TOP JURISDICTIONS FOR ICO IN 2023
Considering the constantly evolving laws and regulations of Digital Assets and ICO all around the world, it is very difficult to decide which country’s laws will be the best suited for your company’s requirements. Navigating this legal problem could be quite difficult and if you accidentally commit a breach of any rules or license requirement you may also face serious legal repercussions including but not limited to fines, punishment, and even complete shutdown of your company depending upon the jurisdiction. And even if you succeed in navigating the regulations and licensing requirements you may still be subjected to paying over half of your earnings into taxes or other regulatory requirements (e.g., if you operate in a country like Japan). To help you choose the best jurisdiction to host your ICO, here is a list of top ICO-friendly jurisdictions considering the present regulatory conditions.
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Each jurisdiction was judged on a specific set of criteria, including but not limited to:
·??????The ICO's capacity to cooperate with industry.
·??????The existence of governing laws for ICO.
·??????The legal definition of cryptocurrencies/ICOs in each respective jurisdiction.
·??????Tax-implications.
·??????Permissible types of corporate formations under the law.
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1.????BRITISH VIRGIN ISLANDS
The British Virgin Islands (BVI) has become a popular destination for initial coin offerings (ICOs) due to the favorable conditions and established advantages of using a BVI company for investment transactions. At present, there are no specific regulations in place that would increase the registration costs or compliance requirements for ICOs. Notwithstanding the absence of specific laws which regulate the use of a BVI company in an ICO scenario, there are laws for BVI companies to consider when raising money or conducting business using cryptocurrency. These include the Securities and Investment Business Act 2010 (SIBA), The Financing and Money Services Act 2009 (FMSA), The Proceeds of Criminal Conduct Act 1997, etc.
The issuance of an ICO in BVI brings with it all of the standing advantages associated with BVI business companies and the capital-friendly jurisdiction. When using a BVI business company as an ICO Issuer, one can benefit from several advantages associated with the jurisdiction. These benefits include corporate flexibility and efficiency, as the BVI has modern and commercially minded corporate legislation. Additionally, BVI ICO Issuers are not subject to capital control and maintenance rules, allowing for the free flow of funds. The BVI is tax-neutral and has lower incorporation and annual company maintenance costs compared to other similar jurisdictions such as Cayman and Bermuda. Company maintenance is also efficient, and continuing obligations for BVI companies, and their officers and owners are commercially progressive and non-onerous.
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2.????CAYMAN ISLANDS
The Cayman Islands has established itself as a prominent global financial hub, recognized for its innovative and business-friendly environment over several decades. It offers a stable political system, a judiciary, and legislature linked to the United Kingdom, tax neutrality, advanced service providers, and a regulatory framework that is proportional and focuses on the financial services industry, particularly those serving sophisticated and institutional investors from other countries. As a result of these features, the jurisdiction has become a popular choice for those seeking to set up fintech-related structures, including funds investing in digital assets, exchanges, initial coin offerings (ICOs), and other similar ventures.
When it comes to launching an initial coin offering (ICO), registering your project in the Cayman Islands can offer numerous advantages. Firstly, the jurisdiction is considered to be tax-free, which means that ICO issuers can save on taxes and reinvest that money into their project. Additionally, the Cayman Islands has a friendly stance towards crypto and blockchain projects, making it an attractive option for ICOs. Another benefit is that there are no minimum share capital requirements, allowing ICO issuers to launch their project with the funds they have available. Finally, the process of setting up and maintaining an ICO in the Cayman Islands is relatively straightforward and can be done entirely online, making it an accessible option for entrepreneurs looking to launch their projects quickly and efficiently.
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3.????ST. VINCENT & GRENADINES
Registering an Initial Coin Offering in St. Vincent & Grenadines offers several benefits. First, there are no corporate taxes, withholding taxes, or capital gains taxes to be paid. Additionally, the jurisdiction is reputable and highly regarded for its support of economic liberty. The process of operation, maintenance, and control is easy, and confidentiality and anonymity are guaranteed.
The advantages of setting up an ICO in Panama are that the virtual asset activity isn't overly regulated and often doesn't imply additional obligations for authorization, licensing, KYC/AML implementation, etc.?At the same time, special regulations for virtual assets can always be introduced in the future. This exposes a company to a rather high degree of risk due to the uncertainty of newly adopted regulations.
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4.????DUBAI INTERNATIONAL FINANCIAL CENTRE
The Dubai International Financial Centre (DIFC) is a financial-free zone in Dubai that provides an array of services and facilities for financial institutions. It operates under its own regulatory framework, which is independent of the central government of the United Arab Emirates (UAE). This allows it to offer a more conducive environment for fintech and digital finance companies without being bound by the regulations applicable to the rest of the country.
The Dubai Financial Services Authority (DFSA) is the regulator for the DIFC and is responsible for establishing the licensing framework for virtual asset service providers. The objective of this framework is to ensure the safety and soundness of virtual asset activities. The DFSA has recently launched the Innovation Testing Licence (ITL) Programme. Effective 1st November 2023, entities that intend to offer an ICO can apply for an Arranging Deals in Investments Licence from the DFSA. Interested firms need to first submit a pre-application to the DFSA via their official website.
