The EU MiCA Act takes effect, why do Web3 startups rush to Poland?

With the MiCA Act taking effect, Web3 companies are increasingly enthusiastic about going overseas in Europe. Mankiw Law Firm has recently received a large number of inquiries about European Web3-friendly countries. To this end, we have launched a series of articles to provide an in-depth analysis of the encryption ecology of European countries. In this issue, we focus on the Polish market with great potential.

Poland: A Web3 market with great potential for development

Poland’s economy has potential for development

Poland's economy occupies an important position in the Central European economy and is one of the important economies in the EU. Its current economic aggregate 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 huge potential. As the largest financial services market in Central and Eastern Europe, Poland is attracting talents and investment from the region, and the good macroeconomic situation also indicates its broad development prospects.

Entity establishment in Poland is favored by Web3 companies

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 area.

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

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

Poland has a significant number of potential Web3 users

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

The report states 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 declared by Poles to invest in cryptocurrencies is PLN 1,000, the average is PLN 7642, and the average after excluding the 5% extreme value is PLN 5149.

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

Polish Web3 Regulatory Agency

Poland’s main financial regulatory agency is the Financial Supervisory Authority (“KNF”), whose functions are similar to those of my country’s State Financial Supervision Administration.

The 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, ensure the stability, security and transparency of financial markets, ensure that market participants have confidence in financial markets and that their interests are protected.

The KNF is also responsible for supervising Web3 companies that carry out business activities in Poland or are established in Poland.

On November 7, 2024, Cointelegraph reported that Poland’s KNF issued a public warning to Foris DAX MT, a company headquartered in Malta and operating under the Crypto.com brand, for allegedly engaging in unauthorized financial activities in Poland.

Jacek Bardzczewski, Head of Department at KNF, explained that according to Polish law (in particular, Article 178 of the Law on Transactions in Financial Instruments), entities providing brokerage or investment services must hold appropriate licenses in order to conduct business legally.

Polish Crypto Regulatory Policy Framework

**Poland sets shorter transition period for existing VASP licensed

entities**

With the EU's Crypto-Asset Market Regulation (MiCA) officially entering 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 much-anticipated "Polish Crypto-Asset Market Law (Fourth Edition)" was published on the website of the Polish Government's Legislative Center. This law is particularly important for entities currently registered in the VASP register and for 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 parliament for adoption. Therefore, the bill may be subject to modifications during further legislative processes. However, the overall legislative direction of the bill will not fundamentally change.

Overall, the draft Polish Crypto-Asset Market Law significantly shortens the transition period stipulated in MiCA.

The transition period stipulated in the EU MiCA Act is until July 1, 2026. According to the relevant regulations of the draft Polish Crypto Asset Market Law, entities currently registered as virtual asset service providers (VASP) need to register before June 30, 2025. Submit a CASP license application.

If an entity already licensed for VASP submits a complete application for a CASP license before 1 May 2025 and receives notification of receipt of the application by UKNF, it can provide services during the extended period until September 2025 30 days, or until the date the license is granted or denied, whichever is earlier.

If the entity does not have a registered virtual assets license, it will need to 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 under the EU MiCA Act and proposes an earlier application deadline for existing VASP entities, while setting a clear abolition of the VASP registration system time. Poland intends to accelerate the implementation of supervision, promote market transparency and compliance, and integrate with MiCA as soon as possible.

**Possible penalties for violating legal obligations after obtaining a

Polish CASP license**

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

In the event of improper performance or non-performance of post-registration obligations, the Polish authorities may impose administrative penalties on relevant entities and individuals. In addition, violations of certain provisions by persons acting on behalf of the entity may result in criminal liability. These penalties include:

• Publish information about the entity and its illegal activities in a public information bulletin on the website of the Office serving the Minister of Finance,
• A command to stop an entity's specific actions,
• be removed from the register of activities in the field of virtual currencies,
• Persons responsible for the following are prohibited from performing the duties of a managerial position for a period not exceeding one year:

Financial penalties, up to twice the amount of the benefit obtained by the entity or the loss avoided as a result of the infringement, or up to an equivalent amount of €1,000,000 if the amount of the benefit or loss cannot be determined.

In addition, persons acting on behalf of this entity who fail to notify Polish authorities of suspected criminal activity, or who provide false or conceal true data about transactions, accounts or persons, may be criminally liable and subject to a prison sentence of three months to five years.

How does Poland tax crypto assets?

The tax regulations for virtual assets in Poland are very mature.

Back in November 2020, Polish authorities released a new PIT-38 (Personal Income Tax) form to make it easier for Polish residents to file cryptocurrency taxes.

In Poland, the taxation of cryptocurrencies follows specific guidelines based on the country’s tax laws. Under the Personal Income Tax Law, virtual currency is defined as a digital representation of value that is convertible into legal tender and accepted as a means of exchange. However, it is important to note that virtual currencies do 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 currencies and make tax treatment more targeted and consistent.

For tax purposes, income generated from cryptocurrency trading is considered monetary capital income. The processing of virtual currency in exchange for payment involves different situations:

• Convert virtual currency to fiat currency (e.g., exchange cryptocurrencies to fiat currency)
• Exchange virtual currency for goods, services or property rights
• Pay off debt with virtual currency
• Mining and participating in Initial Coin Offerings (ICOs)

It is worth noting that not only does the exchange of virtual currency into fiat currency create tax liabilities, but also the exchange of virtual currency into goods, services or property. However, exchanging one cryptocurrency for another or converting it into a stablecoin does not create a tax liability. Although certain transactions are exempt from taxation, taxpayers are still required to keep relevant records for audit or inquiry purposes.

Poland’s tax rate on cryptocurrencies is 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 meet their tax obligations accordingly.

The Polish government does not consider cryptocurrencies to be “monetary units, payment instruments or electronic money,” so those doing crypto business in Poland must provide financial statements from the cryptocurrency exchanges they use to buy and sell digital currencies in order to properly report them Profit from cryptocurrency trading.

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

• Income: PLN 15,000
• Cost: PLN 10,000
• Profit: PLN 15,000 - PLN 10,000 = PLN 5,000
• Tax payable: PLN 5,000* 19% = PLN 950

Mr. Zhang needs to declare and pay this PLN 950 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 a constantly improving regulatory framework, which provide good development opportunities for Web3 companies, making Poland an increasingly popular destination for Web3 entrepreneurs. However, the entry into force of the EU MiCA Act and the future introduction of Poland’s local virtual asset regulatory framework will also bring new compliance challenges.

Mankiw Law Firm has rich experience and a professional team in the field of Web3 legal services, and can provide comprehensive legal support for Web3 companies going overseas in Poland, including:

• Company establishment and license application: Assist companies to establish entities in Poland, and guide companies to apply for CASP licenses in accordance with MiCA and relevant Polish regulations to ensure compliance operations.
• Tax planning and compliance: In view of Poland’s complex cryptocurrency tax system, we provide professional tax consulting and planning for enterprises to reduce tax risks.
• Compliance risk control system construction: Assist companies to establish a complete anti-money laundering and know-your-customer system to effectively prevent legal risks.
• Dispute resolution and legal counsel: Provide timely legal advisory services during business operations, and represent the business in negotiations or litigation when disputes arise.

Mankiw Law Firm is committed to becoming the most trustworthy partner for Web3 companies going overseas in Europe. With our in-depth understanding of the MiCA Act and Polish local regulations, as well as our rich practical experience, we help companies develop steadily in the Polish market and seize the opportunities of the Web3 era. opportunity.