Crypto Regulation in Europe: Country-Specific Insights and Restrictions for 2025-2026

 

Crypto Regulation in Europe: Country-Specific Insights and Restrictions for 2025-2026

The European Union (EU) has taken significant steps to regulate the cryptocurrency industry, primarily through the Markets in Crypto-Assets Regulation (MiCA), which became fully applicable across all member states on December 30, 2024. MiCA establishes a harmonized framework for crypto-assets, aiming to protect consumers, ensure financial stability, and foster innovation while combating money laundering and terrorist financing. Alongside MiCA, the Transfer of Funds Regulation (TFR) and the Digital Operational Resilience Act (DORA) impose additional requirements on crypto-asset service providers (CASPs). This article explores the EU’s crypto regulatory landscape, highlights country-specific approaches, and discusses potential restrictions expected in 2025 and 2026.

EU-Wide Crypto Regulation: MiCA, TFR, and DORA

Markets in Crypto-Assets Regulation (MiCA)

MiCA categorizes crypto-assets into three main types: asset-referenced tokens (ARTs), electronic money tokens (EMTs), and utility tokens. It sets uniform rules for:

  • Licensing and Authorization: CASPs, including exchanges, custodians, and trading platforms, must obtain a MiCA license to operate in the EU. The license allows "passporting," enabling firms authorized in one EU country to operate across all member states.
  • Consumer Protection: CASPs must provide clear disclosures about risks, maintain segregated client funds, and implement robust anti-money laundering (AML) and counter-terrorist financing (CFT) measures.
  • Stablecoin Oversight: Issuers of ARTs and EMTs (considered stablecoins) must be EU-based, maintain 1:1 liquid reserves, and comply with strict transparency and audit requirements. Significant ARTs and EMTs face enhanced oversight by the European Banking Authority (EBA).
  • Grandfathering Period: Entities providing crypto services under national laws before December 30, 2024, can continue operations until July 1, 2026, or until they obtain/refuse a MiCA authorization. However, this period varies by country, and grandfathered entities cannot passport services across the EU.

Transfer of Funds Regulation (TFR)

Effective December 30, 2024, the TFR enforces the Travel Rule, requiring CASPs to collect and share originator and beneficiary information for all crypto transactions, regardless of amount. This includes:

  • Full names, distributed ledger addresses, and account numbers.
  • For transactions exceeding €1,000 with non-customer wallets, additional verification is needed.
    The TFR aims to enhance transparency and prevent money laundering, with no minimum transaction threshold, unlike traditional fund transfers.

Digital Operational Resilience Act (DORA)

Applicable from January 17, 2025, DORA mandates CASPs to strengthen cybersecurity and operational resilience to mitigate digital risks. This includes establishing robust IT security procedures and reporting mechanisms for cyber incidents.

Crypto-Asset Reporting Framework (CARF) and DAC8

Starting in 2026, the Crypto-Asset Reporting Framework (CARF) and the EU’s DAC8 directive will require CASPs to report transaction data, including decentralized finance (DeFi) and non-fungible token (NFT) trades, to tax authorities. This enhances cross-border data sharing to combat tax evasion, with stricter penalties for non-compliance.

Country-Specific Regulations and Restrictions

While MiCA provides a unified framework, EU member states have some flexibility during the transitional period (until July 1, 2026), leading to variations in implementation and additional national requirements. Below are key country-specific insights and potential restrictions for 2025 and 2026.

France

  • Current Framework: France’s PACTE Law (2019) established a regime for Digital Asset Service Providers (DASPs), requiring registration with the Autorité des Marchés Financiers (AMF). Registered DASPs can operate until July 2026 under a transitional regime, but must transition to MiCA authorization.
  • Restrictions in 2025-2026:
    • From January 2025, new CASPs must apply for MiCA licenses, with existing DASPs required to submit complete authorization files by July 2026. The AMF will conduct limited reviews for unchanged information from prior registrations.
    • Enhanced AML/KYC requirements under TFR may lead to stricter enforcement, with potential penalties for non-compliance.
    • Taxation: Crypto gains are subject to a 30% capital gains tax (CGT), with no exemptions for long-term holdings, increasing compliance complexity.

Germany

  • Current Framework: Germany regulates crypto under the Banking Act, requiring licenses from the Federal Financial Supervisory Authority (BaFin). Crypto is treated as a financial instrument, and Germany has been proactive in aligning with MiCA.
  • Restrictions in 2025-2026:
    • Germany’s 1-year tax exemption for crypto held over 12 months is under review, with discussions to potentially abolish this rule, increasing tax liabilities for investors.
    • Full MiCA compliance is mandatory by July 2026, with BaFin likely to enforce stringent AML/KYC and operational resilience requirements.
    • Taxation: Capital gains tax applies (up to 45% depending on income), but long-term holdings (over one year) are currently tax-free, pending potential changes.

