Cryptocurrency in Estonia - Doing Business in Estonia
Estonia is renowned for its business-friendly environment with a simple tax system and digital-first approach to government services.
Whether you wish to launch a startup, expand your corporation through a local branch, or work here as a freelancer, Estonia offers excellent opportunities and an efficient digital ecosystem.
Here are a few reasons why Estonia is an ideal place to do business:
- A company can be established in a day through a fast and straightforward registration process.
- The minimum share capital of a private limited liability company is 0.01 euros.
- Almost all reports and applications can be easily submitted online.
- Estonia's tax system is simple, with a 0% corporate income tax on undistributed profits.
- There are very few restrictions to foreign ownership or management and foreign entrepreneurs are treated equally to Estonian citizens.
- As an EU member state, Estonia provides access to the European single market and operates under the EU legal framework.
Estonia is also an excellent base for your business, even if you don't plan to live here. With the e-Residency program, you can easily manage your company remotely from anywhere in the world. For more detailed steps on establishing a company in Estonia, please see here.
The following guide will answer common questions that may arise when conducting business in Estonia. We hope to provide an overview of the most important things to expect or keep in mind. For any specific inquiries, please contact our team of expert lawyers who are ready to assist you with any issues you may have.
Cryptocurrency in Estonia
Key issues related to providing cryptoasset services and its taxation.
Estonia follows the EU MiCA (Markets in Crypto-Assets) Regulation. According to this regulation, a license is required for issuing certain types of tokens and for most cryptoasset-related services such as:
- the custody and administration of cryptoassets on behalf of third parties,
- the operation of a trading platform,
- the exchange of cryptoassets,
- executing orders on behalf of third parties,
- providing cryptoasset-related advice,
- managing cryptoasset portfolios, and so forth.
Licenses are issued by the Financial Supervision Authority. A company that obtains such a license from the FSA can provide cryptoasset services throughout the European Union.
Additional requirements are set by the Estonian Market in Crypto-Assets Act. Most importantly, it mandates that a cryptoasset service provider must have a two-member management board, and a private limited company operating in the cryptoasset market must generally have a supervisory board with at least three members.
For private individuals, income earned from trading cryptocurrencies must be declared. This includes income from converting cryptocurrency to fiat currency, swapping one cryptocurrency for another, and using cryptocurrency to pay for goods or services. Income from cryptocurrency mining is also considered entrepreneurial income for individuals.
Importantly, cryptocurrency is not considered a financial asset or security under the Income Tax Act. Therefore, tax obligations cannot be deferred. Only profitable sales or exchanges can be declared. Transactions resulting in a loss cannot be taken into account for taxation purposes and cannot be declared.
Companies, however, can in essence account for business-related expenses (e.g., equipment, electricity). A company incurs a tax obligation when it pays wages, fringe benefits, dividends, or makes non-business-related expenditures. Thus, losses and gains are not treated the same way as for individuals.
If an employee is paid in cryptocurrency, the employer must calculate the market value of the salary in euros and withhold and pay labor taxes (including income tax) accordingly.
According to the Estonian Tax and Customs Board, mining cryptocurrency for oneself does not qualify as business activity or turnover under the VAT Act. Thus, input VAT deductions related to such mining activities are not allowed.
Services that provide users access to a software application for a fee are subject to VAT under standard rules depending on the recipient of the service. Such platform usage services are not considered financial services and are therefore not VAT-exempt under the VAT Act.
However, the European Court of Justice has determined that transactions involving non-traditional currencies should still be treated as financial transactions if the parties accept these currencies as alternative legal tender. The court ruled that exchanging virtual currency for traditional currency (and vice versa) is exempt from VAT, akin to traditional currency exchange transactions.
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