With the always changing ICO legislation that’s present in our world, it is far from easy to decide what jurisdiction’s rules and regulations will be the most beneficial for your company. Navigating this legal labyrinth can be quite difficult, and if you accidentally break any rules you may face punishment or even a complete shutdown, depending on the jurisdiction. Even if you navigate the laws correctly, you may still be subjected to paying over half your earnings in taxes if you operate in a country like Japan. In order to help you choose the best country to host your ICO, we humbly present to you our top 10 jurisdictions based on the current regulatory conditions. Each jurisdiction was judged on a specific set of criteria, including:
- The ability for an ICO to cooperate with the industry
- Access to legal and industrial representatives
- Consumer and investor protection regulations
- The respective jurisdictions’ legal definition of cryptocurrencies/ICOs
- The presence of industry advocacy groups (more = better)
- And the types of corporate formations legally allowed
NOTE: Most jurisdictions have a similar process when launching an ICO ( the process typically involves registering with the local governmental financial institution, submitting a white paper, fulfilling KYC/AML requirements, and paying the accompanying fees before the ICO and the taxes after it. We’ve provided links within the jurisdictions that connect to more detailed instructions, and we’ll highlight any cases where a jurisdiction requires a special process.
1. Switzerland
Quickly becoming known as Crypto Valley, Switzerland offers a great balance of regulation security, investor protection, reasonable tax rates, and ICO-friendly lawmakers. ICOs are legal in Switzerland so long as the company registers with the Swiss Financial Market Supervisory Authority (FINMA) and each application will be ruled on individually, based on its merits (whether your token is a payment, utility, or an asset). Switzerland is home to the Ethereum Foundation, the creators of Ethereum.
- Need to register with the Swiss Financial Market Supervisory Authority (FINMA).
- More details can be found here.
- Tax rate depends on how the ICO is classified, but this can range anywhere from 1% (the mandatory capital duty tax) up to 35% (corporate tax).
- Cons: Pricey KYC procedures for now (up to $25 per check vs. a $2 average elsewhere). FINMA also reserves the right to change its mind on regulations.
2. Singapore
In a nutshell, the Monetary Authority of Singapore is focusing more on regulating activities surrounding ICOs instead of regulating the ICOs themselves; this significantly reduces compliance and operating costs. In order to launch an ICO in Singapore you’ll need to be set up as a foundation (instructions and details in the link), after which Singapore will allow you to declare how your tokens will be treated.
- The tax rate is a 17% corporate tax, with no additional capital gains tax.
- Cons: The MAS has intervened in the past by barring ICO issuers who didn’t strictly follow the rules (by mislabeling their tokens), and they may change their regulations in the future.
3. Gibraltar
Gibraltar Finance based their regulations on being market friendly, and because of this they declare that “In many cases, [tokens] represent the advance sale of products that entitle holders to access future networks or consume future services.” This essentially means that they consider tokens to be commercial products (these aren’t governed by existing security laws in Gibraltar), which is great news for investors. Gibraltar is still shifting their legislation, but all signs point to them remaining ICO friendly. The Gibraltar Financial Services Commission lists clear details for registration, fees, and the entire ICO process on their website.
- The tax rate is a 10% corporate rate with additional low-tax and zero-tax benefits.
- Cons: The general lack of funding and blockchain expertise within the nation; some British banks refuse to do business with ICOs from Gibraltar.
4. United States
Even with stricter regulations the US still hosts the largest number of ICOs, with those ICOs holding a significant percentage of the global ICO earnings. Laws vary from state to state, but ICOs overall are expected to register with the SEC if they are offering tokens considered as securities. ICOs in the US benefit from great KYC/AML regulations to protect investors, as well as a well-financed investor pool from which to pull from. US citizens are often banned from contributing to overseas ICOs because of SEC regulations, so hosting your ICO in the US (and passing SEC requirements) taps into a pool of investors that is often left behind.
- Information on navigating the SEC regulation maze is best explained with a flow chart.
- The tax rate, if filed under an LLC, is 21%. However, there are ways to reduce that.
