Requirements for the applicant company

In order to prevent the legalization of the proceeds of crime, the activities of cryptocurrency companies are monitored by the relevant legal institutions. Board member as well as owners of the company must meet the requirements of impeccable reputation and have no criminal record.

Companies providing services in the cryptocurrency sector are subject to the following requirements:

• At least one owner (natural or legal person)
• One board member (may also be the owner)
• AML Compliance Officer (may be the same as board member)
• Company virtual address in Lithuania
• All clients must undergo a background check and identification procedure
• Customer data must be kept with the possibility of submitting them to the regulator
• The company must have internal control and risk assessment procedures
• Reporting to the regulator (Financial Crimes Investigation Service)

There is no need for owners or board member of a cryptocurrency company to be physically present in Lithuania so that foreigners/non-residents of Lithuania can legally engage in crypto related activities while in their country.

General provisions

During the licensing process, the regulator has the right to request additional information and a detailed/white paper description of the proposed activity of the cryptocurrency company. A licence may be issued only after all necessary information is considered sufficient and all licensing conditions are met.

Any change in the structure of the cryptocurrency company after the receipt of the license (address, owner, board member, beneficiary, AML officer) requires the registration of changes in the registry with the provision of a complete set of documents.

The application for a cryptocurrency licence is considered by the Bank of Lithuania, regulated by the FCIS and issued by the Business Register. FCIS is an independent structural unit of the Lithuanian Police and Border Police Department.

Cryptocurrency companies are regulated by the Law on the Prevention of Money Laundering and Financing of Terrorism, in particular Order No V-5 of January 2020.

The cryptocurrency company has no special reporting requirements to the tax authorities. Accounting must be provided in the same way as for any other Lithuanian company. FCIS can always make prescriptions and queries about the activities of a cryptocurrency company. The basic requirement of the FCIS is to comply with AML/KYC requirements, such as the collection of client data from a crypto related project and the possibility of making them available to the regulator on demand.

Licensing process

In order to apply for a cryptocurrency license, a limited liability company (UAB) must be established in Lithuania to provide cryptocurrency exchange or storage services. The minimum requirement for the company’s authorized capital is 2,500 EUR. The establishment of a cryptocurrency company can be carried out upon a visit to Vilnius or completely remotely by proxy without the need to visit Lithuania.

Today UAB is one of the most frequently used and popular forms of business activity in Lithuania.

Uždaroji akcinė bendrovė (UAB) in translation from the Lithuanian language means Closed Joint-Stock Company. The statutory capital of the UAB is divided into shares which can be sold in whole or in part, donated or hereditary. UAB must have at least one owner (natural or legal person) and one director (natural person) authorized to sign on behalf of the company.

Stages of obtaining a cryptocurrency licence in Lithuania:

1. Signing of cooperation agreement with Company in Lithuania UAB
2. Preparation of the necessary documents for the purchase/registration of the company
3. Company purchase/registration (takes approximately 5 business day)
4. Preparation of the company to a form suitable for the license application (up to 7 business days).
5. Once the company has been registered and provided with all the necessary information and documents, it is possible to apply for a cryptocurrency license.
6. The application for the issue of a license for activity is processed by the FCIS within 20 working days from the date of submission of the application.

PROCEDURE FOR OBTAINING A CRYPTOCURRENCY LICENCE

Documents required for the application

The following documentation will be required to review and prepare an application for a cryptocurrency licence:

• Valid copy of passport from home country
• Power of attorney (PoA) (if the procedure for opening a company and obtaining a license occurs remotely)
• Company business model/detailed activity description
• CV/Summary of experience and education of all participants in the crypto related project
• Website address where cryptocurrency services will be offered
• Certificate of criminal record (not more than 3 months) for owners, board members, final beneficiaries (UBO) and AML officers
• Data of all beneficial owners (UBO) must be provided at the request of FCIS

The cryptocurrency company must also have an AML officer. AML officer for the prevention of money laundering and terrorist financing must have previous professional experience and an impeccable reputation (Lithuanian residence is not compulsory).

The licensed company must keep a detailed and up-to-date overview of all customers and transactions in accordance with AML/KYC rules. The FCIS Control Authority can make requests about the company’s activities, especially regarding compliance with the AML/KYC policy.

