When advising clients from many countries around the world on ICO implementation issues, there is always a moment when we have the following questions: Where is the best way to complete the ICO process? Which country to choose? Legislation whose country is the best? Unfortunately, there is no single answer to these questions, which would be a panacea for all doubts. If we are unable to find a universal country suitable for all implemented projects, we can share our opinion on the whereabouts of ICO. Below is a list of key factors to consider when searching for the best jurisdiction.

Who and where are the buyers of our services?

Both the blockchain technology and the world of cryptocurrencies based on it do not have state borders. Therefore, we can assume that the release of tokens is usually addressed to the largest possible group of potential buyers in different parts of the world. Of course, you should know 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 most of our target audience is in Asia, we should seriously consider choosing Singapore or Hong Kong. Europeans will be much closer to Estonia, Malta and Switzerland, and Americans — to stability in different US states. There are also offshore jurisdictions (for example, the British Virgin Islands, the Cayman Islands, Panama), which, however, rarely inspire investor confidence and are subject to many restrictions even in Europe.

What are the legal conditions in a particular country?

As a result of the policies of the European Union and the needs of the financial sector (especially banks), cryptocurrency companies are implementing broader anti-money laundering procedures and know your client (KYC). A well-designed process to counter money laundering strengthens the credibility of the issuer, which increases the chances of a project’s success.

In addition to the aforementioned procedures, tax rules and their clear interpretation in relation to the ICO are also of key importance. In some countries, such as Poland, the risk of using an unfavorable source of income from an ICO can significantly affect the profitability of an entire company. Therefore, we would eliminate the sense of organization of emissions in Poland, where the interpretation of legislation is ambiguous, and even some government agencies compare cryptocurrency equally with financial fraud. You should also avoid wide coverage of countries where ICOs are prohibited, such as China, Macedonia or Morocco.

In the area of ​​our interests should be those countries in which the activity on the production and sale of coins is legal, and government agencies consider them positive. In Europe, for example, we can consider Malta, which is officially the most friendly place for companies in the cryptocurrency industry. The attractiveness of Malta is confirmed by the presence of the largest European 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 conducted from around the world is Switzerland. However, due to the significant costs of building and maintaining a business, it is reserved mainly for large corporations with sufficient resources.

control

A feature of any business is the desire to maximize profits and minimize the tax burden. Therefore, tax planning is a key issue for successful companies. Those who do not apply to them, usually do not generate income, so they do not pay taxes. Taking into account the purpose of taxation, it is necessary to pay attention to the effective tax rate, and not just the nominal tax rate. One example is Malta, where the nominal tax rate is 35%, while companies actually pay only 5% 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 different angles. An important issue is the security and legality of the tax residence of shareholders, directors of ICO. Double tax treaties usually contain exactly the tax rules for companies that operate in two different countries. CFC rules, which have different forms in different countries, are also key. We wrote about the example of Estonia as a tax country for a Polish taxpayer.

TCO

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. Pay attention to reporting requirements for local administration fees and expenses for consultants and accountants. The degree of digitization of the country’s administration has a significant impact on costs. The ability to remotely manage a company using electronic administration allows, among other things, to avoid high fees for international shipments.

We often face the need to legalize and certify the translation of documents, which can be very expensive and time consuming in some countries. It can be assumed that the registration of the company itself is not enough for doing business in the country of our choice. Costs are also important for employees who go to work and stay in place.

Bank account

Over the past three years, the criteria for opening bank accounts for foreigners and non-residents worldwide have deteriorated sharply. Therefore, it is important to consider the possibility of opening a bank account when choosing a jurisdiction. In general, companies do not need to have bank accounts with local banks. For an international company controlled by Polish taxpayers, the easiest way to open a bank account in Poland. Nevertheless, it is worth considering the necessary documents, ease of procurement and the perception of a particular country by Polish banks. The company’s complex ownership structure and registration in a country classified as “tax haven” is a serious obstacle.

We also need to remember that most KYC banking procedures used require personal contact with the industry. Although traveling to the Czech Republic or Estonia is not a problem because of the distance, traveling to Hong Kong without a guarantee of success can be very expensive and long.

stability

The economic, legal and social stability of a selected country is an important topic for a business based on ICO. The certainty of economic fluctuations that manifests itself is also important due to the current data in the business registry. Change of registration documents in Estonia occurs within two days, in Malta — within two weeks. In Poland, in extreme cases it takes up to six months.

Of course, the factors that we represent are not the only ones that need to be taken into account, but in our opinion, they play the most important role in choosing the most profitable goal within the ICO. The order in which we touched on certain aspects is random. We know that every consultant or solicitor has his own list, and that the client can use a different key. It is extremely important for us to understand how important it is to choose the right place for an ICO.

The material was developed in collaboration with the Thompson & Stein Partner.

Thompson & Stein is an international law firm specializing in legal and tax advice. The company’s activities include assistance in obtaining a license for trading cryptocurrencies and advising ICO.

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