With the enactment of the MiCA legislation, the enthusiasm of Web3 companies to expand into Europe is on the rise. Mankun Law Firm has recently received a large number of inquiries regarding Web3-friendly countries in Europe. In response, we are launching a series of articles to deeply analyze the crypto ecosystem in various European countries. In this issue, we turn our attention to the highly promising Polish market.

Poland: A Web3 Market with Great Development Potential

Poland's Economy Has Development Potential

Poland's economy holds an important position in Central Europe and is one of the significant economies in the European Union, currently ranking 6th in total economic output among the 27 EU countries.

According to a report by the Fintech Foundation in 2023, although Poland's fintech ecosystem started relatively late, it has enormous potential. As the largest financial services market in Central and Eastern Europe, Poland is attracting talent and investment from the region, and the favorable macroeconomic situation indicates its broad development prospects.

Establishing Entities in Poland is Favored by Web3 Companies

Poland is an important business center in Central and Eastern Europe, attracting numerous companies to establish entities there. Nearly 40% of the 500 largest companies in Central Europe are located in Poland. This trend has also extended into the Web3 sector.

As of 2024, the number of active registered VASP entities in Poland's virtual currency activity registry has exceeded 1,100, demonstrating a thriving development in this field.

Currently, Poland has 126 Web 3.0 startups, including Billon, Golem Network, GamerHash, Fluency, and DoxyChain.

Poland Has a Considerable Number of Potential Web3 Users

Poland has a population of approximately 38.26 million, ranking fifth in the EU. According to the "Cryptocurrency Popularity in Poland" report released in 2023, the Polish public has a high level of awareness of cryptocurrencies, with over 94% of respondents indicating they have heard of them. However, the proportion of those who truly understand cryptocurrencies is relatively low, at about 6.2%, indicating significant room for market penetration.

The report notes that in Poland, cryptocurrencies are primarily used as investment and speculative assets, with over half of the respondents using them for this purpose. They are rarely used as tools for participating in blockchain-based projects, purchasing products and services, or transferring funds.

The median amount declared by Poles for investing in cryptocurrencies is 1,000 zloty, with an average of 7,642 zloty, and the average excluding the top 5% outliers is 5,149 zloty.

Men invest in cryptocurrencies three times more frequently than women. Young people (under 34) account for 41% of all individuals claiming to own crypto assets. Additionally, the prevalence of cryptocurrency ownership increases with higher education levels.

Polish Web3 Regulatory Authorities

Poland's main financial regulatory authority is the Financial Supervision Authority (KNF), which functions similarly to the National Financial Regulatory Administration in our country.

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

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

On November 7, 2024, Cointelegraph reported that the Polish KNF issued a public warning to Foris DAX MT, a company operating under the Crypto.com brand and headquartered in Malta, stating that it was suspected of conducting unauthorized financial activities in Poland.

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

Poland's Crypto Regulatory Policy Framework

Poland Sets a Shorter Transition Period for Existing VASP Licensed Entities

With the EU's Markets in Crypto-Assets Regulation (MiCA) officially coming into effect on December 30, 2024, Poland's cryptocurrency regulation is undergoing significant regulatory changes. Poland is currently advancing domestic legislative work to align with MiCA, with its draft known as the "Polish Crypto Assets Market Law." On December 9, 2024, the Polish government's legislative center website published the much-anticipated "Polish Crypto Assets Market Law" (Version 4). This law is particularly important for entities currently registered in the VASP registry and those preparing to apply for a CASP license. The draft is currently at the government stage and has not yet been submitted to parliament for approval. Therefore, modifications may occur during the further legislative process. However, the overall legislative direction of the draft will not undergo fundamental changes.

Overall, the draft of the "Polish Crypto Assets Market Law" significantly shortens the transition period stipulated by MiCA.

The transition period set by the EU MiCA legislation lasts until July 1, 2026, while according to the relevant provisions of the "Polish Crypto Assets Market Law" draft, entities currently registered as virtual asset service providers (VASP) need to submit their CASP license applications by June 30, 2025.

If an entity that has already obtained a VASP license submits a complete CASP license application before May 1, 2025, and receives notification of the application from UKNF, it can continue to provide services during the extended period until September 30, 2025, or until the license is granted or denied, whichever comes first.

If an entity is not registered for a virtual asset license, it must register for the latest CASP license to conduct business activities in the EU.

It is noteworthy that the original VASP registration system will be completely abolished starting October 1, 2025.

