All the Help to Launch Your Next ICO
If 2017 called the year of ICOs dwarfs when compared to the $20 Billion raised by ICOs just in the first nine months. This is more than thrice the capital raised in 2017. The crypto investment world is moving at a rapid pace with the advent and popularization of even newer concepts like the STO which bring newer possibilities to the users.
Cyprus continually ranks on top of lists of the most blockchain friendly nations. While the rest of the world is trying to get a regulatory grip on this revolutionary technology Cyprus has formulated a clear approach to promote blockchain transactions and ICOs in the country. There is no particular statute or legislation dealing with the raising of capital through ICO/STO and it is generally regulated on the basis of the nature and characteristics of the tokens being issued. The primary guiding light comes from the EU recommendations.
ICO Options in Cyprus
The two most feasible roads to an ICO in Cyprus are to either incorporate a Cyprus limited liability company or to start a Cyprus investment fund.
Opening a company in Cyprus is easier than most other jurisdictions in the EU and in fact all over the world. The procedures are straightforward and the whole process is very time efficient. There are also provisions for payment of an express fee to accelerate an already quick process. Some of the documents required are the passport, proof of residence and offices, memorandum of association and articles of association etc. After this, the Certificate of Incorporation is granted and other formalities like the Tax-Id are sought. One needs a license from the Securities Commission in order to deal in securities.
Cyprus Investment Fund
It is required to present a whitepaper for the fund which outlines the objectives and functioning process of the firm to the Securities and Exchange Commission. Also, an investment fund must register with the Commission. The process for registration here too is hassle-free and straightforward. The approval of the Cyprus SEC is essential for conducting an ICO through this method. Already established investment funds looking to deal in cryptocurrencies or such must get the relevant license from the Cyprus Securities and Exchange Commission on payment of a fixed fee.
In the absence of any formal legislation dealing with ICOs on paper, the crucial factor becomes the types of the token issued. Any tokens which qualify as securities would necessarily be subject to all the legislation applicable on securities and financial assets. However, only value based tokens like cryptocurrencies would be treated differently and free from such regulations. It is wise to carefully study these regulations to avoid any penalties or liabilities in the future, even if the penalization of ICOs is extremely rare in Cyprus.
The Cyprus Securities and Exchange Commission follows the guidance of the European Securities and Markets Authority. The ESMA released a statement in late 2017 stressing the importance of ICOs to adhere to regulations especially when their tokens or coins offered qualified under the definition of financial instruments. The specific regulations mentioned in the statement were –
The Markets in Financial Instruments Directive
MiFID is a European Union regulation dealing with financial intermediaries providing services to clients dealing in bonds, shares, derivatives etc. Any organized trade in financial instruments also comes under the ambit of MiFID which has its primary goal to regulate and bring transparency to over-the-counter transactions. It was introduced in 2008 and some of the lapses in MiFID have been addressed by introducing MiFID-II.
The Prospectus Regulation (PR3)
This replaces and updates the Prospectus Directive of 2003 dealing with the publication of a prospectus and the conditions to be satisfied through the process to maintain transparency and customer protection. This ensures a uniform level of mandatory disclosure throughout the EU so that the rights of the investors are protected equally in all economic zones. A prospectus once approved in a country thus can then be valid across all other member countries of the EU making a unified market. The regulation implemented in July 2017 aims to simplify the processes for companies by streamlining procedures and relaxing obsolete requirements.
Fourth Anti-Money Laundering Directive
As the name suggests FAMLD was launched in June 2017 with the intention of combating money laundering and terrorist financing. The main focus of the fourth directive has been on customer due diligence, background checks and risk assessments as measures to combat money laundering. It primarily regulates credit and financial institutions along with trust company services. The fourth directive increased its reliance on the risk-based approach mandating for the individual institutions to asses the risk of individual transactions. The fifth AMLD has already been proposed and adopted by the EU in April 2018.
Alternative Investment Fund Managers Directive
The AIFMD regulates the activities of private equity funds, hedge funds, and real estate funds by making mandatory compliance and disclosure requirements. The AIFMD was introduced especially to be applied to these alternative investment funds and managers which were earlier exempt from disclosure and compliance norms. The main objective behind the directive is the same as other directives mentioned above, investor protection. This is done by stricter compliance regulations like ruling out the conflict of interests, independent valuation of assets etc.
- Cyprus is one of the most Crypto friendly jurisdiction in the world.
- Such is the popularity of blockchain on the island that the University of Nicosia became the first university in the world to accept the fee in a Cryptocurrency.
- There are specialized education programs being taught on blockchain and crypto management in the country making it a global leader on the subject. It also produces skilled experts on the topic as a result.
