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License for Virtual Assets Service Providers in Uzbekistan: prospects for Crypto business

Earlier, we wrote that Uzbek Citizens are now allowed to trade with crypto assets in licensed crypto exchanges. In July 2022, the National Agency on Perspective Projects of the Republic of Uzbekistan (hereinafter referred to as: - “NAPP”) which is the licensing authority in the field of circulation of crypto assets announced licensing procedures for new market participants. Licensing of service providers in the field of circulation of crypto assets is carried out in accordance with the Regulations on the procedure for licensing the activities of service providers in the field of circulation of crypto assets, approved by order of the Director of the NAPP  from July 2022. Today, we will discuss the process and conditions for obtaining Virtual Asset Service provider (VASP) licenses.


Requirements for virtual asset service providers

A license to carry out the activities of service providers in the field of circulation of crypto-assets of services is issued only to legal entities - residents of Uzbekistan. The license requirements and conditions for service providers are as follows:
·        Availability of an electronic platform and (or) a complex of hardware and software located on servers on the territory of the Republic of Uzbekistan;
·        storage of information on all transactions related to crypto assets , identification data of platform participants, materials relating to the relationship of service providers with platform participants (including between platform participants), including business correspondence, for five years;
·        compliance with the requirements of the legislation of the Republic of Uzbekistan in the field of circulation of crypto assets, legalization of proceeds from crime, financing of terrorism and financing the proliferation of weapons of mass destruction, as well as the storage and use of personal data;
·        a ban on advertising in the field of circulation of crypto assets, including promises about the effectiveness (income) of activities related to the use of crypto assets, a ban on the dissemination of information that making transactions with crypto assets is an easy way to get rich, and accepting payment or paying with crypto assets in the territory Republic of Uzbekistan, subject to the requirements that they cannot be used as legal tender;
·        do not conduct transactions with anonymous crypto-assets;
·        provision of information related to the implementation of the activities of the platform, free of charge at the request of the authorized body;
·        other requirements in accordance with regulatory documents.
Additional licensing requirements and conditions for crypto exchanges are as follows:
·        quotation of crypto assets based on supply and demand;
·        the presence of an authorized fund formed in cash in the amount of at least five thousand multiples of the base calculated value (1 BCV = 300,000 soums; 5,000 BCV = 1,500,000,000 soums ≈ EUR 134722), of which three thousand multiples of BCV (3,000 BCV = 900,000,000 soums ≈ EUR 80833) is reserved on a separate account with a commercial bank of the Republic of Uzbekistan;
·        the functions of control over the activities of service providers and their compliance with regulatory legal acts on combating the legalization of proceeds from crime, the financing of terrorism and the financing of the proliferation of weapons of mass destruction are assigned to the licensing body of service providers and the relevant competent state bodies;
·        the statutory fund of service providers is formed only at the expense of funds and other property of their founders. Funds allocated for the formation of the statutory fund of service providers are not allowed to be replenished by attracting credit or pledge funds and other similar funds;
·        legal entities pay a commission for activities in the field of circulation of crypto assets. Fees are distributed between the State Budget of the Republic of Uzbekistan and the Agency.
In addition, a license is not issued to companies registered in offshore zones, as well as to persons whose convictions for economic, corruption and information crimes have not been expunged or extinguished.

License types

Licensing of service providers in the field of circulation of cryptoassets is carried out in accordance with the Regulations on the procedure for licensing the activities of service providers in the field of circulation of cryptoassets, approved by order of the Director of the Agency No. 32 dated July 14, 2022 (No. 3380 dated August 15, 2022).
Types of activities for which service providers in the field of circulation of crypto assets are licensed:
a) crypto exchange an organization that provides an electronic platform for the purchase, sale and (or) exchange of crypto assets;
b) mining pool - an organization that provides an electronic platform that combines computing power to support the mining process;
c) crypto depository - an organization that provides an electronic platform and (or) a set of hardware and software tools for the provision of services for the issuance, initial placement and storage of crypto assets;
d) crypto store - an organization that provides an electronic platform and (or) a set of hardware and software tools for the provision of services related to the purchase and (or) sale of crypto assets.
The license is issued for an unlimited period, and the license is issued separately for each type of licensed activity.

Submission of applications for obtaining a license by applicants

Applications of applicants for obtaining licenses, as well as the documents attached to them, can be accepted by e-mail to the email address of the Agency info@napp.uz or sent by mail to the legal address of the agency: Nukus street , 22, Mirabad district, Tashkent city or can be accepted upon delivery in person.
Following documents that must be submitted to obtain a license:
a)    name and legal form of the legal entity, its postal address, taxpayer identification number (TIN), location, e-mail address, name of the bank and bank account, type of licensed activity, reason for filling out the application (obtaining a new license or re-registration), an application reflecting consent of the license applicant to comply with license requirements and conditions;
b)    information about the management of the license applicant (head, his deputies) and the founder, specified in Appendix 2 to the Regulation . In this case, information about the founders is displayed up to the last beneficial owner;
c)     if the management (head, his deputies) and the founders of the license applicant are foreign citizens, a certificate of non-conviction from the competent authority of the relevant foreign state for the crimes provided for by subparagraph "h" of paragraph 9 of the Regulation ;
d)    a certificate from a commercial bank stating that the statutory fund (capital) has been formed for the implementation of crypto -exchange activities and the corresponding part of the statutory fund (capital) has been allocated.
In the case when the management (head, his deputies) and the founders of the license applicant are citizens of the Republic of Uzbekistan, the licensing authority independently considers the circumstances provided for in subparagraph "h" of paragraph 9 of the Regulations. The above documents must be approved (signed) by the head of the license applicant. It is not allowed to require the license applicant to submit documents that are not provided for by the Regulations . No fee is charged for consideration of an application for a license.

