Crypto Regulations in Lithuania 2024 - 2025

Starting from August 1, 2024, Lithuania introduced updated crypto regulations in Lithuania in Article 25 of the Law on the Prevention of Money Laundering and Terrorism Financing, affecting operations in the virtual currency sector. These amendments apply to legal entities registered in Lithuania to operate as virtual currency exchange operators or virtual wallet custodians.

The main requirements for these organizations include the following:

• Joint-stock companies (public or private) must have a registered and fully paid-in capital of at least 125,000 euros and maintain this level of permanent capital.
• When forming or increasing capital, funds must be deposited through credit institutions in Lithuania or those in other EU member states with branches in Lithuania.

Legal entities established in Lithuania in other legal forms, as well as branches of legal entities from EU or foreign countries, are required to have a guarantee document from an insurance company or financial institution. The minimum value of this guarantee must be 100,000 euros for each client claim for compensation and 500,000 euros for all claims per year.

According to recent legislative amendments, beginning August 1, 2024, all individuals engaged in virtual currency exchange operations or wallet custodial services must meet a new requirement to maintain permanent capital of at least 125,000 euros. Existing operators have until August 31, 2024, to provide proof of compliance with these new standards.

It is important to note that the law does not specify a strict list of documents to confirm compliance with the requirements. However, relevant documents may include:

• Interim financial reports for the first half of 2024, registered with the VM Registration Center;
• General ledger entries dated June 30, 2024, or later, from the accounting software used;
• Monthly cash inventory reports for June-July 2024;
• A bank statement confirming a cash balance of no less than 125,000 euros as of August 1, 2024.

However, it is emphasized that a mere bank statement or document on capital formation alone is insufficient to prove compliance with Section 6 of Article 25. Thus, companies must carefully assess which documents best reflect their financial standing under the law's requirements.

Starting from September 1, 2024, virtual currency operators who fail to meet the minimum capital requirement of 125,000 euros by August 31, or fail to provide evidence of compliance to the Service, will lose the right to operate in Lithuania.

The Ministry of Finance, together with the Bank of Lithuania, has introduced proposed legislative amendments to impose new operational requirements for crypto-asset service providers and enhance licensing procedures. These proposals aim to align the standards for crypto-asset companies with those for financial institutions and strengthen consumer protection in financial services.

Additionally, the amendments allow longer adaptation periods for crypto-asset companies to meet the requirements under the MiCA and TRF regulations compared to the initially proposed deadlines.

With the introduction of the European MiCA and TRF regulations, Lithuania’s model for overseeing and registering virtual currency exchange operators and custodial wallet operators requires revision. MiCA establishes unified requirements for crypto-asset service providers across the EU, aiming to foster innovation, support financial stability, and protect consumers from potential risks in the crypto-asset sector.

The legislative proposals also suggest exempting certain domestic fund transfers from TRF regulations when used to pay for goods and services, provided that specified conditions are met. This change will allow e-commerce platforms operating in Lithuania to work within a more favorable legal environment, providing convenience and flexibility in domestic payment operations.

The application of MiCA provisions will begin in 2024, and the proposed legislative package includes a transition period until 2025. This transition is intended to allow crypto-asset service providers sufficient time to adapt to the new rules, given their impact on internal processes and overall operational requirements.

By June 2025, virtual currency operators wishing to provide crypto-asset services must submit documentation, data, and other information to the Bank of Lithuania in accordance with MiCA regulation requirements and undergo the operational licensing process. Before this deadline, crypto industry companies may proactively consult supervisory authorities on the new regulations and apply for a license in advance.

The legislative changes aim to create sustainable conditions for the crypto-asset sector, offering greater legal certainty. Companies with sustainable business models will be better prepared for the new regulations, which are designed to support the stable development of the market. The implementation of MiCA and TRF provisions will strengthen the legal framework for crypto-asset service providers, equipping supervisory authorities with the necessary tools and authority to control and manage risks. Under the new amendments, the Bank of Lithuania will be responsible for overseeing crypto service providers, while compliance with anti-money laundering and anti-terrorism financing rules in this sector will be jointly monitored by the Bank of Lithuania and the Financial Crime Investigation Service (FNTT).

