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From 1 July 2023, a new regulation was introduced in Georgia, which defines “Virtual Asset Service Provider” (hereinafter “VASP”) and requires registration with the National Bank of Georgia. Besides, VASPs must follow instructions and have continued obligations after the initial registration.
In this article we will not be discussing the technical details of mandatory registration, instead, we will focus on the practical and substantive aspects of the new regulation and will be answering to frequently asked questions.
What changes?
Before the new regulation, any company could carry out crypto-related transactions such as crypto exchange operations, crypto transfers, storage, administration, portfolio management, etc. Starting from 1 July 2023, companies that carry out such transactions are required to register with the National Bank of Georgia.
Will the changes affect me?
If you are an individual, who is personally trading in cryptocurrencies, rest assured, the new regulation does not affect you. Similarly, if you are an individual, who is involved in the mining of cryptocurrencies, you are not affected.
Put simply, the new regulation affects companies, that provide crypto services to other companies or persons. For example, cryptocurrency exchange, providing crypto-trading platforms, managing third parties’ crypto portfolios, storing and safekeeping cryptos for third parties, administering cryptos for third parties etc. The key here is that they conduct operations for the benefit of third parties.
To sum up, if you are involved in cryptocurrency trading or mining for your own benefit, you are not affected by the new regulation. On the other hand, if you provide services to third parties, then it is mandatory that you register with the National Bank of Georgia.
My company accepts payments in cryptocurrencies, does anything change for me?
If you own or manage a company, which is not a crypto service provider, but accepts payments in cryptocurrencies and sometimes makes payments to suppliers in cryptocurrencies, it would be interesting for you to learn about any impact you may have from the new regulation.
For example, let’s discuss a company that sells cakes and juice and accepts payments in Laris as well as cryptocurrencies. First of all, it should be noted that your company does not fall under the definition of VASP and therefore should not register with the National Bank of Georgia.
The only thing that you should be aware of is that you are prohibited from accepting payments directly in cryptocurrencies without intermediary (VASP). This is because in Georgia, the only legal payment currency is Georgian Lari. Noone prevents you from offering payment to customers in cryptocurrencies, however the payment must go through intermediary, which takes the amount paid by your clients and converts them to Laris. Eventually when the payment made by client reaches your account, it has already been converted by the intermediary in Laris. From client perspective, nothing changes, customers can make payments in cryptocurrency, however, your company received Laris converted by the intermediary (intermediaries are subject to registration in the National Bank of Georgia). Besides, companies are prohibited from making salary or other payments directly in cryptocurrencies (of course the exception to this rule is the purchases from abroad or salary payments to foreigners/non-residents). For example, if your company owns Bitcoin and transfers it to employees’ wallets as compensation, this transaction represents a violation of Georgian law. Company can only make salary and other payments in Bitcoin (or other cryptocurrencies) through intermediary, which converts the cryptocurrencies to Laris and transfers the converted amounts.
To sum up, in Georgia, the only legal way of payment is Georgian Lari, which means that entity receiving the payment, whether employee or supplier, must receive the transferred cryptocurrencies in equivalent Laris, which is only possible through intermediary, which converts transferred cryptocurrencies to Laris and then directs to the receiver.
What do I need to do if my company falls under the definition of Virtual Asset Service Provider (VASP)?
As discussed above, any company, which provides crypto services to third parties, whether it is conversion, storage, portfolio management or any other service, must register with the National Bank of Georgia as a Virtual Asset Service Provider. For this, the entity submits an application to the National Bank. Registration criteria and other details are discussed in Georgian on the following webpage:
https://www.matsne.gov.ge/document/view/5829496?publication=0
Registration fee equals 5 thousand Georgian Laris. It should be noted that NFTs are out of scope of the new regulation, while cryptocurrencies are included in the scope.
Since the purpose of the new regulation is to prevent money laundering and financing of terrorism, registered companies have continued obligations, that include conducting procedures to identify information about clients, their beneficial owners, and origins of their money. Exactly what these mandatory procedures must address, is discussed on the above indicated link.
We represent the leading accounting firm in Georgia, that serves hundreds of clients on a daily basis. We can offer you all the necessary services related to VASP registration and related accounting.
