On March 10th, 2020, the new AML rules came into force in Estonia. Companies that already hold an Estonian crypto license or financial institution license will have to comply with the new regulation latest by 1st of July 2020. This means modifying and submitting all existing and new supportive documentation to the authorities.
Failure to do so will result in the revocation of the crypto licenses. If the license has already been revoked then the company must submit a new application and documentation and pay the state fee again. To help you prevent from this to happen we have prepared a step-by-step guide for obtaining the Estonian crypto license 2020.
The main requirements for a crypto license in 2020 are
- Share capital minimum of 12 000€;
- Physical presence in Estonia including office space and management board members;
- Non-criminal records extract for all participants in the company;
- CVs and education info for all participants in the company;
- Bank account/Fintech bank account in an EEA country.
STEP 1 – Recruiting suitable personnel (management board member and AML officer)
Management board member
For obtaining the crypto license in 2020 the physical presence is required for all the management board members. Physical presence means that all the management board members must reside in Estonia. Only non-active members are not required to stay in Estonia.
There are several options for setting up a local board in Estonia. One possible option is obtaining the Estonian work visa and locate some of your team to Estonia. The work visa is not required if the team is already EU-based. But if the management board members are not able to move to Estonia, then it is necessary to appoint an Estonian resident (does not have to be a citizen) to be on the management board to represent the company in Estonia.
Management board members don’t have to stay in Estonia all the time, so they can travel around, but they need to have Estonian address and they have to be reachable for the Financial Intelligence Unit (FIU).
Currently, it is difficult to tell how the FIU will check this requirement, it’s likely they might make surprise visits to the local office here, but not the home of the board member. Utility bills may be asked as well.
Salary expectations for management board members depend on the expected amount of work to be done. The employer also has to take into account salary taxes, which means the total employment fund has to be bigger than just the salary.
You can click here to calculate Estonian salary taxes.
The AML officer is responsible for all reporting and communication with the Estonian FIU, as well as overseeing the company AML procedures. It has to be a physical person. This person is usually part of the company operations. Only a person who possesses the education, professional aptitude, required abilities, personal qualities and experience and impeccable reputation may be designated as an AML officer.
We have written a short article on what to avoid when you’re choosing your AML officer and a member of the management board. Make sure to check the TAX RISK WARNING article for hiring a board member and AML officer by outsourcing.
The appointment of the AML officer shall be coordinated with the FIU. AML officer can also be a management board member, but it’s not the best setup due to conflict of interest.
The compliance officer has to have preferably higher education in either finance, economics or law. The compliance officer is required to reside in Estonia, but it doesn’t have to be an Estonian citizen.
The FIU is sending out all the documents in Estonian so those need to be translated for foreign persons to understand.
The hiring process of the right people can take a month or so, as it also depends on how long it takes to interview and review the suitable candidates. It is possible for us to present suitable candidates for AML position within one week.
STEP 2 – Obtaining the non-criminal records extract and background info for all participants of the company
Non-criminal records extract
This step is also necessary for current cryptocurrency license holders since passport copies and non-criminal records from all countries of citizenship must be submitted. It is only required when you hold more than one citizenship/passport.
A non-criminal records extract needs to be obtained from the local police/institution. Apostilled and scanned documents have to be sent to Estonia. Previously, only original documents were accepted, but now it can be done via email.
In situations where it is not possible to obtain a countrywide statement of the absence of criminal records (like it is with the US citizens), it will be possible to submit a statement under oath made at the notary in Estonia claiming that member of the board is absent of criminal offences.
University diploma and CV
All the management board members and compliance officer have to submit their graduation certificates and CV-s. Not having a university diploma has never been a problem before, so if it is impossible to provide a proper diploma, then the FIU may accept high school diplomas as well. It is also acceptable if the diploma is in English or any other language.
Without the university diploma, it is good to have a supporting CV showing relevant industry experience.
STEP 3 – Establishing the company
To establish a company in Estonia it is possible to either apply for an e-residency and do it yourself remotely or establish the company via notary.
If the founders do not hold an ID or e-Residency card then a visit to the notary in Estonia is needed to verify the foundation documents.
To skip travelling to Estonia, it is possible to arrange the Estonian company formation remotely, based on a Power of Attorney (PoA). The only thing you are required to do is to obtain a legalised or apostilled certification for that proxy and send it to Estonia by courier.
Company formation via e-residency card
To do the company formation online then all the founders/management board members need to have an e-residency card. The application is 100€ per card. The application can be done here https://e-resident.gov.ee/become-an-e-resident/. Generally, it takes 4-6 weeks to get the card but due to the current situation, it might take longer.
E-Residency cards are valid for 5 years. E-residency card has to be picked up in person, as they will take your fingerprints as well, i.e it can’t be done by us nor by anyone else besides you.
If you are unable to collect the e-Residency kit from the Estonian Embassy or other pickup location specified in your application within the usual 6-month period, then you can directly contact the Embassy or pickup location to request to extend this period.