- At 12.5% Cyprus has one of the lowest corporate tax in Europe and in the world.
- It provides for highly skilled human resource in all areas like legal, accountancy, marketing etc.
- Cyprus, while maintaining low tax rates is also an EU member and in the EUCD white-list making it highly reputable for transparency and stability.
- There is no withholding tax on dividends accrued from subsidiaries or on payment of dividends to non-resident shareholders.
- Cyprus has Double Tax Treaties with more than 55 countries thus, protecting against double taxation. This includes major economies like USA, UK, India, China etc.
- The government is acutely business friendly and all procedures and formalities are time-efficient and straightforward.
- Most people speak functional English.
- The crime rates in Cyprus are some of the lowest in the world.
Just like regulation the tax liability involving ICOs is also dependent on the nature of the tokens issued and the structure of the ICO. Thus, the tax liability incurred by the different types of tokens differs significantly.
- Strictly value based tokens/Cryptocurrency –Corporation tax is applicable on the profits at the rate of 12.5%. VAT exemption is probable in this case under Article 135(1)(e) of the EU VAT Directive 2006/112/EC although there is not much legal precedent in this area.
- Utility tokens – These can be exempt from corporation tax as they are promises-in-future. However, the 12.5% rate of taxation will be applicable on the profits when the services promised via tokens are finally provided to the holder. We believe that there can be a case made for Utility token to be exempt from the VAT at the time of issuing of the tokens.
- Asset tokens – If these qualify under the definition of share capital then a one-time Capital tax of 0.6% would apply. There also several ways to reduce or even completely save the raised capital from corporate tax by reporting it as a liability of the company and not the revenue. There can be a case made for exemption of VAT on asset tokens under the Articles 135(1)(b) and the Articles 135(1) (f) of the EU VAT Directive.
The developments in the area of ICOs have meant that firms offering ICO legal services must be educated in the area in order to be in a position to protect the interest of their clients. At Simon Zenios & Co LLC our lawyers have been closely following the developments in this area and have acquired the specialized legal knowledge in order to be in a position to advise and assist our clients.
Our lawyers understand that the process of running your ICO will have legal implications stemming not only from the ICO documentation (White paper, T & C’s etc.) but also from marketing material. It is vital that clients running an ICO are advised as to the legal implications that can arise not only from the content of the documents but oftentimes from what is not included in the documents. Above all, we understand that legal certainty and clarity should govern the relationships between the ICO team and coin/token buyers, holders or users.
The process of running an ICO also presents legal implications in regards to token design which cannot be overlooked. Depending on its design, your ICO’s token may be considered a financial instrument and could thus be subject to financial regulation. This is why it is vitally important to have legal advice and support throughout the process.
Our team of ICO lawyers will be able to advise and assist you throughout the process which will begin with an introductory call with our team of experts, the point of which is for our team to understand your requirements and objectives. Following this, we can then provide you with a quote for our ICO Legal services. If the quote is accepted and you decide to engage our legal services, the next step will be for us to collaborate with your team and come up with a detailed legal services plan.
- Legal Support during the Whitelist Period, Pre-ICO & ICO period.
- SAFT Agreement.
- Token Purchase Agreement.
- Preparation and drafting of the ICO Private Placement Offering Document.
- Preparation and drafting of the pre-Crowd Token Offer (Pre ICO) and Crowd Token Offer Agreement (ICO).
- Legal Report for the Token (Security or Utility?) after the Reviewal of the Whitepaper (Opinion Letter from our Law Firm – Requirement for the Bank & the Exchanges).
- Legal Disclaimer for the Whitepaper.
- Security Policy.
- Legal Review of the Whitepaper.
- Legal Review of the Website.
- Legal Review of all Social Media Platforms.
- Legal assessment for the ICO’s compliance with the current regulatory framework.
- Legal assessment of the application of the Token and ICO within the current regulatory framework for investment services.
- Extensive legal review of the Token and ICO’s compliance with other applicable legislation (Data Protection Regulations, Consumer Protection Regulations etc.).
- KYC Legal Advice and solutions for your ICO.
- Token Company Incorporation and maintenance.
- Marketing Company Incorporation and maintenance.
- E-money Company Formation & Licensing.
- Tax and VAT Services.
- Corporate Legal Services.
- Administrative and Fiduciary Services.
- Accounting services through our Associate Accounting Firm.
Other Non-Legal ICO Services
- Smart contract preparation and drafting.
- Creation of multi-signature wallet.
- Issuing of Tokens (ERC20 compatible).
- Listing on the Exchanges.
For any queries regarding any aspect of ICOs or blockchain companies in general, or any other legal matter under the sun, we are always available.