How to obtain a cryptocurrency license in Italy

Regulation of the cryptocurrency market is constantly becoming stricter. Nowadays jurisdictions impose high regulatory and risk management requirements on virtual asset service providers.

Despite this, we always manage to find a solution that suits the client. All the time our team provides research of the market and regulations on various markets to find the best jurisdiction. Recently we have made the global overview of the VASP regulation in EEA and ready to share information with our future and existing clients. Today we will look at the features of obtaining a cryptocurrency license in Italy.

Tax Summary:

  1. Personal income tax – from 23 to 43%
  2. Corporate income tax – 27.9% 

What law/s governs VASP activities?

  1.  Decree no. 125 of 2019 
  2. Decree no. 90 of 2017 
  3. Decree No. 141 of 13 August 2010
  4. Decree 13 January 2022

What activities are included in VASP services?

Decree 13 January 2022 (art. 1) applies to two categories of activities regarding virtual assets – VASP and e-wallet providers:

  1. VASPs are defined as providers of services related to the use of digital currency, i.e., individuals and legal entities that provide to third parties, online and on a professional basis, services concerning digital currencies. This includes the use, exchange or custody of digital currencies or their conversion into fiat currencies or other digital representations of value, including those convertible into other digital currencies. It also includes the issuance, offer, transfer and offsetting, or any other service useful for the purchase, trade or brokerage of digital currencies.
  2. Digital wallet service providers: i.e., any natural person or legal person who provides third parties, on a professional basis, including online, with services for the safeguarding of private cryptographic keys on behalf of their clients, to hold, store and transfer virtual currencies.

Who is the VASP regulator?

  1. Ministry of Economy and Finance 
  2. Organismo per gli agenti e mediatori (“OAM“)

What is the procedure for registering a VASP for a local company?

In order to legally provide VASP services in Italy, it is necessary to be registered in a special crypto-registry maintained by the OAM. In order to enter the registry it is necessary (for legal entities, in accordance with the Decree of 13 January 2022, art. 3):

  1. Have a registered company (LLC).
  2. Have a physical address of the company (no minimum capital requirements for registration).
  3. Send an electronic application in a satisfactory form to the OAM stating the following:
    • Name of the company.
    • The legal form of the company.
    • Tax code/VAT number, if assigned.
    • Location of the physical address.
    • Surname, name, place and date of birth, tax number, if assigned, and details of the document identifying the legal representative.
    •  E-mail address for communication between the provider and OAM.
    • Indication of the type of activity performed as a service provider (VASP or e-wallet).
    • Indication of the type of services listed in Annex 2.
    • Appointment of a local AML officer.
    • The means of carrying out the service, indicating the number and address of the physical points of activity, while including any ATMs (automated teller machines) and/or online transactions, indicating the web address through which the service is carried out.
  4. The application shall be accompanied by a copy of the document identifying the person, legal representative, as well as the company’s statutory documents.

Is there any specific authorization required for a VASP from another EU member state to provide services in this jurisdiction?

In accordance with the Decree of 13 January 2022, art. 3 – VASP from another EU Member State may provide its services in Italy only after registration in the OAM register under the general conditions, specifics:

  1. VASP with a registered office in another EU Member State does not need to establish a separate legal entity, it is sufficient to have a branch (permanent establishment in the territory of the Republic).
  2. The application procedure is the same as for a local company described in the previous section.

What is the liability for the activities of a VASP from another EU member state without local registration/authorization in this jurisdiction?

In accordance with article 17 of Decree No. 141/2010 VASPs and e-wallet providers that fail to comply with registration requests or rejected applications by the OAM must cease operations.

Otherwise, they will be considered abusive and may face penalties from 2 500 EUR to 10,329 EUR and/or investigation if they continue to operate without registration.

Manimama Legal & Growth Agency provides a gateway for the companies operating as the virtual asset wallet and exchange providers allowing to enter to the markets legally. We are ready to offer an appropriate support in obtaining a license with lower founding and operating costs. We offer KYC/AML launch, support in risk assessment, legal services, legal opinions, advice on general data protection provisions, contracts and all necessary legal and business tools to start business of virtual asset service provider.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation. 

Italy cryptocurrency regulation

The use of cryptocurrency has seen a significant increase in Italy where more and more users are using virtual currency as a payment option.

Covid-19 pandemics further fostered online payments, as cash payment was seen as a means of potential infection. Despite cryptomarket rising interest and spread of cryptocurrencies in Italy, there are no obvious rules established to regulate the crypto sector.

Thus there is a growing need for governmental intervention and Italy is cautious about the disquieting rise of cryptocurrencies. The article analyzes how the government has chosen regulation over prohibition to set up its own legislative framework.

Attempts to define crypto assets

The government of Italy has been attempting to define cryptocurrencies and related digital assets, although the law has not explicitly established a clear definition.

However, the notion of “virtual currencies” has been clarified for Anti Money Laundering purposes in the article 1 of Legislative Decree no. 90 (2017) (which implemented the Fourth Anti-Money Laundering Directive) as following:

‘digital representation of value, which has not been issued or backed by a central bank or a public authority and which is not necessarily pegged to a legal tender, but which is used as a means of exchange for the purchase of goods or services or for investment purposes, and may be transferred, stored or negotiated electronically.’

