Crypto License in Georgia

More on Tbilisi Free Zone vs Mainland Georgia VASP license

General information about the Georgian crypto license

The crypto license in Georgia is granted by the National Bank of Georgia, which is also responsible for enacting the law and enforcing it through the Financial Monitoring Service (FMS).

The framework has been live since August 1, 2023, when the National Bank of Georgia edited its AML-CFT and compliance rules to integrate virtual assets, subsequently issuing guidelines for virtual asset service providers.

Forming a crypto company in Georgia with a license requires fulfilling substance and AML-KYC requirements. The company shall be located in Georgia, with a local director and a local office space. It should have policies, procedures, and systems in place to prevent money laundering and terrorism financing at every level of the operations.

Cryptocurrency in Georgia is not considered legal tender.

Three things to know about the Georgia crypto license:

• Regulated by the National Bank of Georgia and ruled by the FMS (Financial Monitoring Service);
• A crypto-friendly country that recently signed a government-level agreement with Tether to develop its blockchain infrastructure;
• A very enabling license, allowing to conduct an ICO under its umbrella.

Georgia Crypto License: Process and Duration

The process to obtain a crypto license in Georgia is composed of two major parts:

• The corporate structure and substance in Georgia;
• The compliance with the AML-CFT law and its requisites.

As part of the licensing procedure, applicants must submit the required documentation to the National Agency for Public Registry, which oversees the application process and licensing decision.

The timeline for a set-up from scratch takes 3 to 4 months, 2 of which are dedicated to the license application alone. The licensing process in Georgia is relatively simple and fast, allowing companies to start operations quickly.

Though there is no explicit requirement for an AML officer, a Georgian VASP should appoint a responsible person. This role can be fulfilled by the mandatory local director, who shall be a resident of Georgia. In the same logic, the company should have an office space in Georgia.

The process to receive the Georgia crypto license can be broken down as follows:

• Company formation with a local office and director;
• Appointing a responsible individual for reporting duties (can be the local director);
• Compiling necessary AML and compliance documents;
• Pay the licensing fee of 5,000 GEL (about 1,750 EUR);
• Application to the National Bank of Georgia to receive the license.

To start the set-up of a crypto project in Georgia, the applicant should have the following documents ready:

• ID documents of participants (passport, driving license, proof of residency…);
• CV of the director / responsible person for AML-CFT duties;
• Description of the business activities;
• AML/KYC policies & procedures.

The different types of crypto licenses in Georgia

The VASP license in Georgia is a single type of license. It does cover a certain number of activities. The applicant for the crypto license in Georgia should specify the activities they want to register for in the appendix of the application form.

A VASP can register for the following activities in Georgia:

• Exchange between convertible virtual assets and fiat currencies, between one or more forms of virtual assets, or between convertible virtual assets and financial instruments, including over the counter;
• Transfer of convertible virtual asset;
• Safekeeping and/or administration of convertible virtual assets or of the instrument enabling control over virtual assets;
• Portfolio management of convertible virtual assets (excluding collective portfolio management);
• Administration of a trading platform for virtual assets;
• Lending of convertible virtual assets (lending of non-convertible crypto assets isn’t permitted);
• Initial Coin Offering of convertible virtual asset and/or service related to initial coin offering.

As such, the Georgian license is one of the crypto regulations that allows for the largest range of activities.

The minimum requirements for a crypto license in Georgia are:

• Legal entity registration in Georgia;
• Hiring a local director / representative, residing in Georgia;
• A local office space;
• AML-CFT policies and procedures & risk assessment methodology;
• AML-CFT control systems;
• Internal audit system and procedures;
• “Know Your Coworker” guidelines;
• Developing of a description of the software and hardware;
• Employee training program.

In Georgia, the cryptocurrency regulation does not recognize virtual assets as legal tender. It is explicitly prohibited to use crypto for payment, except in cases which the National Bank of Georgia defines as “essential for providing virtual asset services”.

This case is an important example and demonstration of the stance of the Republic of Georgia on crypto: a will to provide a clear and understandable framework for businesses, an overall positive view on crypto, but also a strong position on what should be legal or not.

The goal is to create confidence, in a small country that few people know and many may confuse with the USA State of Georgia.

