Nowadays, ICO is one of the most innovative and popular ways to raise funds for start-up businesses as well as new projects of well-established corporations.
All the Help to Launch Your Next ICO
If 2017 is called the year of ICOs, it dwarfs when compared to the $20 Billion raised by ICOs just in the first nine months of 2018. 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.
In Cyprus, there is no statute or legislation dealing with the raising of capital through ICO 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 most feasible road to an ICO in Cyprus is to incorporate a Cyprus limited liability company that will launch the project.
While the Cypriot Legislation provides many types of corporate vehicles, the Cyprus limited liability company is considered as the most suitable option. The company is an independent legal personality and its shareholders have no personal liability for its debts and obligations further than the nominal value of their share participation. There are minimum requirements to set up a Cyprus company such as having a registered office in the Republic of Cyprus and the incorporation process is quick and can become even faster by paying an additional fee.
Why Cyprus is the ideal ICO destination
- Cyprus is an ideal Crypto jurisdiction in the European Union and even Worldwide because of the low lack of specific regulation complicating or forbidding the issuance of the virtual/digital tokens. Such is the popularity of blockchain on the island that the University of Nicosia was the first university in the world to accept the tuition fees in Bitcoin.
- 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 rates 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 fluent English.
In the absence of any formal legislation dealing with ‘crypto-assets’ within the European Union, the crucial factor becomes the type of the token in question. Any tokens which qualify as securities would necessarily be subject to all the legislation applicable on securities and financial assets. However, only utility tokens like cryptocurrencies would be treated differently and free from such regulations. It is wise to request from your Legal Advisors an Opinion Letter on the structure of your token and the regulations applying to it, 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. ESMA released a statement in late 2017 stressing the importance of ICOs to adhere to regulations when their Tokens are Securities/financial instruments. This position is affirmed in ESMA’s latest advisory report in early 2019, stressing the gap in the legislation regarding the regulation of utility tokens.
4th and 5th Anti-Money Laundering Directives
As the name suggests the 4th AMLD 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. The fourth directive increased its reliance on the risk-based approach mandating for the individual institutions to asses the risk of individual transactions.
The 5th AMLD has already been proposed and adopted by the EU in April 2018. It must be implemented into national law by 10 January 2020. Under the 5th AMLD entities that engage in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers fall within the scope of the Directive and must put in place Anti-Money laundering policies.
ICO Tax Liability in Cyprus
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, however, it is not guaranteed since there is uncertainty all over the European Union regarding this topic and different treatment from each member state of the European Union.
Simon Zenios & Co. LLC specialises in ICO services
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 from A to Z 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.
We offer a range of Legal Services including:
- Legal Support during the Whitelist Period, Pre-ICO & ICO period.
- Preparation and drafting SAFT Agreement.
- Preparation and drafting Token Purchase Agreement.
- Legal Report for the Token (Security or Utility?) after the Reviewal of the Whitepaper and other material (Opinion Letter from our Law Firm – Requirement for the Bank & the Exchanges).
- Legal Disclaimer for the Whitepaper.
- Security Policy.
- GDPR compliance.
- 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.
- Tax and VAT Services.
- Corporate Legal Services.
- Administrative and Fiduciary Services.
- Accounting services through our Associate Accounting Firm.
Other Non-Legal ICO Services (Part C)
- 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, Contact below.