Foreign investors who want to explore the financial industry in Canada can open fintech companies. These are companies which operate in one of the new branches of the financial sector: cryptocurrency, blockchain technology or virtual currency mining.
Those who want to open cryptocurrency companies in Canada will be glad to find out that certain activities related to virtual money are regulated in this country.
Below, our company formation agents in Canada explain the requirements related to starting a cryptocurrency business in this country.
How to register a cryptocurrency business in Canada
The registration of a company in the cryptocurrency sector in Canada is no different from other types of companies. The limited liability company remains the most common option for both local and foreign investors who can register their crypto businesses at federal or regional level.
Our Canadian company formation consultants can help with the registration of a business which activatesin the cryptocurrency sector.
What are the legal obligations of cryptocurrency businesses in Canada?
Investors who want to open a cryptocurrency company in Canada must comply with the current rules enacted in this country. Besides completing the basic steps for company formation in Canada, the cryptocurrency business must also apply for a license.
This is done following the rules of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The obligation to obtain a crypto exchange license in Canada is applicable to the following:
- companies that provide cryptocurrency exchange;
- companies that provide cryptocurrency transfer services.
The crypto exchange license in Canada is known as the Money Service Business License. The obligation to obtain this license is imposed to both Canadian resident companies and foreign cryptocurrency businesses.
Those who will register a cryptocurrency company must also register with the FINTRAC. The registration obligations are applicable since 1 June 2020. Another obligation, applied since 2021, is that such companies will comply with the Travel Rule.
This refers to the fact that cryptocurrency companies will maintain evidence on all their cross-border transactions; our consultants in company registration in Canada can offer more details regarding this rule.
Please mind that the holders of crypto exchange license in Canada have certain legal obligations. For instance, they need to report to the FINTRAC whenever they observe anything that can potentially be a suspicious transaction.
They also have reporting requirements concerning the Know Your Client regulations. Reporting obligations will appear when transactions of a large sum are registered.
This applies when a transaction is above $10,000 (the transfer is made in a single transaction) or when there are multiple transactions that have (together) a value above $10,000 in a period of 24 hours. The latter applies when the transactions are concluded by the same individual or legal entity.
Cryptocurrency activities regulated in Canada
Those who want to open cryptocurrency companies in Canada can undertake one or more of the following activities:
- mining activities which enable investors to general virtual money which can later be traded;
- trading activities – cryptocurrencies can be traded as commodities under the Canadian laws;
- payment service activities – investors can open a business which offers payment services with digital money;
- cryptocurrency ATMs – the installation of ATMs which exchange money for cryptocurrencies are also allowed in Canada;
- cryptocurrency exchange platforms can also be established under the Canadian legislation.
The Canadian government also enabled various regulations relating to the taxation of companies in the cryptocurrency field.
Short history of cryptocurrency laws in Canada
Although cryptocurrency is not considered a legal tender in Canada, there are many legal initiatives that were created in order to ensure a legal environment for those using virtual currencies.
Canada applies numerous rules of law concerning the usage of virtual currencies, and below one can discover some of the main steps that were taken throughout the years by the Canadian institutions:
- in 2014, Canada included virtual currencies in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act;
- in 2017, in British Columbia was registered the 1st investment fund dealing with cryptocurrencies;
- in August 2017, the Securities Administrators issued a notice on how cryptocurrencies can fall under the law on securities in Canada;
- in 2018, the Canadian Central Bank issued an official notice which stated that cryptocurrencies can be securities;
- cryptocurrencies are taxed in Canada since 2013 and that includes cryptocurrency transactions as well.
Taxation of cryptocurrency companies in Canada
Under the Canadian Income Tax Law, cryptocurrency transactions will be taxed as commodity transactions.
Those who sell cryptocurrencies will need to declare in their tax returns the incomes generated from these activities which will be then imposed with the income tax applicable at a federal or territorial level.
According to the law, there are some reporting obligations when a person/entity that is Canadian tax resident obtained an income from cryptocurrency operations concluded outside Canada.
Here, one will be obligated to submit tax reports if the value of the assets outside Canada (including cryptocurrency) is above $100,000 in a financial year. If this is the case, it is necessary to complete and submit the Form T1135.
If you want to open a cryptocurrency company in Canada and you need legal advice on the tax system and tax reporting obligations, our consultants can help you.
You can receive legal advice, as well as legal representation in all the steps concerning the registration of the company and the issuance of the license.
For assistance in opening a cryptocurrency company, please contact our company registration advisors in Canada.