On-shore VASP in Liechtenstein

Definition under TVTG: A "VT Exchange Service Provider" is a person who facilitates the exchange of VT Tokens against fiat currencies or other VT Tokens. This covers traditional cryptocurrency exchanges.

Requirement: Registration with the FMA as a VT Exchange Service Provider is mandatory.

Token and VT Service Provider Act (TVTG) / Blockchain Act:

FMA Information on TVTG: https://www.fma-li.li/en/regulatory-sections/token-and-vt-service-provider-act-tvtg/

Due Diligence Act (DDA) (Sorgfaltspflichtgesetz):

Definition of TT Custodian: According to Art. 4 para. 1 lit. e TVTG, a TT Custodian is "a service provider who holds tokens in custody for third parties and provides services for the safeguarding of private keys or other means of access to tokens."

Licensing Process: Any entity wishing to act as a TT Custodian must obtain prior authorization from the FMA. The requirements for obtaining a license as a TT Service Provider are outlined in Articles 12-17 of the TVTG and include:

Minimum Capital Requirements: As per Art. 17 TVTG, TT Service Providers, including TT Custodians, must have a minimum capital of CHF 100,000. The FMA may require higher capital based on the scope and risk of the services provided.

Minimum Capital Requirements: As mentioned, TT Custodians must hold a minimum capital of CHF 100,000, which acts as a buffer against operational risks.

Proper Organization: The applicant must have an appropriate organizational structure, including robust internal controls, IT security, and risk management systems.

Qualified Management: The members of the board of directors and executive management must be "fit and proper," demonstrating professional qualifications, experience, and integrity.

Reliable Business Plan: A detailed business plan outlining the services, operational procedures, and risk assessments must be submitted.

AML/CFT Compliance: Robust measures for combating money laundering and terrorist financing are mandatory, aligning with Liechtenstein's adherence to international standards (e.g., FATF recommendations).

Duty of Care Regarding Third-Party Tokens: Art. 23 TVTG stipulates that a TT Custodian must take all necessary measures to protect the tokens against loss, theft, or misuse, and to ensure that they can always be identified and returned to the respective owner.

Identification and Return: This implicitly requires that the custodian must be able to clearly distinguish client assets from their own assets and from the assets of other clients. In practice, this leads to the implementation of technical and organizational measures for segregation, such as separate omnibus wallets per client or a sophisticated internal ledger system that tracks individual ownership within shared wallets, coupled with a robust reconciliation process.

Insolvency Protection: The segregation of client assets ensures that in the event of the custodian's insolvency, client assets are not part of the insolvency estate and can be returned to their rightful owners.

FMA Discretion: The FMA, during the licensing process or ongoing supervision, has the authority to impose additional conditions or requirements if deemed necessary to ensure the protection of clients and the stability of the financial market.

MiCA Implementation: MiCA is a comprehensive EU regulation for crypto-assets that will become fully applicable in phases, with most provisions for crypto-asset service providers (CASPs) applying from December 30, 2024.

Impact on Liechtenstein: As an EEA member, Liechtenstein will be required to transpose MiCA into its national law. This means that while the TVTG currently governs digital asset custody, Liechtenstein's legislation will need to be adapted to align with MiCA's requirements.

Law on Professional Due Diligence for the Prevention of Money Laundering, Organised Crime and Terrorist Financing (Due Diligence Act, Sorgfaltspflichtgesetz - SPG): This is the overarching AML/CFT law that sets out the due diligence obligations for all financial intermediaries, including VASPs.

Ordinance on Professional Due Diligence (Sorgfaltspflichtverordnung - SPV): This ordinance provides detailed implementing provisions for the Due Diligence Act.

Identification and Verification of the Customer and UBO:

For natural persons: Obtain and verify the identity of the customer by requiring official identification documents (e.g., passport, national ID card) and verifying their name, date of birth, nationality, and residential address.

For legal entities (companies, foundations, trusts): Obtain and verify the entity's name, legal form, registered address, registration number, articles of association, and the identities of directors/executives. Crucially, VASPs must identify and verify the Ultimate Beneficial Owner (UBO), which typically means identifying any natural person who directly or indirectly owns or controls 25% or more of the entity, or otherwise exercises control.

Screening: Customers and their UBOs must be screened against national and international sanction lists (e.g., UN, EU, OFAC) and politically exposed persons (PEP) lists.

Understanding the Purpose and Intended Nature of the Business Relationship:

Source of Funds (SoF) / Source of Wealth (SoW):

VASPs must continuously monitor the business relationship, including transactions, to ensure that the activities are consistent with their knowledge of the customer, their business, and risk profile.

FMA Guidelines: The Financial Market Authority (FMA) Liechtenstein issues various guidelines and circulars to provide practical guidance on the implementation of AML/CFT obligations, including specific guidance for TT Service Providers.

General Corporate Tax Rate: Liechtenstein applies a flat corporate income tax rate of 12.5% on net taxable profit.

For Businesses (Corporate Income Tax):

Conditions: This exemption applies as long as the crypto assets are held as private assets and not as part of a business operation or professional trading activity. The distinction between "private" and "professional" trading can be complex and depends on factors like trading frequency, volume, use of professional tools, and holding period.

NFTs: The VAT treatment of NFTs is complex and depends on the underlying asset and the rights conveyed. If an NFT represents a digital good or service, its sale might be subject to VAT. If it's merely a representation of an ownership right or a financial instrument, it might be exempt. This area is still evolving.

Token Issuance/Advisory Services: Services provided in connection with the issuance of tokens (e.g., legal advice, technical setup, marketing for an ICO/STO) are typically subject to VAT, as these are distinct services rather than the mere exchange of tokens.

Entity Targeted: Licensed TVTG service providers or other financial institutions. (Specific names are not always publicly disclosed for every action, but the FMA's annual reports provide aggregated data). Violation Type: Non-compliance with the TVTG, Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) regulations, or other prudential requirements. Penalty Amount: Not a direct public monetary fine, but the severe penalty of loss of operating license, resulting in the inability to conduct regulated activities in Liechtenstein. This represents significant financial loss and reputational damage for the entity. Outcome: Withdrawal of authorization, cessation of regulated activities, safeguarding market integrity.

Outcome: Withdrawal of authorization, cessation of regulated activities, safeguarding market integrity.

Issuing public warnings against unauthorized entities.

Issuing cease-and-desist orders.

Withdrawing or refusing licenses for non-compliance.