EU MiCA Act takes effect. Why are Web3 startups rushing to Poland?

With the entry into force of the MiCA Act, Web3 companies are increasingly enthusiastic about going global to Europe. Mankiw Law Firm has recently received a large number of inquiries about Web3-friendly countries in Europe. To this end, we have launched a series of articles to deeply analyze the crypto ecosystems of various European countries. In this issue, we will focus on the highly promising Polish market.

Poland: A Web3 market with great development potential

Polish economy has development potential

The Polish economy occupies an important position in the Central European economy and is one of the important economies of the European Union. Its current economic output ranks sixth among the 27 EU countries.

According to the 2023 report of the Fintech Foundation, although the Polish fintech ecosystem started late, it has great potential. As the largest financial services market in Central and Eastern Europe, Poland is attracting talent and investment in the region, and the good macroeconomic situation also indicates its broad development prospects.

Web3 companies favor entities in Poland

Poland is an important business center in Central and Eastern Europe, attracting many companies to set up entities here. Nearly 40% of the 500 largest companies in Central Europe are located in Poland. This trend also extends to the Web3 field.

As of 2024, the number of actively registered VASP entities in the Polish Virtual Currency Activity Register has exceeded 1,100, showing a booming development in this field.

Currently, there are 126 Web 3.0 startups in Poland, including billon, Golem Network, GamerHash, Fluency, and DoxyChain.

Poland has a considerable number of potential Web3 users

Poland has a population of about 38.26 million, ranking fifth in the EU. According to the "Poland Cryptocurrency Popularity" report released in 2023, the Polish people have a high level of awareness of cryptocurrencies, with more than 94% of respondents saying they have heard of them. However, the proportion of people who really understand cryptocurrencies in depth is relatively low, at about 6.2%, indicating that there is still a lot of room for popularization in the market.

The report points out that in Poland, cryptocurrencies are mainly used as investment and speculative assets, with more than half of the respondents using them for this purpose. They are rarely used as a tool to participate in blockchain-based projects, purchase products and services, or transfer funds.

The median amount of money that Poles announced to invest in cryptocurrencies was 1,000 zlotys, the average was 7,642 zlotys, and the average after excluding 5% extreme values ​​was 5,149 zlotys.

Men invest in cryptocurrencies three times more often than women. Young people (under 34 years old) account for 41% of all those who claim to own crypto assets. In addition, the prevalence of cryptocurrency ownership increases with the level of education.

Polish Web3 Regulator

Poland's main financial regulator is the Financial Supervision Authority

KNF, which has similar functions to the State Administration of Financial Supervision and Administration of my country

KNF regulates banks, capital, insurance and pension sectors, payment institutions, etc. The purpose of KNF's supervision of financial markets is to ensure the normal operation of financial markets, to ensure the stability, security and transparency of financial markets, to ensure the confidence of market participants in financial markets, and to protect their interests.

The KNF is also responsible for regulating Web3 companies that conduct business activities in Poland or are established in Poland.

On November 7, 2024, Cointelegraph reported that the Polish KNF issued a public warning to Foris DAX MT, a Malta-based company operating under the Crypto.com brand, for suspected unauthorized financial activities in Poland.

Jacek Bardzczewski, head of the KNF department, explained that under Polish law (particularly Article 178 of the Financial Instruments Trading Act), entities providing brokerage or investment services must hold appropriate licenses to legally conduct business.

Polish Crypto Regulatory Policy Framework

Poland Sets Shorter Transition Period for Existing VASP Licensed Entities

With the EU Crypto-Asset Market Regulation (MiCA) officially coming into force on December 30, 2024, Poland's cryptocurrency regulation is undergoing important regulatory changes. Poland is currently advancing domestic legislation in line with MiCA, and its draft is called the Polish Crypto-Asset Market Law. On December 9, 2024, the highly anticipated Polish Crypto-Asset Market Law (Fourth Edition) was published on the website of the Polish Government Legislative Center. The law is particularly important for entities currently registered in the VASP register and other entities preparing to apply for a CASP license. The draft bill is currently in the government stage, that is, it has not yet been submitted to the parliament for approval. Therefore, the bill may be amended in the further legislative process. However, the overall legislative direction of the bill will not change fundamentally.

Overall, the draft of the Polish Crypto-Asset Market Act significantly shortens the transition period provided for by MiCA.

The transition period provided for in the EU MiCA Act is until July 1, 2026, whileaccording to the relevant provisions of the draft of the Polish Crypto-Asset Market Act, entities currently registered asvirtual assetservice providers (VASPs) need to submit a CASP license application before June 30, 2025.

If an entity that has obtained a VASP license submits a complete CASP license application before May 1, 2025, and receives notification of receipt of the application from the UKNF, it can provide servicesduring the extended period until September 30, 2025,or until the date of obtaining or refusing the license, whichever is earlier.

