MiCA to Require EUR 150 000 Share Capital for EU-based Virtual Currency exchanges as early as 2024

The European Council has approved the Markets in Crypto Assets Regulation (MiCA) on October 5, 2022. A unified framework controlling the crypto business in the European Union will be established once MiCA law enters into force in the middle to end of 2024.

MiCA is anticipated to improve the current regulatory framework for crypto assets in European financial law affairs. It will be examined in the provided information how MiCA would impact the crypto industry in the European Union.

One of the goals of the upcoming regulation is to provide legal certainty concerning crypto assets on the EU financial markets. ALT Accounting has seen in Estonia that many local auditors did not want to sign up on working with regulated crypto exchanges, which narrowed the market participants axing more than 70% out of the country. We see currently that many financial institutions (especially classic banks) do not accept crypto-related businesses nor do customers who execute related transactions to and from such businesses. Therefore, one may ask - why has it been this way? And the answer is clear, there was no clear understanding of how to treat Virtual currency, its different transaction characteristics, and various business plans that often were coexisting on the same path as if they were a regulated investment broker, SME lender, Consumer Credit facility, Payment gateway, Voucher provider, etc. So now MiCA should finally regulate these markets and allow certified/licensed/regulated finance professionals to join the crypto industry.

The main impact of MiCA will arrive in cases where e.g. a Virtual currency exchange provider from a third country is marketing its services in the EU, such VCEP will need to apply for a license and comply with the share capital requirements equivalent to EUR 150 000, for Virtual currency wallet operators the minimum requirement is set to EUR 125 000, and while the Portfolio Management and crypto asset advice service providers to a minimum of EUR 50 000.

MiCA does not discuss the AML/KYC topic, therefore the exchanges will still need to comply with the KYC/AML requirements of the jurisdiction where it is incorporated and licensed/authorized. However, there are two EU regulations at the moment which focus on the AML framework. On the one hand, it is the Transfer of Funds Regulation (TFR) that will need to comply with FATF “Travel Rules”. And on the other hand, EU Anti-Money Laundering Regulation which covers Crypto-Asset Service Providers and will have some special requirements for the crypto industry where blockchain analytics and crypto screening tools will be an essential part of the AML regime of each licensed virtual currency exchange, wallet operator or portfolio manager.

Key Takeaways from MiCA impact and the Country comparison

In today's regulatory environment thus we can see that Estonia has been at a far front of over-regulating the market participants, while most other countries are lagging behind to yet decide whether to take any action on strengthening their legislation and have remained with minimum share capital at anywhere from EUR 1-3000. However, Lithuania was the most recent one that made the changes in November 2022, and required the companies to increase their share capital to EUR 125 000, that so far has been in line and well-prepared action to the upcoming MiCA provisions. We see that such action may attract more quality "players" to the field and for them, we are ready to serve.

Considering that MiCA will likely pressure more of the Crypto related businesses into audit requirements, ALT Accounting has been proactive to bring up the latest solution with API connect to read and fulfill accounting balance in real-time. This allows our clients to scale at low cost, be easily auditable, and be tech advanced. Should you be interested in what we do, do not hesitate to reach out at office@alt-accounting.com

ESI Code and its use, Registry extract in Lithuania

An electronic certified extract (ESI) issued by the Register of Legal Entities is an extract of relevant company data. ESI is valid until the data, information, or documents are changed in the Register of Legal Entities (e.g. after registration of a new manual, statutes, director, or change of other registered data and information, registration of new or changed documents). It is often requested by the local authorities to instead of Registry extract PDF, you may be asked to present an ESI code - a string of numbers that can be checked, if valid via link here.

A legal entity, branch, or representative office wishing to obtain a new ESI (access key) must submit an application in the prescribed form for the issuance of an electronic certified extract from the register. The application can be submitted in person and or by post to any customer service unit of the Register Center or electronically through the customer service system of the Register Center.

To order the service electronically, the head of the legal entity or his / her authorized person must log in to the customer self-service system, and submit orders online.

If a legal entity, branch, or representative office uses an ESI (access key), we recommend ordering it when applying for registration of changes in data and/or documents. In this case, the ESI will be formed by registering the changed data and/or documents.

Important: company contact detail in the Register of Legal Entities must be up to date. Every newly ordered ESI will be sent to the company email and mobile phone which are submitted to the Register of Legal Entities. New ESI will be sent to the mobile phone, only if the number is in Lithuanian (+370….).

The ESI includes the data about any authorizations, and it is one of the official documents to prove that the company is eligible to provide virtual currency exchange operator activities in accordance with Lithuanian legislation. It also is considered with similar power to other country equivalents to Certificate of Good Standing, Certificate of Incumbency, Certificate of Incorporation, List of Directors; and in a case where there is sole shareholder it also keeps the data of shareholder list - all in one extract.

ALT Corporate can assist to order ESI, firstly, we should be registered on behalf of the company as one of the representatives and it requires the Power of Attorney process. Please refer to the pricing

One ESI code usually is delivered within a few hours, during the working office hours, however, can take up to 2 business days according to the Register Center.

Applying for VAT in Lithuania and for a financial institution or virtual currency exchange

Most financial institutions in Lithuania do not have a VAT number. So what should you do? Follow their example or take your own approach?

Why do companies apply for VAT, especially in the EU? Historically, it has been a tool to return the value-added tax within the same country if you have purchased any goods or services for the need to conduct your own business activity. Ever since the EU took its economic agenda to ease up and generate a great deal of trade between the members in the union and thus avoid double taxation, that also included an agreement clause for the VAT. When a VAT registered EU member sells or buys any goods or services from another VAT Registered EU member, then the active VAT is 0% (with certain provisions and exclusions). Hence, considering that the financial institution, with a target market in the EU, will also have significant costs in the same region, especially for marketing, maintenance, various supporting activities, etc. thus to save on such costs of 21% is a great deal and thus an argument why to apply for VAT.

However, most financial institutions do not. And it is for the following reason. VAT is intended for the local market, and why the VMI (Lithuanian tax authority) put their attention to the requirements to fulfill:

1. Local list of customers and business partners that the company regularly transacts with;

2. Local employees that are paid the social tax;

3. Local office in the address that is not used by other companies (as a virtual office);

4. The company exceeds EUR 45k revenue per 12 months basis;

And then, should you have the VAT, that would mean that the European private and corporate customer(s) who don't have a VAT registered in the EU, for any legal services provided (e.g. account opening) by the financial institution would be charged their fees + 21% (standard VAT rate).

Therefore, the decision is always on the company and it all depends on the individual cases, but mostly it is better to remain without the VAT registration. For more information, be sure to connect with ALT Accounting team.