Cryptoasset Trading

Cryptoasset Trading

What rules and restrictions govern the exchange of fat currency and cryptoassets?

The carrying out of the activity of exchange of fat currency and cryptoassets for or on behalf of a customer triggers the requirement to register as a virtual asset service provider (VASP) with the Financial Sector Supervisory Commission (CSSF).

VASPs that are established or provide services in Luxembourg must also comply with the professional obligations provided for under the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the AML Law).

Other rules may apply where cryptoassets qualify as financial instruments, securities, units in authorised investment funds or e-money.

Law stated - 22 November 2021

Exchanges and secondary markets

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

There are no specifc restrictions on where investors may trade cryptoassets.

Exchanges, alternative trading systems and secondary markets for cryptoassets may require prior registration as a VASP where the relevant cryptoassets qualify as virtual assets. Other authorisations and licences may be required where cryptoassets qualify as securities, units in investment funds or e-money.

Law stated - 22 November 2021

Custody

How are cryptoasset custodians regulated?

Custodian activities in relation to cryptoassets qualifying as virtual assets, carried out for or on behalf of the customer, trigger the requirement to register as a VASP with the CSSF.

VASPs that are established or provide services in Luxembourg must also comply with the professional obligations provided for under the AML Law.

Other rules may apply where cryptoassets qualify as financial instruments, securities, units in investment funds or e-money.

Law stated - 22 November 2021

Broker-dealers

How are cryptoasset broker-dealers regulated?

Broker-dealers offering services in relation to cryptoassets qualifying as virtual assets trigger, provided for or on behalf of the customer, trigger the requirement to register as a VASP with the CSSF.

VASPs that are established or provide services in Luxembourg must also comply with the professional obligations provided for under the AML Law.

Other rules may apply where cryptoassets qualify as fnancial instruments, securities, units in alternative investment funds or e-money.

Law stated - 22 November 2021

Decentralised exchanges

What is the legal status of decentralised cryptoasset exchanges?

Decentralised exchanges for cryptoassets, understood as a marketplace for peer-to-peer cryptoassets transactions without the intervention of any intermediary, are not regulated under Luxembourg law.

Decentralised or distributed applications should not qualify as a VASP. However, the creators, owners, operators or other persons who maintain control may fall under the defnition of a VASP if they are providing or actively facilitating VASP services.

Law stated - 22 November 2021

Peer-to-peer exchanges

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

There is no regulated status for peer-to-peer transfers of cryptoassets without the intervention of an intermediary.

Law stated - 22 November 2021

Trading with anonymous parties

Does the law permit trading cryptoassets with anonymous parties?

There are no specific rules applicable to the trading of cryptoassets with anonymous parties. If the service provider involved in the trading process is subject to customer due diligence measures, anonymous parties should not be permitted.

Law stated - 22 November 2021

Foreign exchanges

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

Foreign cryptocurrency exchanges are subject to Luxembourg’s laws and regulations if they are considered to be providing their services in Luxembourg.

Law stated - 22 November 2021

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

There are no specific circumstances prohibiting a Luxembourg citizen to lawfully exchange cryptoassets on a foreign exchange.

Law stated - 22 November 2021

Taxes

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fat currencies)?

The exchange of cryptoassets (for other cryptoassets and fat currencies) is a taxable event from a Luxembourg income tax perspective.

Depending on the specifc features of the taxpayer (ie, individual or corporation) and the type of activity (ie, commercial activity or management of individual’s private wealth), the tax effects would differ. The particular characteristics of the cryptoassets should also be carefully analysed.

For corporate taxpayers 

Luxembourg corporate taxpayers that earn income that is non-exempt or subject to tax are deemed to undertake a commercial activity generating business profits and will be taxed at a combined corporate tax rate of 24.94 per cent in 2021. Holding cryptoassets also generates net wealth tax liabilities for Luxembourg companies. Certain Luxembourg regulated companies and reserved alternative investment funds are exempt from corporate tax and net wealth tax on income generated from the exchange of cryptoassets and their holding.

For partnerships

Non-regulated tax transparent partnerships (eg, special limited partnerships) are not taxed at their own level but in the hands of their partners.

Such partnerships are generally transparent for tax purposes unless they carry on a commercial activity, in which case they may be subject to municipal business tax at a rate of 6.75 per cent in 2021.

For individuals

Income earned by Luxembourg individuals when exchanging cryptoassets should be analyses on a case-by-case basis to determine whether the exchange qualifies as a commercial activity or management of the individual's private wealth. Depending on the qualification, the income is taxed either as business profits or as miscellaneous income. From a Luxembourg VAT perspective, such exchange is generally exempt (but will be analysed on a case-by-case basis).

Law stated - 22 November 2021