Risk Assessment, KYC/AML documents and procedural rules

Before applying for a cryptocurrency license in Lithuania, it is necessary to prepare documentation on internal procedures of the company in order to meet the anti-money laundering criteria (AML) and «Know your client» (KYC) established by FCIS. Some parts of this include, for example:

Internal security measures and risk assessments

• Assessment and risk management of money-laundering and terrorist financing:

1. Determination of risk level
2. Risk classification
3. Nationality
4. Transaction control procedures
5. Origin of funds
6. Compliance monitoring and internal audit
7. Due diligence measures
8. Notification obligations

• Collection and storage of information on company transactions and clients
• Fulfilling the obligation to notify the regulator
• Internal control rules of the company

Procedural rules, AML/KYC procedures

• Description of lower-risk transactions and establishment of appropriate requirements and procedures for such transactions
• A description of transactions with a higher level of risk, including risks arising from means of communication, location of customers. Other parameters and establishment of appropriate requirements and procedures for conducting and monitoring operations
• Rules of Due Diligence
• Customer Identification – document requirements
• Source of welfare, proof of address of residence
• Requirements and procedures for storing data on transactions and clients of the company
• Regulatory Notification Requirements

AML/KYC officer

The duties of an AML employee include:

• Assistance in the development, implementation and maintenance of an institution’s anti-money-laundering programme.
• Organization of the collection and analysis of information on suspicious transactions or transactions where there is a risk of money-laundering or the financing of terrorism.
• Submission of written statements on compliance with the requirements of this Law to the management of the Virtual Currency Exchange Service Provider or Virtual Currency Wallet Service Provider registered in the Commercial Register of Lithuania.
• High Risk Customer Accounting and Suspicious Activity Reporting.
• Communication to FCIS in case of suspicion of money laundering or financing of terrorism.
• Develop and maintain a system of risk assessment for products and services, clients and clients, as well as for other issues related to money-laundering.
• Monitor and implement a permanent AML learning program for other employees.
• Guidance and reporting to senior management on issues related to AML’s internal policies and procedures.
• Organization and conduct of inspections and audits of external organisations, and development of recommendations on compliance with regulatory requirements.

KYC/AML officer applies due diligence measures:

• When establishing a business relationship with a new client
• When a cash payment is made in excess of 15,000 EUR or equal to in other currencies
• When verifying information in case of doubt as to the reliability of the documents or data provided
• In the case of suspected money laundering or financing of terrorism

FCIS requirements for an AML compliance officer:

• Only a person who has the education, professional aptitude, abilities, personal qualities, experience and impeccable reputation necessary for the performance of the duties of AML may be appointed as an employee of AML.
• The company should provide specialized training on measures to prevent money-laundering and the financing of terrorism to its employees, especially those responsible for customer relations and transaction control.

The Compliance Specialist not only tracks and processes various confidential financial data, but also interacts regularly with the board of directors as well as financial authorities. In addition to KYC/AML, an officer of your company must have sufficient authority to ensure the effective performance of his duties. Ideally, an AML specialist should be a director-level employee with industry experience to deal with all aspects of their professional environment.

TAXATION OF CRYPTOCURRENCY COMPANIES IN LITHUANIA

• Virtual currency exchange services are not subject to VAT.
• Services provided and accounts paid in virtual currencies are subject to normal VAT rules.
• The cryptocurrency company’s profits are taxed at a rate of 15%. A micro company with less than ten employees and less than 300,000 euros of gross annual income may be taxed at a reduced corporate tax rate of 0-5%.
• Income tax (WHT) 15% is levied on distributed profits (dividends paid).

TAXATION OF CRYPTOCURRENCY TRANSACTIONS IN LITHUANIA

The taxation of transactions in virtual currency depends on the nature of the transactions. There is no direct tax if the token is sold or purchased similarly to a security, investment or other currency.

Sales are considered normal/regular, even if payments for goods and services are received in virtual currencies. For accounting purposes, the transaction must have a value in euros and VAT rules are applied according to a normal transaction. Payment of goods or services in virtual currency does not exempt from VAT. If VAT is applied to payments in physical currency, it should also be applied to payments in virtual currency. VAT declarations must be submitted in euros and VAT will be paid / returned in euros.

FCIS

The mission of the Financial Crimes Investigation Service (FCIS) is to protect the public financial system by uncovering criminal acts and other violations of the law.

The purpose of the Financial Crimes Investigation Service is to develop methods of combating criminal activities against the public financial system. In pursuance of this objective, FCIS is actively involved in the implementation of the National Crime Prevention and Control Programme, the National Anti-Corruption Programme, and is preparing a public relations strategy, through which it seeks to involve society in preventive activities against financial crimes. The Service pursues its objective by taking operational measures, detecting and conducting pre-trial investigations and preventing criminal acts, implementing measures to combat money-laundering, as well as the means to guarantee the legality of the receipt and use of financial support from the European Union and other countries, by conducting an assessment of their commercial and financial activities and submitting an expert opinion thereon, as well as measures to ensure that hidden taxes can be reimbursed in order to maximize their impact on the actual revenues to be paid into the State budget.

At present, the Service gives priority to the detection, investigation and prevention of criminal acts related to money laundering, VAT embezzlement, illegal receipt and use of financial support of the European Union and foreign countries. These criminal acts are particularly damaging to the State budget and create a negative image of the State.