With the entry into force of the MiCA Act, Web3 companies are increasingly enthusiastic about expanding into Europe. Mankiw & Co. 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
Poland's economy has potential for development
The Polish economy occupies an important position in the Central European economy and is one of the important economies in the European Union. Its current economic output ranks sixth among the 27 EU countries.
According to the Fintech Foundation's 2023 report, Poland's fintech ecosystem started late but 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.
Poland is a popular choice for Web3 companies to set up entities
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 Register of Virtual Currency Activities 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 significant 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, 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 truly understand cryptocurrencies is relatively low, at about 6.2%, indicating that there is still a lot of room for popularization 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 that Poles declared to invest in cryptocurrencies was 1,000 PLN, the average was 7,642 PLN, and the average after excluding the 5% extreme values was 5,149 PLN.
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 popularity of cryptocurrency ownership increases with higher education levels.
Polish Web3 Regulatory Authority
Poland’s main financial regulator is the Financial Supervisory Authority (“KNF”), which has similar functions to my country’s State Financial Supervision and Administration Bureau.
The KNF regulates banks, capital, insurance and pension sectors, payment institutions, etc. The purpose of the KNF's regulation of financial markets is to ensure the proper functioning of financial markets, safeguard the stability, security and transparency of financial markets, ensure the confidence of market participants in financial markets, and 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, alleging that it was suspected of conducting unauthorized financial activities in Poland.
Jacek Bardzczewski, head of the KNF department, explained that under Polish law (specifically Section 178 of the Financial Instruments Trading Act), entities providing brokerage or investment services must hold the appropriate licenses to legally conduct business.
Poland’s Crypto Regulatory Policy Framework
Poland sets shorter transition period for existing VASP licensed entities
With the EU Regulation on Markets in Crypto-Assets (MiCA) officially coming into force on December 30, 2024, cryptocurrency regulation in Poland is undergoing important regulatory changes. Poland is currently advancing domestic legislation in line with MiCA, the draft of which is called the Polish Crypto-Asset Markets Act. On December 9, 2024, the highly anticipated Polish Crypto-Asset Markets Act (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 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 Polish Crypto-Asset Market Law significantly shortens the transition period stipulated by MiCA.
The transition period stipulated in the EU MiCA Act is until July 1, 2026, and according to the relevant provisions of the draft Polish Crypto-Asset Market Law, entities currently registered as Virtual Asset Service Providers (VASPs) need to submit a CASP license application before June 30, 2025.
If an entity that has already been granted a VASP licence submits a complete CASP licence application before 1 May 2025 and receives notification from the UKNF of receipt of the application, it can provide services for an extended period until 30 September 2025, or until the date the licence is granted or refused, whichever is earlier.
If an entity does not have a registered virtual asset license, it must register for 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 on October 1, 2025.
In summary, Poland's draft "Crypto-Asset Market Law" significantly shortens the transition period stipulated in the EU MiCA Act, proposes an earlier application deadline for existing VASP entities, and sets 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 violating legal 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 regularly to the regulator through the designated portal (usually quarterly). They must also comply with the Financial Action Task Force standards and responsibly manage crypto transactions in the cryptocurrency field.
In case of improper performance or non-performance of post-registration obligations, 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:
- publish information about the entity and its illegal activities in a public information notice on the website of the Office serving the Secretary of the Treasury,
- An order to stop a specific action of an entity,
- Removal from the register of activities in the field of virtual currencies,
- Persons responsible for the following matters are prohibited from performing the duties of a management 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 EUR 1,000,000.
Furthermore, persons acting on behalf of the entity who fail to inform the Polish authorities of suspected crimes or who provide false or conceal true data about transactions, accounts or persons may be held criminally liable and sentenced to a prison term of three months to five years.
How are crypto assets taxed in Poland?
The taxation 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 declare cryptocurrency taxes.
In Poland, the taxation of cryptocurrencies follows specific guidelines based on the country's tax law. Under the Personal Income Tax Act, virtual currencies are defined as digital representations of value that can be exchanged for 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 the National Bank, international units of account, electronic money, financial instruments, bills of exchange and checks. These exclusions further clarify the definition of virtual currencies, making tax treatment more targeted and consistent.
Income from cryptocurrency trading is considered as monetary capital income for tax purposes. Processing virtual currency in exchange for payment involves different situations:
- Convert virtual currency into legal tender (e.g. convert cryptocurrency into legal tender)
- Exchange of 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 the exchange of virtual currency into legal tender will generate tax liability, but also the exchange of it into goods, services or property. However, the exchange of one cryptocurrency into another cryptocurrency or the exchange of it into stablecoins will not generate tax liability. Although some transactions are not subject to taxation, 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”, therefore, 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 their profits from cryptocurrency trading.
For example, Mr. Zhang bought 1 Bitcoin for 10,000 PLN on January 1, 2023. On May 1, 2024, he sold this Bitcoin for 15,000 PLN.
- Income: PLN 15,000
- Cost: 10,000 PLN
- Profit: 15,000 PLN - 10,000 PLN = 5,000 PLN
- Tax payable: PLN 5,000* 19% = PLN 950
Mr. Zhang needs to declare and pay the 950 zlotys as personal income tax (PIT).
Attorney Mankiw's Summary
As an important economy in Central and Eastern Europe, Poland has an active Web3 user group and an ever-improving regulatory framework, which provide good development opportunities for Web3 companies and make 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.
Mankiw & Co. has extensive experience and a professional team in the field of Web3 legal services. We can provide a full range of legal support for Web3 companies going overseas to Poland, including:
- Company establishment and license application: Assist companies to set up entities in Poland, and guide them to apply for CASP licenses in accordance with MiCA and relevant Polish regulations to ensure compliance operations.
- Tax Planning and Compliance: We provide professional tax consulting and planning to companies to reduce tax risks in view of Poland’s complex cryptocurrency tax system.
- Establishing a compliance risk control system: Assisting enterprises to establish a comprehensive 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 company in negotiations or litigation when disputes arise.
Mankiw LLP is committed to becoming the most trusted partner for Web3 companies going global to 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 opportunities in the Web3 era.