Offering an ICO in the Dubai International Financial Centre (DIFC) can offer several benefits, including a favorable regulatory environment, a strategic location, a business-friendly environment, tax benefits, and access to capital. DIFC has a comprehensive regulatory framework, and its business-friendly environment encourages innovation and entrepreneurship. Additionally, DIFC offers tax benefits such as zero percent income tax and no restrictions on foreign exchange or capital repatriation and provides access to capital through its vibrant financial ecosystem of investors.
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5.????SINGAPORE
Singapore is one of the friendliest countries in the world when it comes to initial public offerings and cryptocurrency-related businesses. There have already been several notable ICO hosting in the jurisdiction., TenX[1] famously raised US$43 million while Bluzelle[2] raised almost $20 million with its 24-hour campaign.
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The initial step to issuing an ICO is to register a company with Accounting and Corporate Regulatory Authority (ACRA). Following that, the business can create cryptocurrency which will be traded in order to obtain funds for the future development of the company. No license is necessary for the issuance of ICOs; however, the Monetary Authority of Singapore (MAS) will review the digital tokens before being issued. The main regulator in the ICO space is the MAS, which governs and oversees the country’s regulations involving money, insurance, banking, securities, and currency issuance.
The corporate tax rate in Singapore is limited to 17%[3], with no additional capital gains tax.
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6.????GIBRALTAR
Gibraltar is an example of a jurisdiction that has introduced regulations aimed at attracting blockchain and crypto companies. Gibraltar has a progressive approach towards the blockchain industry and as a result, the territory has emerged as a jurisdiction of choice for many crypto firms. ICO Issuance in Gibraltar is governed by the Proceeds of Crime Act 2015 (Relevant Financial Business) (Registration) Regulations 2021. Under these regulations, any entity which intends to sell tokens from Gibraltar must first register with the Gibraltar Financial Services Commission (GFSC) for the purposes of AML/KYC supervision. The GFSC has listed the details for registration, fees, and the entire ICO process on its website[4].
The tax rate is a 12.5[5]% corporate rate with additional low-tax and zero-tax benefits.
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7.????MALTA
Malta is one of the first few jurisdictions that have regularized the ICO process. The Virtual Financial Assets Act was enacted on the 1st of November 2018 with a specific chapter in relation to the Issuers of Virtual Financial Assets.
The Issuer would need to form a legal entity in terms of the Laws of Malta and shall be directed by two (2) individuals. A few compliances for issuers include the appointment of a VFA Agent, undertaking a Financial Instrument Test, and Drawing up the Whitepaper & Smart Contract parameters. Any Issuer must also determine whether its token is a Utility Token, Security Token, E-money, or a Virtual Financial Asset.?
Although this might seem like a lot of work for the issuer but with there being specific legislation, there is clarity on the compliance part and with this, the issuer can preserve themselves from any unprecedented penalties.
Companies incorporated in Malta may be subject to a higher tax rate of 35% however it also offers several tax benefits like a wide treaty network, EU tax directives, etc.
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8.????PANAMA
It’s quite simple to launch an ICO through an offshore company or Foundation registered in Panama. To register an offshore company or a Foundation in Panama, the presence of the owners of the business isn’t necessary, there’s no requirement of a deposit of capital, there are no nationality restrictions, you don’t pay taxes on activities outside of the country, there are low constitution and maintenance expenses.
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9.????BAHAMAS
In the Bahamas, Initial Coin Offerings are governed by The Digital Assets and Registered Exchanges Act (DARE Act), which sets out the criteria for sponsors and promoters of ICOs. The governing body under the DARE Act is the Securities Commission of The Bahamas. All offers in connection with digital tokens in, or from within The Bahamas must comply with DARE Act. The issuer must be fit and proper; have prepared an offering memorandum (‘OM’); and comply with any regulations, rules, or guidelines provided for under DARE Act.
To register an ICO, the issuer should first identify the classes of tokens they plan to offer. They must apply no later than 45 days prior to the offer period, including a completed Form 1, an OM in the prescribed format, an attorney's legal opinion, and the application fee. The Commission will decide on the application within a certain number of days. If the token is determined to be a security, the issuer must withdraw their application but can apply to register it under the Securities Industry Act. Once approved, the token will be added to a register of ICOs.[6] To date Bahamas does not levy any corporate tax, this could be an added advantage for anyone planning to register an ICO apart from the defined registration requirements.
[2] https://sbr.com.sg/information-technology/exclusive/decentralised-database-firm-bluzelle-raises-195-million-in-ico
[5] https://taxsummaries.pwc.com/gibraltar/corporate/taxes-on-corporate-income#:~:text=Companies%20are%20subject%20to%20Gibraltar,a%20higher%20rate%20of%2020%25.
I would add Bermuda to that list, definitely above Bahamas and Panama from a reputational perspective