In March of this year, Binance announced its arrival in Georgia, cementing Georgia as a Tech Hub. This is in step up, with the recent series of Tech Hub Conferences sponsored by its authors, Georgia Today, Georgia Today Business Magazine and Marriott Hotels.
Nino Bolkvadze who is the Counsel at Klein & Pantsulaia, writes that the latest Georgian liberal energy policy and low electricity tariffs have turned Georgia into an attractive and demanding place for the foreign entrepreneurs – i.e. virtual asset service providers, dealing with producing and trading with the so called virtual money and virtual assets on the territory of Georgia. Georgia has no shortage of hydro power, which is partially behind the interest for the crypto energy-hungry industry. Moreover, Georgia is a leading market for IT workers and not only has Binance moved in to take advantage of this, but Tether has as well.
The main reason why Georgia became so attractive for Binance, Tether and related blockchain companies is that the Georgian tax system does not impose tax on Crypto Trading. In other words, Georgia has a 0 Crypto trading tax. Considering the last years’ statistics, whereas the transactions under USDT crypto exceeded enormously compared to Visa and Mastercard transactions, which in total amounts to $18 billion, Georgia can be deemed as a new hub for blockchain transactions for its liberal tax approach and for its super cheap crypto mining expenses, deriving from the low electricity fees on the territory of Georgia.
Georgia is a new hub for blockchain transactions thanks to its liberal tax approach and its super cheap crypto mining expenses
Moreover, the Georgian employment market in the blockchain business is also very promising. Many young Georgian professionals are involved in international blockchain projects, and, Tbilisi, the capital of Georgia, has recently hosted a number of international blockchain business conferences. Add to this the fact that the London Stock Exchange’s list of renowned Georgian banks have already been officially enrolled in crypto transactions as well.
The latest vast development of this business field and the potential of huge production and trading with virtual assets on Georgian territory led the Georgian Government to realize that this new field of business needed a specific legal framework. To this end, the National Bank of Georgia (NBG) enacted a new Order #94/04 on the Rule on Registration, Deregistration and Regulation of the Virtual Asset Service Providers (the “VASPs”) on June 13, 2023.
Under the new regulation, virtual asset service providers shall be subject to a mandatory registration requirement and obtaining the respective license from the NBG thereof.
According to the new VASP order, a Virtual Asset Service Provider (VASP) is a person who provides virtual asset service for the benefit of another person.
The following activities are considered to be virtual asset services:
• Exchange (including via kiosks) between convertible virtual asset and fiat currencies (national or foreign), between one or more forms of virtual assets, between convertible virtual asset and financial instrument;
• Transfer of convertible virtual asset;
• Safekeeping and/or administration of convertible virtual asset or of the instrument enabling control over virtual asset;
• Portfolio management of convertible virtual assets (excluding collective portfolio management);
• Administration of the trading platform of the convertible virtual assets;
• Lending of convertible virtual asset;
• Initial Coin Offering of convertible virtual asset and/or service related to initial coin offering.
A virtual asset is a digital representation of value that is interchangeable and non-unique, can be digitally traded or transferred, and can be used for investments and/or payment purposes. A virtual asset does not include digital representation of fiat currencies, securities, or other financial instruments.
A convertible virtual asset is a virtual asset that has an equivalent value on the market, in national or foreign currency, in another virtual asset, and/or a financial instrument in which it can be exchanged.
Important requirements for license seekers for the named business field in brief are as follows:
• The management of the license seeker company must hold specific knowledge and previous practical experience in the given field of business;
• The license seeker must provide the business plan and strategy for the VASP for the foregoing 3 (three) years;
• The license seeker must provide the website and the digital application model through which the respective business operations shall be performed by the customers;
• Proof of ownership of the immovable property of the license seeker where the head office of the business shall be located;
• Information on the beneficiary shareholders of the license seeker, holding minimum 10% of the shares at the company.
The fee for a license is 5000 GEL (about $1200), and the approval process takes about 2 months.
In 2022, transactions under USDT crypto exceeded enormously Visa and Mastercard transactions
The new Order of NBG provides several restrictions on basic operational matters, as well as for the license seekers. The most important in the given order is that the virtual asset shall not be the subject for loans towards individuals, namely the lending of virtual assets to individuals by the VASP shall be deemed null and void. Along with the above, the new order of NBG prohibits the provision of virtual asset services through an agent.
As regards to the license seekers, the license seeker shall not be eligible to obtain a license, if:
• The license seeker holds previous criminal conviction;
• The license seeker in parallel manages or keeps any stake holding interest of other companies in this field, unless such other companies are not united under the same corporative umbrella;
• The license seeker does not hold specific knowledge or experience in this field;
• The license seeker is officially insolvent;
• The license seeker does not meet the rules on combatting money laundering and terrorist financing thereof;
• The license seeker has previously violated entrepreneurial, banking and financial laws before.
Order N94/04 is effective as of 1 July 2023, except for certain requirements concerning the video surveillance of self-service kiosks, which shall come into force on 1 January 2024.
By Nino Bolkvadze, Klein & Pantsulaia
