The concept of virtual currencies was first legally regulated only in 2019, which states that a company that opens a crypto exchange or any other activity related to cryptocurrency must get a crypto license for legal work. In addition, according to the legislation, there are many more requirements, without which it is impossible to work with cryptocurrency.
Requirements for a company in the example of Lithuania
Lithuania has an extremely rapid growth in the number of new companies involved in and established crypto-currency activities. Due to the constant development and expansion of the virtual currency market and the emergence of new risk management products, amendments to the law on the Prevention of Money Laundering and Terrorist Financing came into force on November 1, 2022, which tightened the requirements for the operation of virtual currencies:
the authorized capital of at least 125,000 euros;
reputational requirements for members of management or supervisory bodies;
a ban on executives representing more than one crypto company at the same time;
part of the activities of crypto companies will have to be carried out in the Republic of Lithuania;
obligation to identify the client;
and other essential changes.
Sufficiently strict requirements should contribute to better and more transparent development of transactions with virtual currencies in the Lithuanian market. Although it is not yet clear how the amendments to the law will be implemented in practice and how compliance will be ensured, it is likely that responsible institutions such as LTTF, Bank of Lithuania, etc., pay a lot of attention and evaluate compliance with the requirements of legal acts. Therefore, it is good to prepare for the mentioned changes in advance.
In the Law on the Prevention of Money Laundering and Terrorist Financing
The principle of supply and demand determines the value of cryptocurrencies, so the price of cryptocurrencies is extremely volatile and tends to rise or fall rapidly. Accountants and auditors are the first assistants for businesses related to the accounting and taxation of virtual currencies and electronic money. How to account for cryptocurrencies and electronic money? How to reflect all this in the financial statements? How to account for cryptocurrency fluctuations?
Protection
Protecting your business is one of your work's most critical aspects because your exchange's lack of security puts your income in doubt. Your finances, assets, and cryptocurrencies can be stolen, meaning all their benefits will disappear. If the exchange is not secure enough, your funds can be stolen, and all the other benefits it provides will be useless. Keep these points in mind, so you don't put your finances and your clients' assets at risk.
Process security includes the following details:
— Exchange virtual links must start with «HTTPS.» These connections are considered unreliable.
— Deposits must be stored offline by the exchange.
— Joining an exchange must require two-factor authentication.
— The stock exchange audit program must operate 24 hours a day, 7 days a week.
Working in secure mode will always prevent hackers' attacks and ensure profitable activity.
Legal features in working with the exchange
It is advisable to use an exchange in the same country as your bank to facilitate regulatory processes and get the most out of filing a complaint with the court in case of a problem. Exchanges from other countries are also available, but not all platforms support everything, only a limited number of countries. It would be more secure if the exchange insured the deposits, and you are more likely to get your capital back in case of hacker attacks.
Transparency
What information has the exchange released about itself? Does the exchange disclose its owners, headquarters address, and team members?
Transparent exchanges usually disclose their cold storage address or help control their holdings in other ways, such as by providing audit information.
You are recommended to only store your cryptocurrencies on any exchange for as long as is necessary for a particular transaction or deal. Hacker attacks on businesses are growing yearly, so storing your cryptocurrencies in other places is better.
Liquidity
A higher trading volume provides for greater liquidity of the required exchange.
Liquidity makes all transfers much faster and easier, so there is no need to bother with price fluctuations. Also, it's common for people to wonder if an exchange offers «locked-in» prices that guarantee them a fee at the time of the trade, even if settlement isn't immediate. Be careful with the liquidity of different trading pairs; it is prone to change and can vary. For example, it can be high in BTC/USDT and very low in SC/USDT.
Income from individual activities
Suppose a person seeks to obtain an economic benefit from trading cryptocurrencies or to sell mined cryptocurrencies for an uninterrupted period. In that case, such activity may be recognized as a separate activity. When evaluating whether the activity carried out is individual, it is taken into account, among other things, what part of the income is the above benefits.
Taxes
Personal income earned in 2017 is subject to income tax at a rate of at least 5%, but in modern times it can reach up to 20%. Taxable income can be reduced by at least 30% (without documentary evidence of expenses). Or more if it is documented (expenses, for example, the purchase price of a cryptocurrency or the purchase of equipment necessary for mining). Contributions to Sodra are also paid in the course of individual activities. Without going into details, we can give an example of a person who does not participate in additional pension savings at their own expense and deducts 30% of costs from their income. Their «tax burden» on the payment of contributions to state social insurance (SSI) and compulsory health insurance (OSS) is about 13.20% of total income. «Tax burden» may vary depending on the expenses incurred,
Suppose it is established that cryptocurrency trading is carried out and income is received without registering an individual activity (when it is necessary to register it). In that case, not only unpaid taxes must be paid. You will also have to pay the accrued penalties and interest. VMI announced that controlling bitcoin transactions on virtual exchanges has identified several taxpayers who carry out these activities without registering certain activities.
Should the crypto industry disclose information related to sustainability?
So far, activities and services related to crypto assets are not controlled at the EU level, except for specific requirements to prevent money laundering. Unlike traditional participants in the financial market (banks, investment companies), participants in the cryptocurrency market are not required to disclose information to customers and the public regarding the sustainability of operations and products. Representatives of the crypto industry are also not required to include sustainability risks in their overall risk assessment system and product development processes and assess customer sustainability needs, so buyers of crypto assets do not receive information about how sustainable their investments are from an environmental and social point of view.
However, the crypto industry should already start to prepare for the changes – services related to crypto assets are expected to become regulated in 2025 when the Markets for Crypto Assets Regulation (MiCA) is adopted in the European Union. After its adoption, crypto industry representatives must implement the requirements for financial market participants. This summer, the European Central Bank published a review stating that policymakers may require that the risks of the stability of cryptocurrencies be considered in the capital requirements of institutional investors and that these risks be integrated into the overall risk management framework. High-quality promotion of sites in the cryptoindustry team and apply to them for help you can on this site
