Current State of Crypto Adoption in Liechtenstein
Liechtenstein has embraced cryptocurrencies as official payment methods for a range of government services.
This means that Liechtenstein citizens can now use digital currencies like Ethereum (ETH), Bitcoin (BTC), and Elrond (EGLD) to pay for commercial licenses, trademark registrations, and extracts from official registers.
This initiative, developed in collaboration with the blockchain company MultiversX, aims to modernize public administration and offer a more efficient and transparent payment experience for citizens.
Liechtenstein's embrace of cryptocurrencies sets an inspiring example for other countries and regions considering similar integrations. It demonstrates the growing recognition of the transformative potential of blockchain technology in enhancing government service delivery.
Crypto Law In Liechtenstein
In 2020, Liechtenstein introduced the Blockchain Act, also known as the Act on Tokens and Entities Providing Services Based on Trusted Technologies (TVTG). This law established a detailed regulatory framework for the crypto industry in Liechtenstein.
The TVTG defines "tokens" as digital information that represents rights, such as ownership or membership. It also defines "Trustworthy Technology" (TT) as the technology that ensures the integrity and transfer of tokens.
The law requires all companies that provide TT services, such as issuing tokens, holding tokens, or operating crypto exchanges, to register with the Financial Market Authority (FMA) of Liechtenstein.
The Liechtenstein Blockchain Act, also known as the Token and Trustworthy Technology Service Provider Act (TVTG), is a law that regulates blockchain systems and crypto companies in Liechtenstein
The law aims to protect investors and prevent money laundering.
Token issuers in Liechtenstein must register with the FMA if they plan to issue more than 5 million Swiss francs worth of tokens per year. The FMA reviews each registration application and can grant or deny licenses based on the company's compliance with the law.
The main laws are:
- The Due Diligence Act (DDA) and Due Diligence Ordinance (DDO) - These set anti-money laundering (AML) requirements for various "token and trusted technology (TT) service providers", such as token issuers, exchanges, custodians, lenders, and staking providers.
- The Token and TT Service Provider Act (TVTG) - This establishes a regulatory framework for the token economy. It defines different types of TT service providers and requires them to register with the Financial Market Authority (FMA) before providing services.
Cryptocurrency Taxes In Liechtenstein
Liechtenstein has clear rules for taxing cryptocurrency income and transactions.
Table of key tax rates in Liechtenstein
| Type of tax | Tax Rate |
| Income tax for individuals | Progressive up to 24% |
| Corporate tax | 12.5% |
| Capital gains tax | Depending on the circumstances, exemption may apply |
| VAT | 7.7% (Standard rate) |
Individuals who earn money from cryptocurrencies, such as through selling, mining, or staking, must declare that income on their tax returns. Gains from selling cryptocurrencies above the original purchase price are subject to capital gains tax.
Income Tax: Individuals pay progressive income tax up to 24%.
Capital Gains Tax: This tax applies to profits made from selling crypto above the purchase price. The exact rate depends on individual circumstances, but exemptions may exist.
Corporate Tax: Businesses pay a flat rate of 12.5% corporate tax.
VAT: Liechtenstein generally doesn't impose VAT on crypto transactions, making it attractive for crypto businesses. However, some services related to crypto might be subject to VAT under regular rules.
Liechtenstein has a corporate tax rate of 12.5% that applies to cryptocurrency businesses. The country also generally does not charge VAT (sales tax) on cryptocurrency deals, making it a crypto-friendly environment.
Table of key tax rates in Liechtenstein
| Type of tax | Tax Rate |
| Corporate Income Tax | 12.5% |
| VAT | 8% |
| Withholding Tax | 0% |
| Social Security Contributions | 7.4% plus occupational pension scheme |
Liechtenstein has signed agreements with other countries to automatically exchange tax information, including on cryptocurrency holdings and transactions. This means cryptocurrency investors and businesses need to properly report their activities to avoid any tax issues.
How to Obtain a Cryptocurrency License in Liechtenstein
To obtain a cryptocurrency license in Liechtenstein, there are several key steps to follow:
Firstly, you need to establish a local company in Liechtenstein that complies with the crypto-specific requirements.
This includes setting up a Limited Liability Company (GmbH) or a Joint-Stock-Company (AG), which must have at least two shareholders, who can be foreigners. The company must have a registered office and a physical presence in Liechtenstein, and it must employ local staff.
Next, the company must fulfill a list of legal requirements to be registered as a provider of "Trusted Technology" (TT) services, which includes crypto-related activities.
This includes having the necessary starting capital, which varies depending on the type of services the company plans to offer. For example, token issuers must have between 50,000 and 250,000 CHF, while TT exchange service providers must have between 30,000 and 100,000 CHF.
| Period for consideration | 3 Months | Annual fee for supervision | 12.5% |
| State fee for application | 1,500 € | Local staff member | 8% |
| Required Share Capital | 30,000 € | Physical office | 0% |
| Corporate Income Tax | 12.5% | Accounting unit | 7.4% plus occupational pension scheme |
The company must also appoint a compliance officer and establish a dedicated compliance department. Additionally, the directors of the company must have relevant work experience and reside in Liechtenstein.