The Bank of Lithuania has issued an official letter outlining expectations for crypto service providers and clarifying requirements for e-money tokens (EMTs) and asset-referenced tokens (ARTs) and their issuers. Amid the growing interest of financial participants in providing crypto services, the Bank of Lithuania’s position remains consistent. The principles emphasized by the Bank underscore the need to separate traditional financial services from high-risk crypto-asset operations. The Bank of Lithuania also critically assesses the possibility of combining different financial service models within a single legal entity, citing significant risk differences.

At the same time, financial institutions serving clients in the crypto-asset sector are required to pay special attention to money laundering and terrorism financing risks, especially when dealing with companies that have not yet completed licensing. The Bank of Lithuania has clearly signaled that preparation for licensing under MiCA regulation must be thorough and well-considered. A low level of readiness or lack of preparedness for the licensing process will not be tolerated.

Applicants are therefore advised to approach their license applications with great care, paying close attention to all legislative requirements and formalities, as compliance with these will be a critical factor in the licensing decision.

Currently, the oversight mechanism for virtual currency exchange operators and virtual wallet custodians in Lithuania remains the same. Their activities are still monitored by the Financial Crime Investigation Service (FCIS) under the Ministry of Internal Affairs, in accordance with the provisions of the Law on the Prevention of Money Laundering and Terrorism Financing (AML/CFT Law) and other regulatory acts. This supervisory structure will remain in place until relevant state authorities decide to implement other control mechanisms.

After the Market in Crypto-Assets Regulation (MiCA) comes into effect, virtual currency exchange operators and custodial wallet operators wishing to continue operations in Lithuania will be required to obtain a license from the Bank of Lithuania or another authorized body. These companies will also need to strictly comply with all MiCA requirements.

Until MiCA is officially enforced, the Bank of Lithuania refrains from interpreting its provisions, including issues related to licensing processes, and does not provide consultations for market participants. However, cryptocurrency companies are strongly encouraged to follow updates on the websites of the Bank of Lithuania, the Financial Crime Investigation Service (FCIS), and the Ministry of Finance of the Republic of Lithuania. Any changes in cryptocurrency sector regulations will be promptly and publicly communicated on these platforms.

Under the new requirements, companies operating in the crypto-asset sector must reapply for a license, considering the strict compliance demands set by MiCA to continue their activities in Lithuania.

Until now, the cryptocurrency business in Lithuania has not been heavily regulated, but legislative amendments passed by the Seimas will significantly change this situation. Cryptocurrency companies will now be required to undergo a licensing process, and regulatory requirements for the crypto market will become stricter. Up to a hundred companies may apply for a license; however, experts question how many of these are actually active in meaningful ways.

Linas Kmieliauskas, a cryptocurrency expert, notes that the high number of registered crypto companies raises questions. It remains unclear how many of these companies are genuinely operating in line with Lithuania’s legal interests and how many exist only on paper. Registry enrollment itself does not confirm actual activity but merely indicates that such activity is legally permissible if it aligns with the country’s interests and is lawful.

According to Linas Kmieliauskas, the introduction of mandatory licensing for cryptocurrency companies in Lithuania will likely lead to a significant reduction in market participants, as seen in Estonia after stricter regulations were introduced. He anticipates a similar effect in Lithuania, although the exact scale of reduction remains uncertain.

These measures will help to assess the validity of the Bank of Lithuania’s claims about the existence of shell companies in the crypto sector. It is possible that their number may be even lower than anticipated. For instance, in Estonia, after full implementation of licensing, the number of registered companies dropped to less than fifty, and the actual number of license applications turned out to be much lower than the number of previously registered companies, revealing a discrepancy between official registrations and genuinely active market participants.

The Bank of Lithuania anticipates that around a hundred cryptocurrency exchanges may apply for a license, given the unique structure of the crypto market, where company setups are often minimal and teams are spread across various countries. It’s common for a company to officially have only one employee, as operations are distributed across multiple jurisdictions, and registration in one EU country enables business across the entire Union. This operational model, prevalent among crypto market participants, complicates the assessment of the true scale and structure of their activities.

The Chairman of the Board of the Bank of Lithuania notes that next year an active oversight of all crypto companies in the country is planned, marking an important step in regulating the sector. Such monitoring aims to increase transparency and legal clarity, especially for companies focused on the global market but using European countries as a base for registration and licensing.

Starting next year, the Bank of Lithuania will take on supervisory responsibilities over cryptocurrency companies until the Seimas reaches a final decision on the bill currently under review. This temporary assignment of responsibility to the Bank of Lithuania will provide initial control over crypto companies' activities during the transition period and allow for a quick response to regulatory changes.