Summing up the cryptocurrency regulation in Georgia: virtual assets have been integrated into the domestic AML-CFT law. The National Bank of Georgia has then published guidelines, issued statements and especially a legal rule on registration and regulation of VASP in Georgia. In early August of 2023, it also released a compliance questionnaire for applicants, giving a detailed description of the authorities’ expectations for applicants.

Applying to enter a company in the Georgian register of crypto currency companies is done once all the requisites are fulfilled. The registration process takes about 2 months, during which the National Bank of Georgia may call the applicant for further information or to point out irregularities or insufficiencies in the case.

Whenever the National Bank of Georgia asks for regularization of a shortcoming, the applicant has 10 days to respond and provide an explanation or correct the potential deficiency.

Before carrying out an application for a Georgian crypto license, a VASP shall prepare accordingly by preparing the following elements:

• Formation of a legal entity in Georgia;
• Hiring of a local representative/director, that shall reside in Georgia 14 days per month;
• Paying the licensing fee of 5,000 GEL (about 1,750 EUR);
• Necessary compliance and AML-CFT documents.

The intention to create a framework for virtual asset services providers in Georgia dates back to Summer 2022, when the Governor of the National Bank of Georgia announced the drafting of a new legislation.

The following amendment to the Law on Anti-Money Laundering and Combating the Financing of Terrorism was the next step in getting the grounds ready for the Georgian crypto framework.

The Georgian government is positioning itself as crypto friendly. In June of 2023, the Ministry of Economy signed an agreement with Tether, the world famous issuer of stablecoin USDT, to assist in developing the national blockchain infrastructure.

At this occasion, Georgian Deputy Minister of Economy and Sustainable Development, Irakli Nadareishvili, stated that the goal of this cooperation is to “position Georgia as a country with an attractive ecosystem for technology startups”.

At all times, a licensed crypto company in Georgia must comply with the requirements for entities engaged in crypto activities. Some of these requirements apply from the application process and are carried on during the life of the crypto company.

The main requirements include, though not limited to:

• The local director should be in the territory of Georgia for a minimum of 14 calendar days per calendar months;
• Approved AML/CFT compliance control system in place;
• Approved risk assessment methodology;
• Procedures ensuring the proper implementation of the AML/CFT compliance control system;
• Implementation of “Know Your Co-Worker” policies to ensure proper employee selection, in an AML/CFT sight;
• Set-up and hold an employee training program (on the matters of AML/CFT);
• Appropriate mechanisms detailed using a risk-based approach to monitor customer transactions;
• Have an internal audit function that regularly checks on the good implementation of the law in the company.

The National Bank of Georgia maintains communication with the licensee at all time, as explained in the rule for virtual asset services providers. The rule also details the conditions under which a crypto company should report information to the regulatory authorities.

Only companies registered in Georgia can apply to become a cryptocurrency business in Georgia. This is one of two substance requirements, with the obligation to hire a local representative or director.

Incorporating a Georgian company is simple, as the country is very open for business. The process is remote, allows for foreign ownership and takes about one business week.

There is no minimum share capital requirement for setting up a limited company in Georgia. There is also no such requirement for a crypto company, meaning the share capital can be left at a convenient minimum.

The standard corporate income tax for companies in Georgia, including crypto licensed entities, is 15%. It is possible to benefit from a 0% tax rate by incorporating in one of the three Georgian Free Zones (Tbilissi, Poti or Kutaisi).

Choosing a free zone for incorporating a crypto company isn’t necessarily an easy choice, as these free zones are mainly aimed at logistics and industrial companies, meaning it might not be ideal for a crypto company.

The standard tax rate on distributed dividends is 5%, with some specific cases depending on the residency country of the receiver. The rate can then be as low as 0% or as high as 15%.

Crypto companies in Georgia have the obligation to comply with the AML/CFT laws of the country at all times. This also means that the company shall stay up to date with legislation, as the framework is new and yet to be tested on the ground.

An internal audit function is a requisite of the National Bank of Georgia to grant a license. The crypto business shall have people and systems in place to check the proper implementation of the law. As there is the law and the spirit of the law, the audit function should also look more broadly and estimate if the company operations are generally doing their best effort to prevent wrongdoing with cryptocurrencies.

Implicitly, the crypto companies in Georgia are obligated to maintain ongoing communication with the National Bank of Georgia. This would be the best way to guarantee compliance with the law and the expectations of the rule maker. This is also part of the obligation to report on the suspicious activity detected by the VASP.