Ireland

  • Current Framework: Ireland is a crypto-friendly hub, with companies like Coinbase and Kraken obtaining Virtual Asset Service Provider (VASP) licenses from the Central Bank of Ireland.
  • Restrictions in 2025-2026:
    • The transitional period allows existing VASPs to operate until July 2026, but new providers must secure MiCA licenses from January 2025.
    • Taxation: No crypto-specific tax exists, but a 33% capital gains tax applies. New startups may benefit from a three-year corporation tax exemption if tax liability is below €40,000 annually.
    • Increased scrutiny on cross-border transactions under CARF/DAC8 may lead to stricter reporting requirements by 2026.

Lithuania

  • Current Framework: Lithuania is attractive for crypto businesses due to its low €2,500 minimum share capital for Limited Liability Companies (UABs) and flexible residency requirements for owners/directors. The Financial Crime Investigation Service (FCIS) oversees AML/CFT compliance.
  • Restrictions in 2025-2026:
    • CASPs must comply with MiCA by July 2026, with mandatory AML/CFT policies and reporting to FCIS.
    • Taxation: A 15% corporate income tax applies, with potential tax incentives for crypto firms.
    • TFR enforcement may increase operational costs for data verification and transaction reporting.

Malta

  • Current Framework: Malta aims to be a “blockchain island” with a crypto-specific framework under the Malta Financial Services Authority (MFSA). The Virtual Financial Assets Act (VFA Act) governs licensing, with fees ranging from €3,000 to €12,000 for applications and €2,750 to €25,000 annually.
  • Restrictions in 2025-2026:
    • The VFA regime will be replaced by MiCA by July 2026, requiring all providers to obtain MiCA authorization.
    • Malta’s tax incentives, such as exemptions for long-term holdings, may face pressure to align with CARF/DAC8 by 2026.
    • Strict AML/CFT compliance, monitored by the Financial Intelligence Analysis Unit (FIAU), will intensify with TFR implementation.

Portugal

  • Current Framework: Portugal is known for its crypto-friendly tax regime, with no tax on crypto held for over a year. The Banco de Portugal oversees crypto activities.
  • Restrictions in 2025-2026:
    • A 28% capital gains tax applies to crypto held for less than a year, with potential changes to align with CARF/DAC8 by 2026.
    • MiCA compliance is mandatory by July 2026, with increased reporting requirements for CASPs.
    • The tax-free status for long-term holdings may face scrutiny as Portugal aligns with EU tax transparency rules.

Potential Restrictions and Challenges in 2025-2026

  1. End of Grandfathering Period (July 1, 2026):

    • All CASPs must achieve full MiCA compliance by July 1, 2026. Non-compliant entities risk penalties, service disruptions, or market exclusion.
    • Varying transitional periods across member states may create regulatory inconsistencies, impacting market access and consumer protections.

  2. Stricter AML/CFT and Travel Rule Enforcement:

    • The TFR’s Travel Rule, effective since December 30, 2024, requires CASPs to collect and share detailed transaction data, increasing operational costs and complexity.
    • Posts on X suggest concerns about privacy, with TFR potentially ending anonymity for crypto transfers and imposing full KYC on Bitcoin ATMs.

  3. Tax Transparency and Reporting:

    • The CARF and DAC8, effective in 2026, will mandate comprehensive transaction reporting, covering DeFi and NFTs. This could lead to higher compliance costs and penalties for undeclared holdings.
    • Countries like Germany and Portugal may revise favorable tax exemptions to align with these frameworks.

  4. Non-Custodial Wallets:

    • Posts on X indicate that MiCA rules may effectively block non-custodial wallets from app stores unless developers hold a MiCA license, potentially limiting user access to decentralized solutions.

  5. Stablecoin and Banking Regulations:

    • Stablecoin issuers face stringent requirements, including EU-based operations and 1:1 reserve backing. The EBA’s oversight of significant ARTs/EMTs may limit market entry for non-compliant issuers.
    • The EBA’s finalized rules on bank capital requirements for crypto exposure, effective January 2026, may restrict banks’ ability to hold or trade crypto-assets.

Conclusion

The EU’s crypto regulatory framework, led by MiCA, TFR, and DORA, marks a significant shift toward harmonized oversight, consumer protection, and financial stability. By July 1, 2026, all CASPs must comply with MiCA, ending national frameworks like France’s PACTE or Malta’s VFA Act. Country-specific variations, such as Germany’s potential tax changes or Ireland’s tax incentives, highlight the diverse approaches within the EU. However, stricter AML/CFT, tax reporting, and operational resilience requirements will challenge businesses and investors in 2025 and 2026. To navigate this landscape, CASPs should prepare for licensing, enhance compliance systems, and monitor country-specific developments to avoid penalties and ensure market access.


This article is prepared to you by the team of dedicated professionals of Migrate Global.

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