The fintech landscape across the EU is experiencing a substantial transformation, thanks to the emergence of EMIs. With its strategic geolocation, business-friendly ecosystem, and progressive regulatory mechanisms, Lithuania presents an excellent chance for firms looking to offer financial services in the Eurozone. Getting an EMI license in Lithuania is an appealing option for businesspersons seeking to delve into the world of digital payments and currency.
This permission is a type of authorization mandated by regulative bodies that allows a company to issue e-money. This is a digital equivalent of cash kept on an e-device or remotely at a server, which can be widely used for paying to entities other than the issuer.
Why the Lithuanian Market?
This has been a forerunner in the EU for fostering fintech innovations. The country’s central bank, Lietuvos Bankas, has streamlined processes to encourage the establishment of EMIs. Lithuania’s membership in the EU also ensures that a license obtained here is valid across other memberstates, under EMD and PSD2, through the principle of passporting.
Becoming an EMI licensee in Lithuania comes with a number of benefits:
- Entry to the SEPA zone: Since 2016, the country has been a participant in SEPA, which brings together 34 countries worldwide. Hence, the fintech companies are able to send and receive payments within these countries. By utilizing the CENTROLink accounts, users gain direct access to this system.
- Passportization Rights: Once authorized, EMIs can cater to the clients across the EEA without the need to obtain additional licenses in all jurisdictions.
- Favorable Taxation: Lithuanian government offers a competitive tax ecosystem, which is an attractive feature for startups and established entities alike.
- Skilled Workers: Access to a highly educated and multilingual workers is a significant benefit for companies based in the country.
- Well-developed IT Field: The country boasts a robust IT sector, which is vital for fintech firms that rely on cutting-edge technology.
- Supportive Legislation: Lietuvos Bankas is recognized for its supportive stance towards fintech firms and its willingness to cooperate with the sector.
Utilizing Lithuania’s fintech sandbox can provide invaluable insights and a controlled environment for testing new products and services before a full-scale launch.
Steps to Get a License
Becoming a licensee is thorough and necessitates careful planning and execution. Here are the general steps involved:
- Company Formation: Set up a local or an EU firm with an office in Lithuania.
- Capital Obligations: Ensure the entity satisfies the min. capital requirement, which is 350,000 euros for an EMI.
- Credentials: Draft a detailed business plan along with all needed policies, such as AML, safeguarding of funds, etc.
- Management and Staff: Have a board and staff.
- Submission: Submit a package to Lietuvos Bankas, including all supporting documents.
- Processing: Engage in communication with the regulator and answer to any requests for detailed data.
- Official response: If the application is approved, get the permission and commence operations.
Taxes and other obligations
Fintech firms fall under the range of requirements and must ensure continuous adherence with AML directives, operational RM, and client protection laws. Companies must also follow the guidelines set out by the ECB. To smooth the licensing process and ongoing conformity, it is recommended to use services of the lawyers. As with any firm, EMIs are subject to taxation regulations set by the local law. EMIs are liable to pay corporate income tax on their profits, including profits from electronic money issuance. The effective corporate income tax rate is 15%.
One more consideration for EMIs operating in Lithuania is VAT. It is not applicable to the issuance or redemption of e-money itself. However, if currency exchange or payment processing are offered, VAT may be applicable on those specific services. It is crucial for EMIs to check out whether VAT should be charged and comply with reporting duties.
EMIs often participate in partnerships or collaborations with other entities, both domestically and internationally. In such cases, it is essential to understand withholding tax obligations. Lithuania has signed numerous double taxation treaties that provide relief from withholding taxes on certain types of income, such as interest and royalties. However, it is crucial for EMIs to assess whether any exemptions apply and ensure proper documentation is maintained.
Transfer pricing rules play a vital role in determining the exact pricing for transactions between related parties within an EMI’s corporate structure. In Lithuania, transfer pricing documentation must be maintained and made available upon request by tax authorities. EMIs should ensure that their pricing arrangements are in line with the arm’s length principle to avoid potential transfer pricing adjustments.
The Role of Tech Solutions in Business Operations
Technology plays a crucial role in the activities of an EMIs. From the security of transactions to the user experience of digital platforms, companies must invest in robust tech solutions. With the right preparation and guidance, your fintech venture can flourish in Lithuania’s thriving digital economy.
