The selection of the place where we want to conduct the ICO is always the result of a thorough analysis. A poorly chosen place of registration for the token issuer, can ruin the work of even the best marketing department, and losses can be in the field of promotion, taxation and feasibility of the project itself. There is no ideal country for ICO, but there are factors that can help you to choose the most appropriate one for the specificity of the project.When advising clients from many parts of the world on the implementation of ICO, there is always a moment when we get the following questions: Where is the best way to carry out the ICO process? Which country should be chosen? Legislation whose country is the best? Unfortunately, these questions have no unified answer, which would be a panacea for all doubts. If we can not find a universal country that suits all realized projects, we can share our mindset about ICO’s location. Below is a list of the key factors to consider when looking for the best jurisdiction.
Both the blockchain technology and the world of cryptocurrency based on it have no state borders. We can therefore assume that the issuance of tokens is usually addressed to the largest possible group of potential buyers in different parts of the world. Of course, you should be aware that each of us is guided by different ideas, stereotypes or prejudices. As a rule, investors prefer what is close and familiar to them. If the majority of our target audience is in Asia, we should seriously consider the choice of Singapore or Hong Kong. Europeans will come much closer to Estonia, Malta and Switzerland and Americans to the stability of various US states. There are also offshore jurisdictions (eg British Virgin Islands, Cayman Islands, Panama) which, however, rarely inspire investor confidence and are subject to many restrictions even in Europe.
As a result of European Union policies and the needs of the financial sector (notably banks), companies operating in the cryptocurrency industry are introducing more extensive AML (anti-money laundering) and know your client (KYC) procedures. A properly designed and anti-money laundering process strengthens the credibility of the issuer, which increases the chances of success of the project.In addition to the above procedures, tax rules and their clear interpretation with regard to the ICO are also of central importance. In some countries, such as Poland, the risk of using an unfavorable source of income from ICOs can significantly affect the profitability of the entire company. We would therefore exclude the feeling of organizing emissions in Poland, where the interpretation of legislation is ambiguous, and even some government institutions compare cryptocurrencies equally with financial fraud. It is also worth avoiding the wide sweep of the country where ICO is banned, such as China, Macedonia or Morocco.In the area of our interest should be those countries in which the activity of issue and sale of coins is legal and the state authorities see them as positive. In Europe, for example, we can consider Malta, which officially presents itself as the friendliest place for companies in the crypto-currency industry. The attractiveness of Malta is confirmed by the presence of Europe’s largest stock exchanges in its market. It is also worth considering Estonia, which, like Malta, has clear rules and an attractive tax system but is a much cheaper solution. The European country where ICO is carried out from all over the world is Switzerland. However, due to the significant costs of setting up and maintaining the business, it is reserved primarily for large corporations with adequate resources.
The feature of any business is the pursuit of profit maximization and minimization of tax burden. Tax planning is therefore a key issue for successful companies. Those who do not refer to them usually do not generate income, so they pay no taxes. Taking into account the tax purpose, it is necessary to pay attention to the effective tax rate, not just the nominal tax rate. One example is Malta, where the nominal tax rate is 35%, while companies actually pay only 5% of the tax due to the reimbursement system. However, tax returns can take months, significantly limiting the company’s cash flow.Tax issues should be viewed from multiple sides. An important issue is the safety and legality of the tax residence of shareholders, directors of the ICO. Double taxation agreements usually contain exactly the rules for the taxation of companies that operate in two different countries. CFC regulations that have different shapes in different countries are also the key. We wrote about the example of Estonia as a tax-friendly country for a Polish taxpayer.
The cost of business services and services for different companies in different countries varies considerably. In general, offshore countries are the cheapest countries that do not require detailed reporting or accounting. It pays to pay attention to the reporting requirements for local administration fees and the costs of consultants and accountants. The extent of digitization of a country’s administration has a significant impact on costs. The ability to manage the company remotely via e-administration avoids, among other things, high fees for international shipments.We are often faced with the need for legalization and the certified translation of documents, which can be very costly and time-consuming in some countries. It can be assumed that the registration of the company itself is not sufficient to do business in the country of our choice. Also important are the costs for employees who commute and stay on site.
In the last three years, the criteria for opening bank accounts for foreigners and non-residents have drastically worsened worldwide. Therefore, it is so important to review the possibility of opening a bank account when choosing a jurisdiction. In general, there is no need for companies to have bank accounts with domestic banks. The easiest way for an international company controlled by Polish taxpayers is to open a bank account in Poland. However, it is worth considering the necessary documents, the ease of procurement and the perception of a particular country by Polish banks. A complicated ownership structure of the company and registration in a country classified as “tax havens” are a major obstacle.We should also remember that most of the banking KYC procedures used require personal exposure to the industry. While traveling to the Czech Republic or Estonia is not a problem due to the distance, traveling to Hong Kong without a guarantee of success can be very expensive and time consuming.
The economic, legal and social stability of the selected country is an important theme of the ICO-based business point. The certainty of the economic fluctuation that manifests itself is also important due to up-to-date data in the business register. The change of the registration documents in Estonia takes place within two days, in Malta within two weeks. In Poland, it takes up to six months in extreme cases.Of course, the factors we are presenting are not the only ones that need to be considered, but in our opinion they play the most important role in choosing the most profitable target within the ICO. The order in which we touched certain aspects is random. We are aware that every consultant or solicitor has their own list and that the customer can use a different key. For us, it is extremely important to realize how important it is to choose the right place to run the ICO.
Thompson & Stein is an international law firm specializing in legal and tax advice. The company’s activities include assistance in obtaining a license to trade cryptocurrencies and advising ICO.
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12 November 2018
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