EdgeFund — Choosing a Jurisdiction
By Ross Cormack (https://medium.com/@rosshuntercormack)
Choosing the most appropriate jurisdiction to undertake a token sale and set-up a blockchain based business, particularly one that is related to online gambling is challenging for several reasons. This post describes the decision-making process that the EdgeFund team used in order to choose the optimum location for their business entity and operations.
Although token sale regulation continues to evolve and many jurisdictions have issued their respective guidelines and crypto regulation, they are still inconsistently regulated across the world. In addition, there remain many gray areas with regards to online gambling jurisdiction and requirements around the globe.
Decision making can be a cumbersome and stressful process at the best of times, but layer on top of that uncertainty concerning the rules and it becomes instantly more complicated. If not thought about and structured logically, it’s easy to make a misstep. To avoid this common pitfall, EdgeFund developed a framework to aid in the decision-making process as shown in the decision-making flow diagram below.
The EdgeFund team reviewed their strategic priorities and targets which in turn allowed for the development of selection criteria. Selection criteria were primarily based on:
1. Token Sale Regulations
2. Gambling/Betting Regulations
3. Tax Regulations
1. The Token Sale Regulations
The EdgeFund team first sought to identify jurisdictions where a regulatory framework that can manage ICOs and crypto organizations exists and to eliminate jurisdictions where legality and regulatory hurdles would make token sales illegal or overly burdensome. The EdgeFund team reviewed a broad universe of jurisdictions and classified them as follows:
· Token Sales Allowed;
· Token Sales Allowed / regulated;
· Token Sales Allowed but subject to future regulation;
· Token Sales Allowed but heavily regulated, or
· Token Sales Banned.
2. Gambling/Betting Legislation
In addition to the above, EdgeFund also wanted to gain an understanding of jurisdictions that may have legal and regulatory restrictions on online gambling. Jurisdictions were assessed based upon the following criteria:
· Is it legal to place bets online?
· Is it legal to operate online betting within the country?
· Is it legal to operate and offer online betting within the country, and?
· What are the gambling tax requirements?
In addition to the above criteria, EdgeFund also assessed those locations that would best suit their needs when factoring in the team’s physical location (residential status) and language.
3. Tax Regulations
For jurisdictions without legal and regulatory constraints for token sales and gambling, the team sought to understand the tax implications associated with raising funds via token sale. The following information was collected:
· Income tax requirements;
· Value added tax (VAT);
· Corporate gains;
· Corporation tax, and
· Stamp duty (if applicable).
Screening List & Shortlist
Primary research into regional regulation was carried-out via desk top study, and information collected using a variety of online resources. Subsequently, an assessment of the screening list against the selection criteria was undertaken and those jurisdictions that did not suit EdgeFund’s requirements were eliminated.
Through this staged process of elimination, the team successfully narrowed the initial selection down to a shortlist, namely:
1. United Kingdom;
2. Isle of Man;
3. Aldernay;
4. Curaçao;
5. Estonia;
6. Malta;
7. Ireland, and
8. Gibraltar.
From here, the team carried-out a more comprehensive analysis of the shortlisted jurisdictions based on the same/similar criteria, namely:
· Cryptocurrency legislation;
· Token sale taxes;
· Gambling taxes;
· Tax treaties, and
· Business entity type.
The jurisdictional short-list was also evaluated considering qualitative factors around the ease of doing business, including:
· Strong asset and liability protection which are understood by the team;
· Options for secure banking operations i.e. bank accounts are not severely limited for transfer in or out and are workable for operations not just assets, and
· Acceptable business conduct with a strong reputation.
During the refined screening phase, the team also liaised with advisors who have experience in setting-up blockchain and crypto businesses, and further discussions were had to determine what regulatory and tax environment we are comfortable operating within, and the overall level of risk we’d be willing to take in the running and administration of our business.
The shortlisted options were all deemed acceptable; However, after much deliberation, EdgeFund decided to locate in the UK. The EdgeFund team are all UK citizens, familiar with local business practices and the current tax regime, and the UK seems open to blockchain and cryptocurrency technology and business. Her Majesty’s Revenue and Customs (HMRC), the government agency responsible for the collection of taxes, recently issued a policy paper detailing how individuals possessing crypto assets might be taxed. The paper follows on from previous government reports treating crypto assets more as property than as a form of money. However, they didn’t outline the tax regime for tokens held by businesses or for business purposes; guidance is planned to be published later. EdgeFund are currently working with a legal team in the region to ensure that all aspects of the business are in line with regulations, both current and pending. EdgeFund will continue to monitor the regulatory regime in the United Kingdom to ensure the initial screening assessment still applies.
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I am currently working on EdgeFund, an open-source platform which offers a decentralized shared bankroll on the Blockchain. To learn more about EdgeFund, please visit our website. Join our Telegram group to chat to the team and follow us on Twitter!