What Alternatives to Lithuania Exist in the EU for Launching a Crypto Project?

With the enactment of the Markets in Crypto-Assets (MiCA) Regulation, many companies in the EU are revisiting their strategies, opting for jurisdictions with the most favorable conditions for cryptocurrency businesses. Lithuania has long been a popular location for crypto projects due to its transparent legal system and fast licensing processes. However, with stricter regulations, mandatory licensing, increased capital requirements, and enhanced oversight, companies are seeking alternatives. For 2024-2025, one of the most attractive alternatives to Lithuania is the Czech Republic, where the adaptation period for MiCA extends to 2026. Below is a review of EU countries that could become appealing for launching crypto projects, highlighting their advantages over Lithuania:

1. Czech Republic: Flexibility and Extended Adaptation Period Until 2026

The Czech Republic has emerged as a top alternative to Lithuania, benefiting from an adaptation period extended until 2026 for implementing MiCA. This allows companies to transition to new requirements gradually, avoiding a sudden shift to strict regulations.

• Regulatory Flexibility: Unlike Lithuania, where licensing has strict capital requirements, the Czech Republic offers a more relaxed approach, allowing companies to prepare for regulatory changes at a slower pace.
• Ease of Registration and Adaptation: Although AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) requirements are observed, registration and licensing remain less rigorous than in Lithuania.
• Access to the EU Market: As an EU member, the Czech Republic allows crypto companies to access the EU market, enabling registered companies to operate across Europe with simplified licensing requirements.

2. Estonia: Strict Requirements but a Stable Legal Framework

Estonia, one of the first EU countries to establish a licensing system for crypto companies, is another viable option. Though business conditions are stricter here—with high capital requirements and robust AML/CFT compliance—Estonia remains attractive for its stable legal environment and regulatory transparency.

• Transparency and Predictability: Companies registering in Estonia benefit from well-defined legal standards, which are especially appealing to investors.
• Comprehensive Oversight: Estonia’s licensing system is strict but predictable, drawing companies looking for a reliable, long-term presence in the market.

3. Cyprus: Low Taxes and Simplified Regulation

Cyprus remains appealing to startups and crypto companies thanks to low taxes and more flexible regulatory requirements. Although companies must meet EU standards for licensing, Cyprus offers several key advantages:

• Tax Incentives: The corporate tax rate in Cyprus is 12.5%, which is more favorable than in most European countries.
• Stable Legal Environment: Cyprus’s MiCA implementation process is gradual, allowing crypto companies to adapt without undue pressure.
• EU Market Access: Like the Czech Republic, Cyprus provides its residents access to the EU market, making it easier to conduct business internationally.

4. Portugal: Favorable Tax Environment and Crypto-Friendly Policies

Known for its progressive stance on cryptocurrencies, Portugal currently offers tax benefits that appeal to crypto companies and investors.

• Capital Gains Tax Exemption: Portugal does not impose capital gains tax on crypto assets, making it particularly attractive for private investors and companies.
• Crypto-Friendly Policies: Despite required AML/CFT compliance, there is no sharp increase in regulatory restrictions, allowing businesses to operate in a relatively stable legal environment.
• Future Regulatory Outlook: Portugal’s MiCA transition process promises to be less stringent compared to Lithuania and Estonia, enhancing its attractiveness for the next few years.

5. Germany: Transparency and Access to a Large Market

For larger crypto projects, Germany remains attractive due to its stable legal system and transparent licensing approach. Germany was among the first countries to offer licenses for crypto custodians and has a well-developed oversight framework.

• High Level of Investor Protection: German regulations aim to provide a high level of investor security, which appeals to major companies and institutional investors.
• Strict Licensing Standards: While Germany’s requirements are demanding, it offers stable working conditions, making it attractive for crypto companies planning a long-term EU presence.
• Access to the EU’s Largest Market: As the EU’s largest economy, Germany offers access to a broad customer base and potential partners.

Choosing the right EU jurisdiction to launch a crypto project in 2024-2025 requires evaluating various factors such as MiCA adaptation, tax rates, capital requirements, and regulatory stability. Currently, the Czech Republic provides the most flexible conditions for crypto companies due to its extended adaptation period until 2026, positioning it as a leading alternative to Lithuania.