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Why Estonia Stands Out as a Premier Destination for Crypto Businesses


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In the dynamic and rapidly evolving world of cryptocurrency, choosing the right jurisdiction for your business can be the difference between success and stagnation. Estonia was and remains a country that has positioned itself as a leading hub for crypto companies.


At the time of writing the article, there are nearly 50 crypto companies with a valid operating license in Estonia, whose total turnover reaches one billion euros. All these companies have made significant efforts to align their operations continuously since 2020 to meet strengthened requirements and have undergone at least 3 major follow-up assessments (2020, 2022, 2023) by the regulator.


Considering that the MiCA adoption and implementation process is already in full swing, and the domestic law is getting the final touches to start the MiCA license procedure, it is good to give a summary overview of why Estonia continues to be the best country for a business that needs licensing.


It is also true that many crypto-enthusiasts and businesses may object to this because it is also a well-known fact that many companies moved to Lithuania or Poland in 2022-2023, as these countries had significantly weaker compliance requirements. In other EU countries, especially in the Balkans, it is still possible for crypto companies to operate with a simple registration in the business register.


That is why the coming into force of MiCA is welcome because it will harmonize the requirements across Europe, create an opportunity for passporting the license and crypto-businesses can choose a country for their place of business, which as a whole meets the conditions of business transparency, whose regulator has good practical experience and where it is also possible to find highly qualified workforce to carry out their business activities.


Here’s an in-depth look at why Estonia is an ideal destination for crypto enterprises:


  1. Progressive Regulatory Framework


Estonia’s proactive approach to cryptocurrency regulation sets it apart from many other jurisdictions. Early on, Estonia recognized the potential of blockchain technology and digital currencies, and it established a clear and comprehensive regulatory framework to govern their use.


Clear and Predictable Laws

Estonia provides legal certainty for cryptocurrency businesses by offering well-defined regulations. This predictability is crucial for companies that need a stable legal environment to thrive.


Licensing System

The country has a licensing system for crypto companies, requiring crypto businesses to obtain a proper license instead of acting based on simple registration. This system ensures regulatory oversight while promoting innovation.

 

Clear guidance and official supervision from FIU


We have already covered FIU's reviews of the activities of virtual currency service providers. In summary, at the end of 2023, there were:

  • On average, the turnover per service provider was 404 million euros per year

  • 5 employees on average

  • The main customers are from the United Kingdom, France, Curacao, Marshall Islands, and Estonia


FIU has also published several recommendations for virtual currency service providers, and information sessions are held regularly.

 

 

Sustainability and good cooperation with the regulator


According to the current legal framework, service providers shall regularly (quarterly) provide data on their activities, due diligence measures, services provided, and assets and liabilities.


As of May 6, all 49 virtual currency service providers had submitted data, 39 of them on time.

FIU validates the reports and, if necessary, the service providers will be asked to supplement or clarify the data.

 

Here you can also see another important moment that shows the stability of the business environment. Please note that the number of service providers has not decreased much during the year (53/49), decreasing only by a few companies that gave up their business licenses voluntarily.

 

2. Pioneering E-Residency Program


Estonia’s groundbreaking e-Residency program is a game-changer for global entrepreneurs:

  • Global Access and Flexibility: E-Residency allows entrepreneurs worldwide to establish and manage an EU-based company online, without needing to physically reside in Estonia. This digital identity opens doors to a myriad of Estonian services, including banking, payment processing, and taxation.

  • Streamlined Business Operations: The ease with which one can set up a business entirely online through the e-Residency program significantly lowers barriers to entry, making Estonia an attractive option for crypto entrepreneurs looking for efficiency and flexibility.


3. Advanced Digital Infrastructure


Estonia’s commitment to digital innovation is evident in its infrastructure:

  • Blockchain Integration: Estonia is a pioneer in integrating blockchain technology into its governmental operations, ensuring secure and efficient public services. This forward-thinking approach creates a favorable environment for blockchain and crypto businesses.

  • Comprehensive E-Government Services: The digitization of government services in Estonia means that administrative processes such as company registration and tax reporting are streamlined and user-friendly. This efficiency reduces the bureaucratic burden on businesses.


4. Supportive Business Environment


Estonia’s business-friendly policies and vibrant ecosystem make it an ideal location for startups:

  • Thriving Startup Ecosystem: Estonia boasts a robust startup ecosystem with a strong emphasis on technology and innovation. Numerous incubators, accelerators, and venture capital firms are dedicated to nurturing tech startups, including those in the crypto industry.

  • Favorable Tax System: Estonia offers competitive tax rates and innovative tax policies, such as only taxing corporate profits when they are distributed. This unique approach is particularly advantageous for crypto companies reinvesting profits to fuel growth.


The Estonian Tax Authority has published on its website a comprehensive general guide on how crypto-transactions are taxed and reflected both in the company's accounting and in the declarations submitted by private individuals. 


As many of you already know, that all undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income. It also covers capital gains from the sale of all types of assets, including shares, securities, and immovable property. 

 

The taxation of corporate profits is postponed until the profits are distributed as dividends or deemed to be distributed, such as in the case of transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations, and representation expenses.

 

5. Skilled Workforce and Collaborative Community


A skilled workforce and a supportive community are essential for the success of any tech-driven industry:

  • Highly Educated and Tech-Savvy Population: Estonia has a highly educated population with a strong emphasis on IT education, producing a continuous supply of skilled professionals in blockchain technology and cybersecurity. This talent pool is invaluable for crypto businesses.

  • Vibrant Tech Community: The collaborative spirit among tech professionals and entrepreneurs in Estonia fosters a dynamic and innovative environment. Regular industry events, conferences, and meetups provide opportunities for networking and collaboration, further enhancing the country’s appeal to crypto companies.


One of the most prominent players in this field is the Estonian Web3 Chamber (formerly known as the Estonian Cryptocurrency Association), as they connect Web3 companies and service providers that are Estonian or have interests in Estonia.  As a chamber, Web3 hosts community events, represents the ecosystem’s interest in front of policymakers, and helps our members expand internationally.

 

6. Commitment to Innovation and Security


Estonia’s dedication to fostering innovation and ensuring security makes it a top choice for crypto businesses:

  • Focus on Cybersecurity: Estonia has a global reputation for its robust cybersecurity measures. The country's emphasis on security is particularly important for cryptocurrency businesses, which must safeguard digital assets and sensitive information.

  • Innovation-Friendly Policies: The government’s commitment to supporting new technologies and digital innovation ensures that crypto businesses operating in Estonia have the backing of a forward-thinking and progressive administration.


In conclusion, Estonia’s combination of a progressive regulatory framework, innovative digital infrastructure, supportive business environment, skilled workforce, and commitment to security and innovation makes it a premier destination for cryptocurrency companies. By choosing Estonia, crypto businesses can enjoy a stable, efficient, and forward-thinking environment that is conducive to growth and success.

 

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