If the entity does not have a registered virtual asset license, it must register the latest CASP license before it can conduct business activities in the EU.

It is worth noting that the original VASP registration system will be completely abolished from October 1, 2025.

In summary, Poland's draft "Crypto Asset Market Law" significantly shortens the transition period stipulated in the EU MiCA Act, and proposes an earlier application deadline for existing VASP entities, while setting a clear time for the abolition of the VASP registration system. Poland intends to accelerate the implementation of supervision, promote market transparency and compliance, and align with MiCA as soon as possible.

Possible penalties for violation of statutory obligations after obtaining a Polish CASP license

After completing the license registration, cryptocurrency companies must comply with the MiCA Act and the Polish regulatory provisions on crypto assets, identify and assess the money laundering and terrorist financing risks associated with their activities, identify suspicious transactions, implement risk mitigation measures, and report to the regulator regularly (generally quarterly) through the designated portal. They must also comply with the Financial Action Task Force standards and responsibly manage crypto transactions in the cryptocurrency field.

If post-registration obligations are improperly performed or not performed, the Polish authorities may impose administrative penalties on the relevant entities and individuals. In addition, persons acting on behalf of the entity may be subject to criminal liability for violations of certain provisions. These penalties include: · Publication of information about the entity and its illegal activities in a public information notice on the website of the Office serving the Minister of Finance, · An order to cease specific actions of the entity, · Removal from the Register of Activities in the Field of Virtual Currencies, · The prohibition of the persons responsible for the following from performing the duties of a managerial position for a period not exceeding one year: · Financial penalties of up to twice the amount of the benefit obtained or loss avoided by the entity as a result of the infringement, or, if the amount of such benefit or loss cannot be determined, up to an equivalent amount of €1,000,000.

In addition, persons acting on behalf of the entity who fail to notify the Polish authorities of a suspected crime, or who provide false or conceal real data about transactions, accounts or persons, may be subject to criminal liability and be sentenced to 3 months to 5 years in prison.

How are crypto assets taxed in Poland?

Virtual assets are subject to very mature tax regulations in Poland.

As early as November 2020, the Polish authorities issued a new PIT-38 (Personal Income Tax) form to facilitate Polish residents in declaring cryptocurrency taxes.

In Poland, the taxation of cryptocurrencies follows specific guidelines based on the country's tax law. Under the Individual Income Tax Act, virtual currency is defined as a digital representation of value that can be converted into legal tender and accepted as a means of exchange. However, it is important to note that virtual currency does not include certain categories, such as legal tender issued by national banks, international units of account, electronic money, financial instruments, bills of exchange and checks. These exclusions further clarify the definition of virtual currency, making tax treatment more targeted and consistent.

For tax purposes, income from cryptocurrency transactions is considered monetary capital income. Dealing with virtual currency in exchange for payment involves different situations:

• Converting virtual currency into legal tender (e.g., converting cryptocurrency into legal tender)

• Converting virtual currency into goods, services or property rights

• Using virtual currency to settle debts

• Mining and participating in initial coin offerings (ICOs)

It is important to note that converting virtual currency into legal tender not only generates tax liability, but also converting it into goods, services or property. However, converting one cryptocurrency into another or converting it into a stablecoin does not generate tax liability. Although some transactions are not subject to tax, taxpayers are still required to keep relevant records in case of audit or inquiry.

Poland taxes cryptocurrencies at 19%. In this case, there is no specific tax threshold, and all income from cryptocurrencies, regardless of the amount, is subject to a 19% tax rate. Investors must accurately report their income from virtual currencies and fulfill their tax obligations accordingly.

The Polish government does not consider cryptocurrencies to be "monetary units, payment instruments or electronic money", so people engaged in crypto business in Poland must provide financial statements from the cryptocurrency exchanges they use to buy and sell digital currencies in order to correctly report their profits from cryptocurrency transactions.

For example, Mr. Zhang bought 1 Bitcoin for 10,000 zlotys on January 1, 2023. On May 1, 2024, he sold this Bitcoin for 15,000 zlotys.

·Revenue: 15,000 PLN

·Cost: 10,000 PLN

·Profit: 15,000 PLN - 10,000 PLN = 5,000 PLN

·Tax payable: 5,000 PLN * 19% = 950 PLN

Mr. Zhang needs to declare and pay the 950 PLN as personal income tax (PIT).

Mankiw Lawyer Summary

As an important economy in Central and Eastern Europe, Poland has an active Web3 user group and an ever-improving regulatory framework, which provides good development opportunities for Web3 companies and makes Poland an increasingly popular destination for Web3 entrepreneurs. However, the entry into force of the EU MiCA Act and the introduction of Poland's local virtual asset regulatory framework in the future will also bring new compliance challenges.