In summary, the draft of Poland's "Crypto Assets Market Law" significantly shortens the transition period stipulated by the EU MiCA legislation and sets an earlier application deadline for existing VASP entities while establishing a clear timeline for the abolition of the VASP registration system. Poland aims to accelerate regulatory implementation, promote market transparency and compliance, and align with MiCA as soon as possible.

Penalties for Violating Legal Obligations After Obtaining a Polish CASP License

After completing the license registration, cryptocurrency companies must comply with the MiCA legislation and Poland's crypto asset regulatory requirements, identify and assess money laundering and terrorist financing risks associated with their activities, identify suspicious transactions, implement risk mitigation measures, and regularly report to regulatory authorities through designated portals (generally quarterly). They must also comply with the Financial Action Task Force standards and responsibly manage crypto transactions in the cryptocurrency field.

If they improperly fulfill or fail to fulfill their post-registration obligations, Polish authorities may impose administrative penalties on the relevant entities and individuals. Additionally, individuals acting on behalf of the entity may bear criminal liability for violating certain regulations. These penalties include:

• Publishing information about the entity and its illegal activities on the public information announcement on the website of the office serving the Minister of Finance,
• Orders to cease specific actions of the entity,
• Removal from the virtual currency activity registry,
• Prohibiting responsible individuals from performing management duties for no more than one year:

Economic penalties can be up to twice the amount of benefits gained or losses avoided due to the infringement, or if the amount of benefits or losses cannot be determined, up to an equivalent amount of 1,000,000 euros.

Furthermore, individuals acting on behalf of the entity who fail to report criminal suspicions to Polish authorities or provide false or concealed true data regarding transactions, accounts, or individuals may face criminal liability, with penalties ranging from 3 months to 5 years of imprisonment.

How Are Crypto Assets Taxed in Poland?

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

As early as November 2020, Polish authorities released 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 laws. According to the Personal Income Tax Act, virtual currency is defined as a digital representation of value that can be exchanged for 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 the national bank, international accounting units, electronic money, financial instruments, promissory notes, and checks. These exclusions further clarify the definition of virtual currency, making tax treatment more targeted and consistent.

In terms of taxation, income generated from cryptocurrency transactions is considered capital income. The handling of virtual currency in exchange for payment involves different scenarios:

• Exchanging virtual currency for legal tender (e.g., converting cryptocurrency to legal tender)
• Exchanging virtual currency for goods, services, or property rights
• Settling debts with virtual currency
• Mining and participating in Initial Coin Offerings (ICOs)

It is noteworthy that not only does exchanging virtual currency for legal tender create a tax obligation, but exchanging it for goods, services, or property also incurs a tax obligation. However, exchanging one cryptocurrency for another or converting it to a stablecoin does not create a tax obligation. Although certain transactions are not subject to taxation, taxpayers are still required to maintain relevant records for auditing or inquiry purposes.

Poland's tax rate on cryptocurrencies is 19%. In this case, there is no specific tax threshold; 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 as "monetary units, payment instruments, or electronic money," therefore, individuals engaged in crypto business in Poland must provide financial statements from the cryptocurrency exchanges they use to buy and sell digital currencies to accurately report their profits from cryptocurrency transactions.

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

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

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

Summary from Mankun Law Firm

As an important economy in Central and Eastern Europe, Poland has an active Web3 user base and an increasingly完善 regulatory framework, providing excellent development opportunities for Web3 companies, making Poland an increasingly favored destination for Web3 entrepreneurs. However, the enactment of the EU MiCA legislation and the future introduction of local virtual asset regulatory frameworks in Poland will also bring new compliance challenges.

Mankun Law Firm has extensive experience and a professional team in the field of Web3 legal services, capable of providing comprehensive legal support for Web3 companies expanding into Poland, including:

• Company establishment and license application: Assisting companies in establishing entities in Poland and guiding them in applying for CASP licenses in accordance with MiCA and relevant Polish regulations to ensure compliant operations.
• Tax planning and compliance: Providing professional tax consulting and planning to reduce tax risks in light of Poland's complex cryptocurrency tax system.
• Compliance risk control system establishment: Assisting companies in establishing a comprehensive anti-money laundering and know-your-customer system to effectively mitigate legal risks.
• Dispute resolution and legal advisory: Providing timely legal advisory services during business operations and representing companies in negotiations or litigation in case of disputes.

Mankun Law Firm is committed to becoming the most trusted partner for Web3 companies expanding into Europe. With our in-depth understanding of the MiCA legislation and local Polish regulations, along with rich practical experience, we help companies develop steadily in the Polish market and seize opportunities in the Web3 era.

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