Georgia has long been an attractive destination for crypto miners due to the relaxed governmental regulations and 0% tax rate on trading cryptocurrency.
However, as of January 1st, new regulations have entered into force, providing some definitions and creating a legal framework that complies with the Financial Action Task Force (FATF) recommendations.
What is the Purpose of the Changes?
Virtual Assets, and Cryptocurrency in particular, hold unusually high risks of being used for money laundering, due to their high degree of anonymity and difficulty of tracing transactions. The new legal framework is aimed at preventing and mitigating money laundering and the financing of terrorism.
What Kind of Virtual Assets Fall Under the New Regulations?
According to the new law, a Virtual Asset is determined to be a digital representation of value, which is interchangeable and not unique, that can be digitally traded or transferred, and that can be used for payment or investment purposes. A Virtual Asset does not include a digital representation of cash, securities or other financial instruments, and NFTs and collectables are not subject to the new regulations. Cryptocurrency, however, does fall under the scope of the new regulations.
Can you Pay using Virtual Assets (Cryptocurrency)?
A Virtual Asset is now officially not considered to be a form of legal tender (although the National Bank has the power to determine exceptional cases). The only legal currency for transactions in Georgia has always been and remains to the Georgian Lari. However, prior to the new regulation, the law did not directly indicate a provision specifically banning Virtual Assets from being used as a legal tender.
But Virtual Assets (Cryptocurrency) can still be used for payment if you are making the payment through Virtual Asset Service Providers (hereinafter referred to as “VASP”). The process would work like this:
- You make a payment through a VASP.
- Cryptocurrency gets deducted from your wallet by the VASP.
- The VASP exchanges the cryptocurrency into fiat money.
- The addressee receives the fiat money from VASP.
How are VASPs Defined?
According to the new law, VASP includes anyone who does one of the following for the benefit of another person:
- Exchange a convertible Virtual Asset (including through a self-service kiosk) for national or foreign currency, another Virtual Asset, or financial instrument.
- Transfer and/or facilitate in the storage/administration of a convertible Virtual Asset or the instrument necessary for its use, which allows control over the Virtual Asset.
- Manage a portfolio of convertible Virtual Assets (except for collective portfolio management) and/or facilitate in the administration of a trading platform for convertible Virtual Assets and/or the lending of such Virtual Asset and/or initial offering and/or initial offering services.
Who Is Subject to the Mandatory Registration?
Under the law, VASPs shall register with the National Bank of Georgia, otherwise, they will be obliged to stop providing the service.
The obligation to get registered does not apply to:
- Individual crypto miners
- Individuals participating in a Bitcoin mining pool
- Individual traders
Registration Procedure
The National Bank of Georgia has become the supervisory authority to control VASP activities, set eligibility criteria, register them, or cancel their registration. The registration process is as follows.
- Registration Deadline
The exact deadline for the registration is not set yet. Virtual Asset Service Providers will have 90 calendar days to submit the required documentation after the National Bank of Georgia publishes a legal act on the procedure for the registration of VASPs. The mentioned act will enter into force by July 1st, 2023.
- Procedure for Registration
The exact steps, along with the required documentation for the registration of VASPs will be determined by the legal act that will be published by the National Bank by July 1st.
- Service Fee
The service fee for the registration will be 10,000 GEL.
- How can ExpatHub assist?
Our team of professionals with experience in the relevant field can assist Virtual Asset Service Providers to gather the required documentation for registration and to comply with the obligations set out by the new regulation.
- Other legal considerations?
In addition to being required to get registered, the VASPs are now considered as “Accountable Person[s]” within the meaning of Law of Georgia on Facilitating the Prevention of Money Laundering And the Financing of Terrorism.
How Does “Accountable Person” Status Affect Virtual Asset Service Providers?
The “Accountable Person” status sets legal obligations for VASPs to take preventive measures against money laundering and terrorism. The accountable person is obliged to implement preventive measures when making a one-time transaction related to the service of a convertible Virtual Asset if the transaction amount exceeds 3,000 GEL, 1,000 USD or 1,000 EUR. The non-exhaustive list of relevant preventive measures include:
- identifying and verifying a client based on a reliable and independent source;
- identifying a beneficial owner and taking reasonable measures for the verification thereof, based on a reliable source;
- establishing the goal and the intended nature of a business relationship;
- monitoring a business relationship – if necessary, determining the origin of the client’s property, cash and convertible Virtual Assets, ensuring the proper periodical updating of the identification data and other information (such as documents) obtained by the implementation of the preventive measures.
The new regulation obliges the VASPs to transfer and receive accompanying information when transferring and receiving the Virtual Asset. The purpose of the new regulations is to implement the so-called “travel rule”, which provides the traceability of transactions made with the Virtual Asset.
According to the new law, VASPs also have to provide preventive measures for the clients existing before the registration, no later than July 1, 2024.
