Between Jurisdictions: Top 7 Countries to Launch Your Crypto Startup

Alisa Tkach

Mind tax and regulations.

Mind tax and regulations.

This article is prepared by Mercuryo’s Junior Legal Counselor, Maria Kornienko.

For the moment, it’s safe to say that the cryptocurrency market is gaining even more traction. And companies are hurrying to fill the niche in the industry. The reality is, opening a crypto-related business doesn’t come easy as entrepreneurs have to consider quite a few things.

The first thing a future crypto business should figure out is its primary jurisdiction. Two factors help evaluate jurisdiction’s sentiment towards digital assets. These factors are the state of cryptocurrency regulations and tax assessment.

Let’s take a look at some of the most attractive jurisdictions for crypto companies.

 

Estonia

Estonia is one of the first jurisdictions in the world to start regulating cryptocurrencies. The country developed its first regulatory framework over three years ago. Also, Estonia is one of the few European Union member states that promotes cryptocurrency regulation.

Firstly, it doesn’t take too long to obtain a license suitable for business purposes. The term for license application consideration is two months. But the regulator can extend it up to 6 months. Secondly, the state fee for obtaining such a license is relatively small and amounts to 3,300 euros.

 

Another critical point is the level of credibility that financial regulators demonstrate towards the activities of crypto companies in the country. Interaction with the regulator also plays a significant role in launching and maintaining a business. Communication with the financial regulator in Estonia is possible in English and Russian.

 

As for taxation, the Organization for Economic Cooperation and Development (OECD), Estonia has one of the most competitive tax policies. Income tax is not applied here. Thus, the funds received from ICOs are not subject to income tax and Bitcoin and altcoins are not subject to VAT.

 

Singapore

Singapore currently provides some of the most favorable conditions for launching a cryptocurrency business. To legally operate in the crypto field in Singapore, you must obtain a license from the Monetary Authority of Singapore, MAS.

 

There are two types of licenses:

  • Standard license for payment institutions (applicable for companies with transactions up to S$3 million)
  • License for large payment institutions (applicable for companies with transactions over S$3 million)

MAS is known for its tolerance towards blockchain startups. It allows carrying out crypto-related activities without obtaining a license within the framework of the FinTech Regulatory Sandbox.

Crypto Countries #1

Obtaining a license takes, on average, up to six months. Usually, this process can be delayed due to the lengthy procedure for appointing an AML officer. An employee responsible for monitoring and complying with the anti-money laundering and terrorist financing policy.

 

Cryptocurrency in Singapore is considered a commodity, while settlements in crypto are claimed to be a barter trade. Thus, unlike Estonia, where transactions with cryptocurrency are not taxed, a crypto company in Singapore will pay a goods and services tax, which is 7%.

 

Switzerland

Switzerland has always been the world’s financial center. So it is no wonder that the country is considered one of the most advanced jurisdictions in the field of cryptocurrency. This applies to the canton of Zug, also known as the Crypto Valley.

 

Cryptocurrency and exchanging digital assets are legal in Switzerland, but only after obtaining a license (the so-called fintech license) and complying with anti-money laundering measures. In contrast to Estonia and Singapore, in Switzerland, getting the license takes longer, from 4 to 6 months.

 

At the same time, the financial regulator offers a “sandbox” alternative that does not require a license. This way, cryptocurrency companies can test their products and business models without going through a regulatory process. Therefore, the financial regulator shows tolerance, encouraging the launch of crypto companies in Switzerland.

 

Although individuals are exempt from crypto transactions’ tax, legal entities that have profited from digital asset operations are taxed according to Swiss law.

 

Germany

Germany can serve as an example for the European Union counties in terms of cryptocurrency regulation. Companies must obtain appropriate permission from the Federal Financial Supervisory Authority (BaFin) to work with crypto.

 

Marketplaces must pay corporate income tax on the purchase and sale of cryptocurrency as if it was a commodity. Germany has rather strict regulation in AML/KYC policy that hinders the development of crypto business in the country.

 

The United Kingdom

The United Kingdom is one of the major countries supporting digital innovations. The country is often seen as an ideal location for blockchain startups.

 

Companies do not need to obtain a license to operate in the country’s crypto field. Business owners need to register with the FCA, the national regulatory body. Registration requires to prove that the company complies with all its requirements for combating money laundering and terrorist financing.

 

In addition, to register with the FCA, a business will need to provide a package of documents. , a business plan, risk assessment, AML / KYC policy. Based on the final review of the submitted papers, the FCA will make a decision.

Crypto Countries #2

Also, following the latest update of the FCA Handbook, to register as a company eligible to operate in the crypto business field, one of the following fees must be paid. £ 2,000 for businesses with up to £ 250,000 in crypto-asset income. Or £ 10,000 for businesses with over £ 250,000 in crypto-asset income

 

After registration, the company must pay an annual fee depending on the income it receives. As for the taxes, profits generated from cryptocurrency operations are subject to VAT.

 

Canada

Canada classifies crypto platforms as companies offering monetary services. As in the UK, a company must be registered with the Financial Transaction Analysis and Reporting Center of Canada (FINTRAC) as an MSB to carry out these activities.

 

FINTRAC does not charge registration fees. The registration is valid for two years, but it can be renewed. FINTRAC will send a renewal reminder a few weeks before the end of the registration period.

 

Individuals selling cryptocurrencies must report the income they receive from this activity in their tax returns. Such income is subject to federal and territorial income taxes.

 

Malta

Despite being a well-known cryptocurrency jurisdiction, Malta, aka the Blockchain Island, is last on our list. Until 2018, one could confidently call it one of the most relevant jurisdictions for crypto companies. After tightening the rules, the financial regulator of Malta issues a few licenses at the moment.

 

Crypto business licenses are divided into four classes. It depends on the intended activity, and all of them are expensive.

 

The cheapest one is the class 1 license that costs €3,000 plus a progressive annual commission. The license gives the possibility to provide consulting services in the crypto field. The most expensive one is the class 4 license, which gives the right to carry out transactions with digital currencies.

 

However, the country boasts a rather attractive tax regime. For example, the income tax is only 5%. Malta used to be one of the most attractive crypto jurisdictions. Crypto businesses will have a hard time launching in the area.

 

The Bottom Line

A rising number of countries are keen on developing digital-asset businesses within their borders.

Crypto Countries #3

And the regulation of crypto companies does not have to be tough. Based on examples of the seven countries, the free but regulated cryptocurrency turnover does not harm the global financial system. On the contrary, it helps with economic development.

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