Andorra’s Digital Assets Law: Paving the Way for Technological Innovation
Andorra, a small principality nestled in the heart of the Pyrenees Mountains, has emerged as an attractive destination for businesses looking to establish a foothold in the world of cryptocurrencies.The Principality of Andorra is a country that actively and consistently implements changes in the legal regulation of digital assets. Despite cryptocurrency not being recognized as legal tender, the sphere has obtained an impressive legal framework and continues to evolve. With its favorable regulatory environment, political stability, and strategic location, Andorra offers numerous opportunities for businesses seeking to operate in the crypto industry. This article aims to provide businessmen interested in venturing into Andorra with a comprehensive overview of the cryptoregulatory landscape, ensuring a smooth and compliant entry into this growing market.
Andorra recognizes the potential of cryptocurrencies and has taken steps to establish a clear and transparent legal framework to regulate their use and operation. Changes in digital regulations in Andorra began in 2020 with the implementation of a government action plan called Horitzó 23. Andorra’s Digital Assets Law, 24/2022, became one of the laws adopted within the framework of Horitzó 23 and is aimed to introduce changes and clarifications to the legal regulation of digital assets in Andorra.
Classification of digital assets
Andorra’s Digital Assets Law, for the first time in the country’s regulation, describes the types of digital assets and the government’s stance on their status:
- Digital Sovereign Money. This category comprises programmable sovereign digital currencies (DDSP) issued by a competent government authority or central bank. Utilizing blockchain technology, these digital representations of money hold monetary value electronically and function as a means of payment, facilitating peer-to-peer (P2P) or decentralized exchanges. Their value is determined by market supply and demand, as well as confidence in the central issuing authority. Digital Sovereign Money can be further classified into depositary digital sovereign money (DDSD) and digital sovereign electronic payment (DDSEP).
2. Tokens Issued by Verified Legal Entities. These tokens are issued by identified or identifiable verified legal entities and are not classified as DDSP or fiat currencies. The two main types are cryptocurrencies and private tokens.
Andorra’s Digital Assets Law further classifies cryptocurrencies into two subcategories:
2.1) Traditional Cryptocurrencies. These are cryptocurrencies presently or potentially used as a means of payment for goods, services, or value transfers. They are associated exclusively with private developers and do not carry any guarantee from governmental bodies or central banks. Examples include stablecoins, which have additional subcategories based on their specific characteristics.
2.2) Private Tokens. This classification pertains to digital representations of assets issued by non-governmental organizations or central banks, individually controlled by their developers. Private tokens encompass:
- Security tokens;
- Utility tokens;
- Tokens issued by unidentified or unidentifiable private individuals;
- Hybrid tokens or dual tokens.
Regulation of Digital Asset Activities
Business license. In Andorra, any company intending to engage in cryptocurrency sales must undergo a thorough registration and licensing process with the Andorran Financial Authority (AFA). This process entails providing comprehensive information and documentation about the company and its relevant individuals (shareholders, directors), demonstrating sufficient capital, and ensuring compliance with stringent Anti-Money Laundering (AML) and Know Your Client (KYC) requirements. Depending on the nature of the business, additional licenses may be required, such as a virtual financial assets service provider license for operating a cryptocurrency exchange or wallet service.
AML and KYC Requirements. To ensure compliance with international standards and prevent money laundering and terrorist financing, Andorra has implemented stringent AML and KYC regulations for cryptocurrency businesses. These regulations require thorough customer due diligence, record-keeping, and reporting obligations. Companies must adopt robust AML and KYC policies and procedures to meet these requirements.Investor Protection. Andorra prioritizes investor protection by promoting transparency and accountability in the crypto industry. Companies engaging in ICOs or token offerings must adhere to strict disclosure requirements, ensuring that investors receive accurate and comprehensive information. Moreover, the AFA has the authority to supervise, monitor, and take enforcement actions against entities that fail to comply with regulatory obligations.
Regulatory exceptions. But even despite this, some cases of public offerings of digital assets are fully exempt from regulation. They applied to the companies which:
- are exclusively targeted at professional clients;
- are directed to fewer than 100 natural or legal persons in each country (excluding professional clients);
- have a denomination of at least 50,000 euros per unit;
- make an offer to investors purchasing digital assets for a total amount of at least 50,000 euros per investor in each separate offering.
- have a total amount of income less than 100,000 euros, with the limit calculated over a period of one year.
Mining in the Principality of Andorra is an activity that involves the initiation, recording, creation, or validation of blocks or combinations in accordance with established mechanisms. The mining of crypto assets in Andorra requires prior approval from the government, along with mandatory reporting by the operator of the electricity supply system. However, exceptions are applied to installations with less than 10 computers. Individuals or legal entities interested in engaging in mining activities must register with the Administrative Registry of Crypto Asset Mining Entities, as mandated by the third additional provision of Andorra’s Digital Assets Law. This registry serves as a monitoring body, assessing the economic impact of crypto asset mining entities on the electronic system’s operation and the achievement of renewable energy goals. It provides limited online access, is compulsory and free of charge.
It’s worth noting that the registration process was not initially defined when the aforementioned law was enacted. The detailed procedure was later outlined in Decret 335/2022 (registration on the website is required), which approved the government requirements for crypto asset mining entities. However, the electronic procedure specified in the Regulation is currently unavailable. As a result, the conventional registration process through the Service of Procedures remains in effect.
As a member of the European Economic Area (EEA), Andorra benefits from the free movement of capital, goods, services, and people within the EEA. This facilitates cross-border operations for businesses operating in the crypto industry, allowing for seamless transactions and expansion opportunities across the region.
Overall, Andorra’s regulatory approach demonstrates its commitment to fostering technological innovation while ensuring compliance with legal and financial requirements in the digital asset space. Andorra’s favorable regulatory environment, coupled with its political stability and geographic advantages, makes it an enticing destination for businessmen seeking to establish businesses in the cryptocurrency sector. By adhering to the established legal framework, complying with AML and KYC obligations, and seeking professional advice on tax matters, businesses can navigate the cryptoregulatory landscape successfully. As dedicated lawyers well-versed in the intricacies of Andorran law, we are committed to assisting our clients in overcoming any legal obstacles they may encounter, ensuring a seamless and compliant business operation in this jurisdiction. With our expertise and tailored solutions, we are here to help businesses thrive in Andorra’s flourishing crypto landscape.
Author: Vladyslav Ilchenko, lawyer at Manimama Legal&Growth Agency