Crypto license after MiCA in the Baltic States

Written By Reinis Sietins

In this article we will illustrate the main differences in “crypto regulation” after implementation of MiCA in the Baltic States.

MiCA(1) - The Markets in Crypto-Assets Regulation (MiCA) is a comprehensive piece of legislation that will take effect on December 30, 2024, across all EU Member States. Its primary goal is to establish clear and transparent regulations for crypto-asset service providers (CASPs) within the EU, ensuring the protection of consumers, investors, and other market participants.

While MiCA sets general rules for how CASPs should operate across the EU, it also allows individual Member States to introduce additional provisions. These are implemented through national legislation that incorporates MiCA into their respective legal frameworks.

The AI AML team has analyzed the key differences in national legislation between the three Baltic States - Estonia, Latvia, and Lithuania.

MiCA in the Baltic States - key differences

MiCA in Latvia - crypto license in Latvia

Compared to the other Baltic States, Latvia is the only country that did not have an active “crypto-license” regime before MiCA. As of October 2024, the supervision of approximately 40 Virtual Asset Service Providers (VASPs) in Latvia is handled by the State Revenue Service, and the only legislation specifically regulating VASPs is a few articles from Latvia’s AML Act.

Due to this limited regulation, Latvia has not been a popular destination for companies seeking "crypto-licenses" in recent years. Many of these companies preferred jurisdictions like Estonia, where they could obtain a formal license, or Lithuania, where they could at least receive official recognition of their operations. This gave them something tangible to display on their websites and show to investors. Currently, there are around 40 companies operating as VASPs in Latvia, most of which are local.

However, with MiCA set to take effect on December 30, 2024, the situation in Latvia will change. Existing companies will have a six-month period to comply with the new provisions introduced by MiCA, as the transition period established by national legislation runs until June 30, 2025.

What will set Latvia apart from other Member States, particularly the Baltic States?

  1. 💸 Fees:
    The application fee for a crypto license in Latvia will be set at EUR 2,500, with an annual supervision fee of 0.6% of the gross revenue generated by CASP activities, with a minimum fee of EUR 3,000. (2)

  2. 💼 Tax System:
    From 2026, Estonia will introduce a new 2% corporate income tax (called a "defence tax" but administered like CIT), and Lithuania will continue with a flat 15% corporate income tax. Latvia, however, will remain the only Member State with an effective 0% corporate income tax, as profits are only taxed at a 20% rate when distributed. This system benefits startups by allowing them to reinvest profits into business development without immediate taxation.

  3. 📞 Communication with the Regulator:
    With MiCA’s implementation, the Bank of Latvia will take over as the regulator of CASPs. So far, the Bank of Latvia has issued clear and transparent guidelines on how to apply for a license and outlined the supervision fees, demonstrating their readiness to work with web3 companies (3).

What to expect in Latvia after MiCA?

We believe that the difference in fees, tax system and communication with the regulator will benefit Latvia and it will attract foreign web3 companies to Latvia. With the possibility to passport the license issued in Latvia to other Member States, the companies will target the most beneficial and transparent jurisdictions and we believe that Latvia will become one after the implementation of MiCA.

MiCA in Lithuania - crypto license in Lithuania

As of October 2024, Lithuania is home to well over 600 regulated Virtual Asset Service Providers (VASPs), making it the hotspot for non-resident crypto companies in the EU. After Estonia tightened its regulations on crypto companies, Lithuania seized the opportunity and welcomed many of the businesses that left Estonia. Currently, obtaining a permit to operate as a VASP in Lithuania is relatively straightforward. The requirements include having AML documentation, a local AML officer, EUR 125K in share capital, and a local registered address. VASPs are regulated under Lithuania’s AML Act, with the Financial Crime Investigation Service serving as the regulatory authority.

MiCA in Lithuania

  • 💼 Share Capital:
    Under MiCA, share capital requirements will range from EUR 50K to EUR 150K.

  • ⏳ Transition Period for Existing Companies:
    The transition period for companies already operating is set until June 1, 2025(5). Although it was initially proposed to implement MiCA without any transition period, feedback from market participants led to this extension.

