Stablecoin issuer / redeemer in Latvia

E-money Tokens (EMTs): Only credit institutions (banks) or electronic money institutions (EMIs) authorized under the Directive 2009/110/EC (E-money Directive) can issue EMTs. The authorization under the E-money Directive extends to EMT issuance.

Asset-Referenced Tokens (ARTs): Issuers of ARTs (that are not EMTs) must be authorized by the competent authority (Latvijas Banka in Latvia) as a crypto-asset service provider (CASP) for the issuance of ARTs. The authorization process includes robust governance, capital requirements, and operational resilience.

Issuers must maintain reserve assets equivalent to the nominal value of all outstanding e-money tokens.

These reserve assets must be held in credit institutions, segregated from the issuer's own assets, and invested in highly liquid, low-risk assets.

They must be fully backed 1:1 by a fiat currency at all times.

Issuers must maintain a reserve of assets that is separate from their own assets and is managed in a way that aims to ensure the liquidity and stability of the ART.

The composition of the reserve assets must be sufficiently diversified in terms of assets and credit institutions.

A detailed reserve policy is required, outlining how assets are invested, stored, and managed.

E-money Tokens (EMTs): These are crypto-assets that purport to maintain a stable value by referencing the value of a single fiat currency, such as the Euro.

Asset-Referenced Tokens (ARTs): These are crypto-assets that are not e-money tokens and purport to maintain a stable value by referencing any other value or right, or a combination thereof, including one or several official currencies, one or several commodities, or one or several crypto-assets.

Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (Noziedzīgi iegūtu līdzekļu legalizācijas un terorisma un proliferācijas finansēšanas novēršanas likums): This law requires virtual asset service providers (VASPs), including exchanges and wallet providers, to register with Latvijas Banka and comply with AML/CFT obligations. While this doesn't authorize issuance, it's a prerequisite for operating in the crypto space in Latvia.

MiCA Regulation, specifically Articles 16-20 (for ART authorization) and Articles 48-50 (for EMTs).

Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions (E-money Directive).

Current Regime (Pre-MiCA): Registration. Latvia requires entities engaged in virtual asset services to register with the FIU. This registration is primarily an AML/CTPF compliance obligation, meaning the focus is on preventing money laundering and terrorist financing, rather than prudential supervision (e.g., capital adequacy for consumer protection, market integrity, etc., which is typical of a full licensing regime).

Future Regime (Post-MiCA): Licensing. Once MiCA fully applies to VASPs (expected December 2024), Latvia will transition to a comprehensive licensing regime under MiCA. This will involve more stringent requirements, including prudential safeguards, operational resilience, and specific disclosures, and will likely be overseen by the Bank of Latvia (FCMC).

The applicant must be a legal entity registered in Latvia (typically a Limited Liability Company – SIA).

The company must have its registered office in Latvia.

AML/CTPF Internal Control System (ICS):

Appointed AML Officer:

Client Due Diligence (CDD) and Enhanced Due Diligence (EDD): Procedures for identifying and verifying clients, beneficial owners, and monitoring business relationships.

Transaction Monitoring: Systems for monitoring transactions for suspicious activities.

Reporting: Procedures for reporting suspicious transactions to the FIU.

Record-keeping: Maintaining records for a specified period (typically 5 years).

Requirement: Under MiCA, providing "custody and administration of crypto-assets on behalf of clients" will require a full authorization (license) from the competent authority in the home Member State – in Latvia, this will be the Bank of Latvia (Latvijas Banka).

Prudential safeguards (capital requirements).

Mandate: MiCA explicitly mandates strict segregation of client crypto-assets.

Current Status: Under the current AML framework, there are no explicit, specific rules mandating the segregation of client crypto assets for non-bank VASPs. However, general good practice, risk management principles, and the expectation of investor protection inherent in financial services would strongly suggest that reputable custodians segregate client assets from their own operational funds. For traditional financial institutions providing crypto services, existing segregation rules for client funds/assets would generally apply.

Tax Rate on Distributed Profits: 20% of the gross dividend amount (or 25% of the net amount, calculated as 20/(1-0.20)).

Tax System: Latvia has a unique corporate income tax system where profit is taxed only when it is distributed (as dividends or deemed dividends). Undistributed profits (retained earnings) are generally not taxed.

Exchange of Crypto for Fiat (and vice versa): The exchange of virtual currencies for traditional (fiat) currencies and vice versa is considered a supply of services concerning currency, securities, and other financial instruments. These services are exempt from VAT under Article 135(1)(e) of the EU VAT Directive.

Wallet/Custodial Services: Services like maintaining crypto wallets, providing custodial services, or operating a crypto exchange (charging fees for trading) are generally subject to the standard VAT rate of 21%, unless they fall under a specific financial services exemption.

DAC8 (Upcoming): As an EU member state, Latvia will be implementing the EU's Directive on Administrative Cooperation in the Field of Taxation (DAC8). This directive will mandate crypto-asset service providers to report information on EU clients and their crypto-asset transactions to tax authorities, which will then be automatically exchanged between EU member states. This will significantly increase the data available to tax authorities regarding crypto activities.