Terms of consideration of the application

The decision to issue or refuse to issue a license is made within 20 working days from the date of receipt of the license applicant's application. C tattoo applications can be tracked by this link . Requirements and conditions that must be met by legal entities when carrying out licensed activities:
a) the presence of an electronic platform and (or) a complex of hardware and software located on servers on the territory of the Republic of Uzbekistan;
b) store information about all transactions related to crypto assets , identification data of platform participants, materials relating to the relationship of service providers with platform participants (including between platform participants), as well as business correspondence for five years;
c) compliance with the requirements of the legislation of the Republic of Uzbekistan in the field of circulation of crypto assets, legalization of proceeds from crime, financing of terrorism and financing of the proliferation of weapons of mass destruction, as well as the storage and use of personal data;
d) Compliance with the requirements for advertising in the field of circulation of cryptoassets, determined by clause 11 of the Regulations ;
e) not to carry out clandestine mining (mining activities on the computing power of third parties using special software without their notification and consent) and operations with anonymous crypto assets, including mining of anonymous crypto assets (crypto assets operating on the principle of anonymity);
f) free provision of information related to the operation of the platform, at the request of the licensing authority;
j) timely and full payment of remuneration for activities in the field of circulation of crypto assets, established by law;
Prevent a VASP from being run by people who:
·        participated or suspected of participating in terrorist activities or proliferation of weapons of mass destruction;
·        not cleared or convicted of crimes related to economic crimes, as well as money laundering, terrorism, proliferation of weapons of mass destruction, their financing, organized crime, drug trafficking, corruption, and crimes related to information technology;
In addition, do not allow the participation of persons specified in subparagraph "h" and companies registered in offshore zones in the authorized capital (capital) of service providers.

Fees

The amount of the state fee for licensing the activities of service providers in the field of circulation of crypto assets:
Paragraph 2 of subparagraph “g” of the Decree of the President of the Republic of Uzbekistan PQ-3832 dated July 3, 2018 “On measures to develop the digital economy and the sphere of circulation of crypto assets in the Republic of Uzbekistan” and in accordance with order No. 39 of the Director of the Agency (NAAPP) dated August 30, 2022, The amount of the state fee for issuing a license to carry out the activities of service providers in the field of circulation of crypto assets is determined in the following amounts compared to the amount of the base calculation effective on the date of their payment:
In terms of the turnover of crypto assets, the amount of the state fee for issuing a license to increase the activities of service providers is determined in the following amounts compared to the basic calculation of the value (1 BCV = 300,000 UZS at the time of writing), effective on the date of their payment:
·        for a crypto-exchange - 73,400 multiples of the BCV (EUR 1977715);
·        for mining - 1900 multiples of BCV (EUR 51 195);
·        for a crypto-depository - 18,400 BCV (EUR 495 776);
·        for a crypto store - 2600 multiples of  the BCV (EUR 70 055).
20% of the fee will be distributed to the settlement account of the Agency for Perspective Projects in a commercial bank. The remaining 80% will go to the state budget. According to the data , the monthly fees for the implementation of work in the field of circulation of crypto assets are set at the following multiples of the base calculation value (BCV = 300,000 UZS at the time of writing) in force on the date of payment, for:
  • miners - 10 multiples of BCV- (EUR 270)
  • crypto exchanges - 400 multiples of BCV (EUR 10 778);
  • mining pool - 100 multiples of  BCV (EUR 2 695);
  • crypto-depository - 5 multiples pf the BCV (EUR 135);
  • crypto-shop - 20 multiples of the BCV (EUR 539).
In this case, if the license is received before the twentieth day of the current month, the fee for this month is paid in full, and if the license is received after the twentieth day of the current month, it is paid from the first day of the next month.
In case of suspension or termination of activities in the field of circulation of crypto assets, the accrual of commission is suspended from the first day of the next month. The remuneration is transferred to the treasury account of the Agency for Perspective Projects of the Republic of Uzbekistan before the tenth day of the current month in the form of an advance payment.

Our conclusion

The government of Uzbekistan is legalizing the circulation of Virtual assets and digitizing its financial system. The crypto transactions are not subject to taxation and VASP license can be obtained only by foreign companies, which gives a green light for new market participants. However, costly license fees and requirements to host local servers storing personal data about Uzbek citizens inside the country can be another obstacle for newcomers to the VASP business in the country and might discourage innovation.
While Uzbekistan has the best proposition for IT companies in terms of tax benefits, as residents of IT Park are completely free from taxes and the government supports foreign investments and is ready to provide an infrastructure to do business. We help you to obtain relevant licenses and permits for your business and ready to provide a legal guidance for smooth transition into Uzbek market.

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