- Cons: SEC has strict regulations and isn’t afraid to shut down ICOs.
https://icorating.com/report/ico-market-research-q2-2018/
5. Thailand
Thailand’s government is working hard to legalize ICOs and ICO portals, ensuring that ICOs are able to operate legally and with minimal fees. Currently, companies must register with the SEC; the process here is a bit different than other jurisdictions. First, the product is screened by ICO portals, then they must prepare and issue a prospectus (a document detailing the business plan, token, sales, and other information), after which the SEC will give a ruling within 60 days and the ICO must disclose information about the coin to the public. The costs to file are around $2,000 USD.
- The tax rate is 5% — 35%, depending on ICO earnings (greater earnings = higher tax).
- Cons: Thailand may move to heavier regulations concerning ICO portals, thus making it harder for ICOs to be approved in the future.
6. Israel
Being home to large numbers of VCs, low regulations, and moderate taxes makes Israel a good choice for hosting an ICO. The Bank of Israel has yet to specifically run on ICOs, which means there are currently no hoops or red tape to dance around. Currently, Israel has no process for registering ICOs, since they are legally allowed but not yet regulated; however, starting a company is still necessary.
- The tax rate is 23%, but varies depending on the ICOs export plans.
- Cons: Israel may soon be increasing tax rates and regulations, and because of their lax regulations KYC/AML isn’t guaranteed to investors.
7. France
With a government that has been pushing hard for ICO-friendly regulations, a large investor pool, and the security of legal operations, France is a solid choice. In order to operate in France companies must submit their white paper to the Autorité des marchés financiers (AMF) for review. It must contain specific details: a description of the project related to the ICO and its roadmap, the rights conferred by the token, the legislative court in the case of disputes, and the economic purpose and use of funds collected during the ICO.
- The tax rate is 15% — 33% for corporations, and for token trading this was recently reduced to a flat 19%.
- Cons: France is working hard to become an ICO hub and they will be updating regulations again in 2020 (during this time another jurisdiction may bump them from this list).
8. Malta
Home of Binance (one of the world’s largest cryptocurrency exchanges), Malta offers an attractive package of potential matching capital contributions, assistance with staff salaries, office space, and tax credit incentives. In simple words, Malta does not regulate utility tokens, so long as your token is a utility then you are free to run an ICO in Malta without regulation.The legal situation varies for other token types, and either way it is best to register with the MFSA to ensure a smooth operation.
- The standard tax rate is 35%, but this can be lowered to 0% through tax refunds.
- Cons: Many ICO platforms have cornered the Malta market, meaning you’ll either have to go through them (and their fees), or find yourself hitting roadblock after roadblock.
https://icorating.com/report/ico-market-research-q2-2018/
9. Russia
Without any official regulations (yet), Russia still holds its ground as the “Wild West” of ICOs — but remember that no regulation means no security. Starting a company in Russia isn’t hard or expensive (less than $200 USD), and companies can still do as they like. It’s up to investors to verify the validity of what the companies are claiming. This is both wonderful and dangerous, so make sure you build community trust before launching an ICO in Russia if you want to succeed.
- The tax rate is 20% for corporations, although Russia only charges 13% for crypto investors.
- Cons: Expect heavy regulations in the future, as a planned strict cryptocurrency regulation bill is far overdo in the Russian government.
10. Estonia/Lithuania
The Baltic states often follow one another in ICO regulations, so Lithuania’s extensive ICO guidelines are expected to set the precedent for the region. Early success in ICOs helped launch this region into the spotlight, and continued government support for ICOs, easy to navigate regulations, and competitive tax rates keep them at the forefront of ideal jurisdictions. Organizing an ICO is not regulated, but it is encouraged to contact the Bank of Lithuania/Estonia and register by using this information before launching.
- The tax rate is 15% for corporations.
- Cons: Depending on whether your token launches as a security you may be subject to heavier regulations and laws. The introduction of an ICO regulatory body could lead to stricter laws.
Closing thoughts
First, before making any definitive choice, always contact a lawyer for more detailed information. Some law firms operate internationally, but reaching out to a lawyer that specializes in the law of the specific jurisdiction you are interested in is best. The ideal jurisdiction may change in the future, but remember the key things to look for: competitive tax rates, ICO-friendly regulations, and consumer protection.
The future market is indeed uncertain, but when looking at the overall picture it appears as though the countries that create the most functional ICO portals to ease the ICO process in conjunction with competitive fees will dominate the market. We are still in the infancy of a new type of fundraising, so expect many changes and market shifts in the coming years.
Thanks to the Howtotoken Agency experts for the information and comments provided for this topic.
About the author:
Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.