With a welcoming attitude towards digital assets, Estonia makes running a digital business just as straightforward as it would be in Lithuania, Poland, Malta, or Gibraltar. For this reason, numerous cryptocurrency companies have chosen to register in this jurisdiction.
Operating officially within the country requires a crypto license. This special permit is necessary for the conduct of trading, storing, and exchanging digital assets. Oversight of this licensing falls under the purview of the Estonian Financial Intelligence Unit (FIU).
The application process for the permit is straightforward. The time frame from the submission of documents to the issuance of the license typically spans two months to half a year. Applicants must meet several requirements, which include:
- Experience in the field of digital technologies;
- Clean criminal records for key company executives;
- An established local legal address;
- Verifiable source of the initial capital;
- An Estonian citizen among the founders.
Moreover, there's a minimum threshold for the charter capital: €100,000 for exchange services, and €250,000 for trading and storage services.
Estonia's Classification of Digital Assets
Under Estonia's Income Tax Act, cryptocurrencies are categorized as assets.
These are divided into four categories:
- Virtual coins with their blockchain;
- Security tokens used for project investments;
- Utility tokens offering owners access to a company's products and services;
- NFTs, securing ownership of an asset.
For taxation purposes, there is no distinction among these categories. This classification solely applies to accounting, particularly when determining the asset's price.
Stablecoins (excluding algorithmic ones) do not feature in any guidelines. They aren't recognized as financial assets, and their use for the purchase or sale of goods and services isn't considered supplementary income.
Cryptocurrency Taxation in Estonia: What's the Scale?
The administration of crypto taxation in Estonia is overseen by the Estonian Tax and Customs Department (ETCB).
With its straightforward taxation system for businesses in the IT and financial services sector, Estonia is highly welcoming. These businesses typically incur corporate income tax ranging from 0% to 20%, and this tax is only levied after the payment of all dividends and the deduction of operational expenses. If a company decides not to distribute dividends - retaining all profits in Estonian banks or reinvesting into business growth - it becomes tax-exempt.
It's interesting to note that Estonia-based digital companies are taxed on their global income, whereas non-resident companies are only taxed on income generated within Estonia. (Estonia has agreements with 60 countries to avoid double taxation.)
Companies employing local residents are required to contribute 33% of gross salaries to both the Pension Fund and the Health Insurance Fund.
Individuals are also required to declare their commercial activities. This includes:
- Profit from cryptocurrency trading
- Income from converting cryptocurrency into fiat currency
- Mining earnings, including the provision of cloud mining services
- Revenue from facilitating cryptocurrency swaps.
In such cases, individuals are liable to pay 20% income tax. Additionally, if their annual income from digital transactions exceeds €40,000, they have to pay a Value Added Tax (VAT) of 20%.
For now, Estonian traders have reported no grievances concerning regulatory intervention. There is currently no requirement for cryptocurrency exchanges to report transaction data to tax authorities. But this might change with the full integration of MiCA into the European cryptocurrency market.
Regardless, Estonia continues to draw cryptocurrency startups looking to establish offices and representations.