Once the company is established and the requirements are met, the company can apply for a crypto license from the Financial Market Authority (FMA) of Liechtenstein.
The FMA will review the application and determine if a license is required or if the business model can be operated under a different set of regulations.
The application process can take up to 3 months, and the application fee is 1,500 CHF (approximately 1,500 EUR) for the first license, and 700 CHF (approximately 700 EUR) for each additional license.
If the application is approved, the company must also pay an annual supervision fee, which can range from 500 EUR upwards.
Government Regulation and Policies
The country has introduced the Token and Trusted Technology Service Providers Act, which allows companies like Sygnum to obtain a crypto license and offer regulated digital asset services.
This license is an important milestone for Sygnum, as it paves the way for the company to expand its operations into the European Union.
With this license, Sygnum can now apply for a Crypto-Asset Service Provider (CASP) license under the EU's Markets in Crypto-Assets Regulation (MiCA) once Liechtenstein adopts the regulation, which is planned for the first quarter of 2025.
The registration as CASP in Liechtenstein paves the way for a significant expansion of our regulated footprint into the EU, the world’s largest trading bloc,
Martin Burgherr, Sygnum's chief client's officer.
The MiCA regulation is a set of rules that specifically target the cryptocurrency industry. It allows companies licensed in one EU member state to operate across all 27 member states, as well as in countries that are part of the European Economic Area, such as Liechtenstein.
This means that once Sygnum obtains the CASP license, it will be able to expand its digital asset services throughout the EU.
Crypto Travel Rule Regulations in Liechtenstein
In 2021, Liechtenstein updated its laws to include the FATF's crypto Travel Rule. This requires cryptocurrency businesses, called Virtual Asset Service Providers (VASPs), to share customer information when transferring crypto assets.
The Travel Rule is already in effect in Liechtenstein. However, there is a grace period for VASPs to comply. For transfers with VASPs in the EU/EEA or equivalent countries, the grace period ends on April 1, 2022. For other jurisdictions, it ends on December 31, 2021.
The minimum threshold for the Travel Rule in Liechtenstein is 1 Swiss franc. VASPs must share the customer's name, wallet address, and one other piece of information like their physical address or ID number.
The Travel Rule requirements are the same for domestic and cross-border transfers in Liechtenstein. It does not apply to transfers between VASPs and non-custodial (self-hosted) wallets, but VASPs must still do extra due diligence in those cases.
Challenges to Crypto Adoption in Liechtenstein
While Liechtenstein has made significant strides in creating a crypto-friendly environment, there are still some challenges to widespread crypto adoption:
Regulatory Uncertainty
Despite the progressive Blockchain Act, ongoing regulatory changes, especially the upcoming Markets in Crypto-Assets (MiCA) regulation, can create uncertainty for businesses and investors.
Market Volatility
The inherent volatility of cryptocurrencies can deter potential adopters who are wary of the risks associated with price fluctuations.
Technological Barriers
Not all businesses and individuals have the necessary technological infrastructure or knowledge to use cryptocurrencies effectively.
Scalability Issues
As the number of transactions increases, the scalability of blockchain networks can become a concern, potentially leading to higher fees and slower transaction times.
Public Awareness
There is still a need for greater public education about the benefits and risks of cryptocurrencies to build trust and understanding among the general population.
Potential Benefits of Crypto Adoption in Liechtenstein
The potential benefits of crypto adoption in Liechtenstein are significant, given its progressive regulatory framework and innovative approach to blockchain technology:
Enhanced Financial Services
The Blockchain Act provides a clear and comprehensive framework for crypto businesses, fostering innovation and attracting investment in financial services. For example, a startup could create a platform enabling seamless cross-border payments in seconds, bypassing traditional banking delays.
Tokenization of Assets
Liechtenstein's legal framework allows for the tokenization of real estate, art, and corporate shares, making transactions more efficient and transparent.
A local art gallery that tokenizes its art collection. Art enthusiasts worldwide can own a fraction of a masterpiece, and transactions are recorded on the blockchain, ensuring authenticity and transparency.
Economic Growth
The crypto-friendly environment attracts blockchain companies and entrepreneurs, contributing to job creation and economic development. Think of a blockchain company that sets up its headquarters in Liechtenstein, hiring local talent and collaborating with local universities on research projects. This creates jobs and fosters a tech-savvy workforce.
Global Recognition
Liechtenstein's pioneering regulations have positioned it as a leader in the token economy, gaining global attention and establishing the country as a secure and innovative hub for blockchain businesses.
For example, a scenario where international blockchain conferences are held in Liechtenstein, drawing experts and investors from around the world, further boosting the country's profile and economy.
Conclusion
Liechtenstein, a small European country, has become a leader in making cryptocurrency legal and easy to use.
By creating clear rules through its Blockchain Act and allowing crypto payments for government services, it has shown other countries how to balance innovation with safety in the crypto space.
While some challenges exist, Liechtenstein's welcoming approach to cryptocurrency continues to attract blockchain businesses.