Subsequently, further legislative efforts were observed through Article 8 of Law Decree No.135 (2018), which laid down the definition of DLT in the following manner:

‘[DLTs] are defined as ‘technologies based on distributed register’ technologies and computer protocols that use shared, distributed, replicable ledgers, simultaneously accessible and architecturally decentralised on a cryptographic base such as to allow registration, validation, updating and archiving of data both in clear text and further protected by cryptography verifiable by each participant, but which is not alterable and not editable.’

The storage of an IT document through the use of technologies based on distributed registers produces the legal effects of electronic timestamps referred to in Article 41 of Regulation (EU) No. 910/2014. Likewise, paragraph 2 of Article 8 specified smart contract as:

‘a computer program that operates on technologies based on distributed registers and whose execution automatically binds two or more parties and produces effects predefined by the parties prior to execution. Smart contracts are deemed to satisfy the written form requirement provided that users are identified through an identification process that is compliant with the guidelines issued by the Agency for Digital Italy.’

Agency for Digital Italy (AgID) has been entrusted with issuance of a regulation to implement above-mentioned definitions and to determine precise standards that DLTs must accept to bring forth an electronic timestamp and to outline identification system which smart contracts are required to adopt to be subject to provisions of article 8 of the Law Decree No. 135. However AGID has not issued regulations as yet.

Classification by legal precedents

Case by case analysis is required for the crypto asset to be qualified as a financial product and fall under the scope of Consolidated Financial Act (hereinafter:-“CFA”). In light of this, the Court of Cassation issued a decision No. 26807 of 2020, expressly stating that offering of virtual assets can be treated as an offering of financial products under CFA, if it comes with a promise or expectation of financial return.

Italian courts often have contradicting views on the regulation of cryptocurrencies, since they are not legal tender in Italy. Following online bitcoin sales, the Supreme Court has established a ruling which defined bitcoins to be financial products not just a currency, and therefore governed by the CFA. Whereas the Court of Florence held that cryptocurrencies kept in the e-wallet and exchange outfit which later became insolvent as “fungible goods” (Court of Florence, ruling No. 18, 2019). Courts often had contradictory views on the classification of cryptocurrencies, but due to hierarchy of the judicial system, supreme court’s consideration of cryptocurrencies to be a financial instrument, override the presumption to view cryptocurrencies as goods.

Endeavours by CONSOB

Italy’s stock market regulator – Commissione Nazionale per le Società e la Borsa (hereinafter:- “CONSOB”) emphasised that, based on the characteristics, crypto assets may or maynot be categorized as financial products. In fact, payment tokens are not considered to be financial products, while security tokens are; utility tokens or cryptocurrencies represent legal ambiguity as they are offered to public with a promise of monetary return.

As of 2019, CONSOB initiated a public consultation on Initial Coin Offering (ICO), with the aim to draft regulation aimed at regulation crypto-assets that are covered by the scope of financial products as per CFA. Subsequently, CONSOB concluded that the use of DLTs doesn’t define the category of crypto-assets, as it might also be present in other forms of virtual assets that fall under the existing regulatory scope of financial instruments, such as security tokens and commodity tokens. The final report emphasised that issuers of virtual assets which amount to be financial products would be required to publish relevant authorised prospectus and to adopt security measures. No news with regard to regulation of ICO has been announced by the CONSOB yet.

Taxation of сrypto assets

Italian tax authority (Agenzia delle Entrate) has strived to address the crypto assets similar to other traditional assets and to apply appropriate tax regimes:

  • Corporate taxation: profits arising out of cryptocurrency trading are applicable for corporate income tax, thus must be recorded in the company’s financial statements;
  • Personal income tax: profits deriving from non-professional trading of virtual assets deem to be generated similar as forex trading and capital gains taxation (26%) will apply only in cases when profits held in the account is exceeds €51,645.69 worth of cryptocurrency (rates change at the beginning of each year). So, individuals must specify if they hold any cryptocurrency in their e-wallets and provide declaration any money is held in their foreign bank accounts.

Raising concerns

Italy still remains to be the jurisdiction where the cryptocurrency market is unregulated. The Chairman of CONSOB, Paola Savona claimed that unless the firm regulatory standards are established, market transparency could be deteriorating which will have a negative impact on rational choice for market operators. Besides, cryptocurrencies might serve as a tool for criminal activities such as money laundering, terrorist funding, kidnapping, tax evasion and etc.

Moreover, the Italian legislative body should identify if issuing cryptocurrencies and stablecoins can constitute as an issuance of e-money or a payment instrument under banking and electronic money legislation. The regulative stance of utility tokens should also be clarified as they don’t represent payment instruments or financial investment. However, absence of specific compliance requirements do not exclude cryptomarket participants from the purview of anti-money laundering laws.

Need for legislative oversight

It is clear that officials are worried about the boom in the cryptocurrency market which does not yet have clear regulation. Waiting for the EU to adopt region-wide laws slowed down the implementation of regulative measures at the domestic level. Further introduction of policies are still expected from CONSOB and AgID which should establish the regulative certainty and are expected to promote entrepreneurial initiatives within the crypto-economy.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

photo source