  • 💸 Application and Supervision Fees:
    As of October 2024, application and supervision fees have not yet been published. After MiCA, the regulating body for CASPs will be the Bank of Lithuania(6). Our experts reached out to the Regulator to inquire about supervision fees, but we have not received a response within two weeks. Based on fees for other market participants, licensing fees are expected to range between EUR 5K–15K, with supervision fees tied to gross revenue, likely between EUR 5K–20K.

What to Expect in Lithuania After MiCA

The biggest challenge will be regulating over 600 companies within the 5-month transition period. Although the professionalism of the regulators and service providers in Lithuania is not in question, the sheer number of companies is likely to result in a decline in the total number of CASPs. Despite this, Lithuania continues to offer transparent legislation for CASP companies, along with support from experienced service providers such as law firms, accountants, and banks. A clear legal framework combined with industry expertise makes Lithuania an attractive jurisdiction for establishing a crypto-asset service provider.

MiCA in Estonia. Crypto license in Estonia

Once a hotspot for crypto companies, Estonia has now become one of the most tightly regulated jurisdictions in the EU for Virtual Asset Service Providers (VASPs). In just two years, the number of licensed crypto companies in Estonia dropped from over 1,400 to just 45. This drastic change was driven by strict regulations introduced in Estonia’s AML Act, which as early as 2022 implemented some of the provisions we now see in MiCA, such as own fund requirements, mandatory audits, and significant share capital.

In addition to MiCA requirements, Estonia's AML Act and local regulator, the Financial Intelligence Unit (FIU), imposed even tougher conditions. These included the need for a local AML officer, a physical office that matches the company's size, and a lengthy interview process involving the company’s officers, shareholders, and even investors.

As a result, many companies either voluntarily revoked their licenses and relocated to more favorable jurisdictions or were asked to leave by the FIU. Even in official communication, the head of the FIU stated that he thinks that all licenses should be revoked and the licensing process should start from the scratch(7).

Based on already existing regulations, Estonia has chosen to have the longest possible transition period for the existing companies - until 01.07.2026.

MiCA in Estonia

  • 🔄 Regulator Change:
    The regulator will shift from the Financial Intelligence Unit (FIU) to the Estonian Financial Supervision and Resolution Authority (FSA)(8).

  • 💸 Lower License Fees:
    The state fee for new license applications will be reduced from EUR 10,000 to EUR 3,000.

  • 📊 Supervision Fees:
    As of October 2024, supervision fees for CASPs have not yet been published by the FSA. Our AI AML team requested this information two weeks before publishing this post, and we will update it as soon as we receive a response. Based on the FSA’s fees for other market participants, supervision fees could be 1% of the highest minimum own funds requirement. Currently, the annual supervision fee is 1% of share capital plus 0.035% of the total transaction volume(9).

  • 🧾 Audit Requirement:
    According to the local legislation implementing MiCA (the Markets in Crypto-Assets Act), the audit requirement will apply to all CASPs licensed in Estonia(8).

  • 👥 Board Members:
    CASPs will be required to have two board members, and in some cases, three supervisory board members (if they provide custody and administration of crypto-assets on behalf of clients).

What to Expect in Estonia After MiCA

Estonia has extensive experience in regulating crypto companies and boasts a number of excellent service providers. The country offers several benefits, such as the e-Residency card for easy business administration, a competitive tax system with distributed corporate income tax, and a clear legal framework. However, when compared to other Baltic States, Estonia is expected to have the strictest regulations under MiCA.

As a result, unless companies have existing ties to Estonia, we don't expect many new or neutral businesses to choose Estonia as their base, given that they can likely establish themselves more cheaply and easily in neighboring countries.

Conclusion

While MiCA establishes a unified standard, significant differences remain among Member States regarding the regulation of Crypto Asset Service Providers (CASPs). One thing is clear: a licensing regime is now in place, and there will be no “easy” path to obtaining a license.

We strongly recommend that anyone seeking to acquire a license within the EU consult with regulatory compliance specialists. These experts can provide a comprehensive comparison and detailed explanation of what will be expected from your company during the licensing process.

The total time required to obtain a license can range from 3 to 6 months, depending on various factors. Although the process may appear complex, our AI AML experts are here to assist companies at every step. We can help prepare the necessary internal documents, complete the license applications, and facilitate communication with the regulators.

Reinis Sietins
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