The state fee for registering an Estonian limited liability company through the e-Business Registry is 190€. Company formation takes 1-5 business days.
Registration via notary public
Company registration in notary via the power of attorneys (PoA-s) can be done within 2 to 3 weeks, depending on how quickly the documents can be certified in your country and sent to Estonia.
The passport copies and PoA-s need to be signed, apostilled and sent to Estonia via courier.
Legal address and a contact person service
To establish an Estonian company, you also need to have a legal address and a contact person. Legal address in Estonia is a requirement for all companies registered in Estonia, but there won’t be any actual business operations on that address.
Contact person is mandatory for all Estonian companies managed by non-residents. The contact person should be a licensed entity to provide that kind of service. This requirement was introduced a couple of years ago due to a high number of e-Residency companies.
STEP 4 – Opening an IBAN bank account in EU
After the company is established you have to open a bank account. It does not have to be a bank account in a conventional bank, it can also be an IBAN account opened in European fintech to comply with the requirements.
For example, account opening in fintechs like Transferwise and Revolut is often a lot easier and quicker compared to conventional banks, which require in-person identification.
For crypto-related companies banking is the most complicated part of the whole process. We’ve built a service called BankApply (https://bankapply.eu/), where you can find about 20 crypto-friendly banks and fintechs.
It should be remembered that initially, the client would need an administrative account to fulfil the authorization requirements and later open an operational bank account for client deposits as this operation is more time consuming and has fewer options.
The company needs to provide information about company bank account inc. bank name and IBAN code in the European Economic Area.
STEP 5 – Finding the office space in Estonia
To successfully obtain the crypto license in 2020 or renew your license as an existing license holder, you have to set up your office in Estonia. It no longer suffices to just have a registration address in Estonia.
The monthly fees for office space in Estonia are reasonable, and you can find a space for a few hundred euros per month. However, if you’re willing to pay a bit more, around 500€ per month, your choices will get a lot better as well.
Just to be clear, the company’s legal address and office space are different things. The legal address is the place where your company is registered. Your mail will be received and forwarded from this address, but there won’t be any actual operations of your business on that address.
One of the new requirements for current license holders is that the share capital of the company must be increased from 2500€ to a minimum of 12 000€. It needs to be done by monetary payment to an active company bank account in EEA. This also includes the update of the Articles of Association and registry information.
The shareholder has to transfer the required capital from the personal bank account to the company’s bank account with description/reference “Share capital contribution”. Also, the company needs to update the Articles of Association and prepare the shareholder’s decision to register the payment in the e-Business registry and upload the proof of payment.
Increasing the share capital does not mean that the company needs to issue new shares.
STEP 7 – Drafting/updating the AML rules of procedure
All applicants need to submit the AML rules of procedure as part of the documentation. Existing license holders need to update their current documentation to comply with the new regulation.
The AML rules of procedure are generally prepared by the service provider who is helping you to obtain the license.
This will be the base document for the company to build and implement compliant KYC processes.
STEP 8 – Submitting the application
Once all the crypto license documentation is put together, and other requirements are fulfilled, it’s time to submit the application.
Generally, you’ll need to give a power of attorney to the company which helps you to obtain the license, and they will do it for you. As there’s a learning curve to an understanding of how to use the Economic Activities portal, it’s the easiest way.
However, it is possible to submit the application by yourself as well if you have the e-residency card, or by the local management board member, you have hired.
For submitting the application, it is necessary to sign in to Register of Economic Activities and submit all the necessary documentation and required information to the application and submit it.
As FIU accepts only digital documents from March 10, then the documents need to be scanned in and uploaded to the portal.
The state fee for obtaining the crypto license in 2020 is 3300€, and there is now only one license for virtual currency service providers that covers providing both exchange and wallet service.
STEP 9 – Communication with the FIU during the processing of the application
The processing time of the application is 60 days, and the FIU may extend the time to 120 days with a reasoned decision. During that time, there might be requirements for providing more information or supplement your documentation
Crypto license 2020 – Conclusion
Any licensing process is usually demanding and time-consuming. The Estonian crypto licenses were one of the easiest financial licenses any company could obtain. The simplicity attracted many crypto companies to obtain licensing from Estonia.
On the one hand, it has been a positive thing as it has brought many businesses to Estonia. On the other hand, any license exists for a reason – if it’s too easy to get licensed, it doesn’t really validate the legitimacy of the license holder, and in the end, the consumers are the ones who pay the price by believing that the license holder is properly supervised by the authorities.
We do think that the new requirements are still relatively simple to comply with, and moreover, they will increase the value of the Estonian license as well.
Comistar has helped to license some of the biggest exchanges like Bibox and Kucoin, as well as many other companies. If you’re interested in obtaining the crypto license, please get in touch with us via our contact page or write directly to [email protected].