Initial coin offering (ICO) in Lithuania refers to any process through which digital coins are used for the purpose of raising capital for investments in various types of products/services.
In Lithuania, ICOs are divided into 2 main categories: 1) ICOs which do not provide profits or governance rights and 2) ICOs used for generating profits and governance rights.
Based on these 2 main distinctions, different rules of law will apply. Considering the complexity of the legislation regulating cryptocurrencies in this country, you can address to our consultants in company formation in Lithuaniafor professional advice.
What are the characteristics of ICOs in Lithuania?
The characteristics of ICOs are divided based on the 2 categories mentioned above. With regards to the 1st category of ICOs, they are defined by the following:
- they provide the right to use a product or a service;
- they are used as a payment mechanism;
- they are used for charity purposes.
The first characteristic is regulated solely by the Civil Code in Lithuania, while the 2nd and the 3rd fall under the supervision of the Anti-Money Laundry and Counter Terrorist Financing Act.
The 2nd category of ICOs (used for profits/governance) is described by the following:
- they can be identified as securities;
- they can identify with the crowdfunding projects;
- they can be seen as financial instruments.
Other characteristics apply, which can be detailed by our consultants in company registration in Lithuania.
Please mind that the 2nd category is regulated under numerous pieces of legislation, depending on their main characteristics. Those who want to open a company in Lithuania can find out in-depth information regarding this from our specialists.
What is the tax system charged on initial coin offering in Lithuania?
There are few taxes that are charged to ICOs in Lithuania, but the manner in which these taxes are applied varies based on the nature of the ICO.
Thus, one must have a very clear definition on the ICO activity carried out, so that it can be evidenced the main law that is applied and then, the correct tax system.
Basically, ICOs can be charged with the following 3 taxes: 1) the corporate income tax, 2) the personal income tax and 3) the valued added tax.
For those raising capital through ICOs it is important to know that the corporate income tax may not apply as long as the tokens (digital currency) fall under the definition and scope of the Civil Code, Articles 1.101 – 1.108.
Individuals are also charged for the income that they obtain from cryptocurrency activities; the tax applicable in this case is the personal income tax, imposed at a rate of 15%.
The value added tax (VAT) can be imposed based on the category of ICOs used. Currently, the VAT is charged at the following rates: 1) 21% – standard rate, 2) reduced rate of 9% and 3) reduced rate of 5%, according to the State Tax Inspectorate.
The obligation to pay VAT can also arise in the moment when the virtual currency is sold.
In the case in which an employer wants to pay the employees with virtual currency, this can be possible in Lithuania. According to the Article 139(3) of the Labour Code, an employee can only be paid for his or her activity in a company with money.
The law in Lithuania recognizes virtual currencies as money, so companies can pay in cryptocurrency, as long as they conclude all the tax obligations related to employment.
If you want to open a Lithuanian company in this industry, you can always rely on our consultants for advice on the standard company formation procedure, as well as for any documents/licenses that are necessary as per the cryptocurrency regulations.
Thus, we invite you to contact our consultants in company registration in Lithuania for more details.