Estonia

## Estonia: Retail Cryptocurrency Trading Status Report

**Report Date:** April 12, 2025
**Prepared For:** Internal Regulatory Assessment
**Prepared By:** Specialized Financial Regulatory Analyst

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**Topic: Retail_Trading_Status**

**Description:** Assess whether individual citizens and residents in the country are legally permitted to buy, sell, and hold cryptocurrencies. Detail the regulatory environment surrounding this activity (e.g., KYC/AML requirements imposed on platforms, general warnings issued).

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**1. Current Status:** `Allowed-Regulated`

**2. Narrative Explanation:**

Retail trading of cryptocurrencies (virtual currencies or crypto-assets) is legally permitted for individual citizens and residents in Estonia. Individuals can freely buy, sell, and hold these assets. Cryptocurrencies are legally recognized as property under Estonian law (specifically, the Law of Obligations Act) but are not considered legal tender.

While individuals face no direct restrictions on owning or trading crypto-assets, the environment is heavily regulated, primarily focusing on the service providers facilitating these activities. Estonia was one of the first EU countries to establish a licensing framework for Virtual Asset Service Providers (VASPs), initially known for its relatively open approach. However, concerns over money laundering and terrorist financing risks led to significant tightening of regulations starting around 2019-2020.

The primary legislation governing VASPs is the Money Laundering and Terrorist Financing Prevention Act (MLTFPA, also referred to as the AML Act). This act designates VASPs (entities providing services like crypto-to-fiat exchange, crypto-to-crypto exchange, and virtual currency wallet services) as "obliged entities," subjecting them to stringent Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) requirements. These include:

*   **Licensing:** VASPs must obtain an activity license, previously issued by the Estonian Financial Intelligence Unit (FIU). Requirements became much stricter, including significant paid-up share capital (€100,000 or €250,000 depending on services), a physical office and management board located in Estonia, resident board members with relevant experience and education, enhanced due diligence on owners and board members, mandatory audits, and a substantial state fee (€10,000). These changes led to the revocation of a large number of previously issued licenses.
*   **AML/KYC:** Licensed VASPs must implement robust Know Your Customer (KYC) procedures, conduct customer due diligence, monitor transactions, and report suspicious activities to the FIU. Anonymous accounts are prohibited.
*   **Travel Rule:** Estonia implemented the FATF's Travel Rule requirements in March 2022, mandating VASPs to collect and transmit originator and beneficiary information for virtual asset transfers.

**Regulatory Transition (MiCA Implementation):**
Estonia, as an EU member state, is implementing the Markets in Crypto-Assets (MiCA) Regulation (EU 2023/1114). This EU-wide framework introduces harmonized rules for crypto-asset service providers (CASPs) and issuers. Key points regarding MiCA implementation in Estonia include:
*   **Supervisory Authority Shift:** Regulatory oversight for CASPs is transitioning from the FIU to the Estonian Financial Supervision and Resolution Authority (EFSA, or Finantsinspektsioon).
*   **New Licensing Regime:** Existing VASPs operating under the FIU license must obtain a new CASP authorization from the EFSA under MiCA rules.
*   **Transition Period:** Estonia has opted for the full 18-month transition period allowed under MiCA. Entities providing crypto-asset services legally before December 30, 2024, can continue operating under their existing FIU license until July 1, 2026, or until they are granted (or refused) a MiCA CASP authorization by the EFSA, whichever comes first.
*   **No Simplified Procedure:** Estonia has not implemented a simplified authorization procedure for existing VASPs transitioning to the MiCA regime; they must undergo the full licensing process with the EFSA.

**Taxation:**
For individuals, gains derived from the sale or exchange of cryptocurrencies (including crypto-to-fiat, crypto-to-crypto, and using crypto to pay for goods/services) are considered gains from the transfer of property and are subject to income tax (currently 20%). Losses from such transactions are generally not deductible for individuals. Income from mining is typically treated as business income.

In summary, Estonian residents can legally engage in cryptocurrency trading. However, the service providers they interact with are subject to a comprehensive and increasingly stringent regulatory framework focused on AML/CTF, consumer protection, and market integrity, now aligning with the EU's MiCA regulation under the supervision of the EFSA.

**3. Supporting Excerpts:**

*   **On Legality for Individuals:** "Yes. It is legal for Estonian residents to own virtual assets and to buy and sell them."
    *   *Source:* Notabene (citing AML Act context) [8]
    *   *Date:* (2022-07-22)

*   **On Regulatory Framework (AML Act):** "The framework for regulation of cryptocurrencies and the provision of virtual currencies is provided in the AML Act, which regulates, amongst others, the provision of virtual currency services."
    *   *Source:* Global Legal Insights [2]
    *   *Date:* (2024-10-25)

*   **On VASP Licensing & AML:** "The MLTFPA requires virtual currency service providers to obtain a license from the Estonian Financial Intelligence Unit (FIU) and implement anti-money laundering and counter-terrorist financing (AML/CTF) measures. These measures include conducting due diligence on customers, monitoring transactions, and reporting suspicious activity to the Estonian FIU."
    *   *Source:* Charltons Quantum [3]

*   **On Stricter Licensing:** "An example of this is the fact that during the period of 2017–2022, more than 2,000 companies obtained the licence to provide virtual currency services but as of 1 September 2024, only 45 companies still hold a licence for providing such services."
    *   *Source:* Global Legal Insights [2]
    *   *Date:* (2024-10-25)

*   **On MiCA Implementation & Supervisory Shift:** "While the virtual currency service providers have so far been under the supervision of the Financial Intelligence Unit, the crypto-asset service providers will fall under the supervision of the Estonian Financial Supervision Authority. In relation to this, the practice of the Estonian Financial Supervision Authority in the proceedings and supervision of financial institutions will also extend to the crypto-asset service providers."
    *   *Source:* Ellex Legal [6]
    *   *Date:* (2024-06-20)

*   **On MiCA Transition Period:** "According to this, virtual currency service providers can provide services under their current authorisation until 1 July 2026. So by that time, the virtual currency service providers need to have obtained the license from the Estonian Financial Supervision Authority to provide crypto asset services."
    *   *Source:* Ellex Legal [6]
    *   *Date:* (2024-06-20)
    *   *Corroborated by:* Aosphere [19] (Date: 2025-02-20), Scorechain [15]

*   **On Taxation of Gains:** "Natural persons must declare the income from trading in cryptocurrency, as well as the income from