Just to be clear: to run a compliant crypto-business may be difficult. The law and regulations (in the countries where some kind of rules are applicable) are still evolving, and they are subject to amendments that may be significant, complicated and frequent.
Hence, to identify the best jurisdiction in which starting (or moving to) a crypto-business is one of the most relevant strategic choices that must be taken.
Estonia: one of the best EU countries for crypto-businesses
Estonia is home to many companies involved in ICOs and other crypto-related businesses. At the moment I write this article, according to ICOWatchList.com, the Baltic republic hosted the 3.13% of the ICOs launched globally, able to raise more than USD 34.7M. A bitcoin ATM is also available to cryptocurrency users in Tallin, the Estonian capital. The ATM allows users to exchange euros into bitcoins and transfer the sum into user’s digital wallet.
Why is Estonia able to attract crypto-businesses?
Going by the current regulatory, political and economic environment, there are at least three reasons that make Estonia a crypto-friendly country.
1. Legal framework
ICOs. The Estonian Financial Supervisory Authority (EFSA) is of the opinion that tokens issued by ICOs might be considered as securities according to the definition outlined in the current Securities Market Act (SMA) as well as in the Law of Obligations Act (LOA), depending on their structure. EFSA assesses the legal nature of the token on a case-by-case basis and considering the substance over the form.
Virtual currency wallet services. The companies that offer cryptocurrency wallets are qualified as ‘Financial Institutions’. No special reporting requirements to the Tax Authority are imposed, and general accounting rules apply. Also, there are no reporting requirements to the Estonian Financial Intelligence Unit (FIU), which is an independent structural unit of the Estonian Police and Border Guard Board. FIU is still authorised to make precepts and conduct inquiries and investigations about the company’s activities.
Virtual currency/fiat currency exchange service providers. A state license is required for those businesses. Usually, the FIU issues the authorisation within 30 days from receiving all necessary documents.
2. High-quality Regulators
It goes without saying that the quality of a Regulator is essential for the business’ success, also because a direct and regular interaction between the company and the authorities can prevent many issues. Both the EFSA and the FIU are known as easy-to-reach entities, and they offer their counterparties a high-quality communication and interaction.
The Estonian Regulators’ approach is inspired by a strong spirit of cooperation with businesses and they assist them in their compliance duties.
3. Favourable tax policy
Ranked 14th on the ‘Paying Taxes’ Doing Business’ ranking (the 5th amongst the European countries), Estonia has one of the most competitive tax environment in the continent. Estonian tax burden is very light: the current corporate income tax rate ranges from 14% to 20%. The reinvestment of profits further lightens it: corporate income tax is due only if (and when) dividends are distributed.
The Estonian Income Tax Act does not set any peculiarities about crypto-businesses’ profits. In other words, crypto-businesses pay taxes in the same way ‘traditional’ businesses do.
Finally, VAT does not apply to the transactions with a cryptocurrency. As no specific VAT rules for token have been issued, the same exception applies to them.
Estonia is not exactly valentines and roses
Be aware: there is a downside to starting an Estonia crypto-business. In fact, some issues may arise when it comes to open a bank account.
Banks must abide by the AML/CTF rules and if they see a too high risk in the business carried out by a potential customer, they may lawfully refuse to open an account.
As a general rule, if
- the beneficiary owners of an Estonian company are foreigners; and
- the company has no reasonable connection in Estonia (by ‘reasonable connection’ I mean customers, suppliers or employees)
local banks usually refuse to open a bank account (even if it must be said that the banks’ rules are changing).
Anyway, many foreigner banks and Payment Service Providers welcome crypto-businesses. At the moment, those institutions are the best alternative to Estonian banks, albeit a full KYC process must be done and higher fees are due.
Estonian President Kersti Kaljulaid has argued traditional governments could become obsolete if they do not get onboard with new technologies like blockchain networks, which are redefining contracts, recordkeeping and economics.
Named ‘the most advanced digital society in the world’ by Wired, Estonia has been making strides to actively encourage those “new” technology to interweave with its economy and citizens.
The small Baltic republic actively encourages the creation of a digital economy. Thanks to its fair regulations, at the moment Estonia offers one the most favourable environment to smoothly run a crypto-business.
Disclaimer. Every effort has been made to verify the accuracy of the information contained in this work. All information was believed to be correct as of the time the work has been published but may be incorrect or incomplete at the time of reading. The author does not assume any liability for the information contained herein, its interpretation or for any reliance on it. This article should not be construed as a recommendation, endorsement, opinion or approval of any kind.
This work has been produced for information only and should not be relied on for legal purposes. Legal advice or other professional counselling should always be sought before taking action based on the information provided.