A brief analysis of the best jurisdictions for an ICO

Published in

The Startup

5 min readNov 22, 2017

What kind of monster is an ICO? Are there any distinct regulations of this process anywhere in the world and what are the best jurisdictions for it? Today, we are going to answer these questions in an analytic long read.

To get these answers, we have carried out a research on transparent projects. We derived the main information from https://www.smithandcrown.com and also studied white papers of numerous projects that have performed an ICO as well as foreign legislation. Let’s take a closer look at several countries.

Russian Federation

In 2014, the Bank of Russia issued a letter stating that digital currency is a form of money surrogates. In 2017, they changed their opinion and proposed to treat cryptocurrencies as digital goods. However, bitcoin websites are still reported to be blocked. That is why the majority of Russian ICO projects avoid registering a legal entity in Russia.

Nevertheless, the Russian President instructed the Bank of Russia and the Government to draft regulations for cryptocurrencies, mining and ICO. According to instructions of the President following the meeting on digital technology in the financial sector on October, 10, the relevant amendments in the legislation have to be made by July 1, 2018.

Conclusion: we believe that carrying out an ICO using a Russian legal entity is risky until the relevant regulations are adopted.

Switzerland

In Switzerland, there is a law on collective investments — the CISA. As individual statutory acts regulating an ICO still do not exist, the CISA is applied in a similar fashion. Under the CISA, you can’t raise investments without the approval of the Swiss Financial Market Supervisory Authority (FINMA). You will be able to raise collective investments in the form of cryptocurrencies only after FINMA authorizes it. To do that, you will need to register your company in Switzerland or organize permanent establishment of the company from another jurisdiction. According to our sources, the establishment of a company in Switzerland will cost you up to 30 thousand dollars.

As for taxation, the European Union has the following approach: Bitcoin is a currency and not a digital good. This fact automatically excludes transactions on Bitcoin acquisition for fiat money from the VAT return base.

Conclusion: we believe that Switzerland is a good choice of jurisdiction for an ICO although it will entail significant costs and will require FINMA authorization.

Singapore

Singapore currently does not have laws that could be applied to the regulation of cryptocurrencies and an ICO. They are being drafted right now. However, the state’s official stance suggests that they are not planning to implement any prohibitive measures.

Conclusion: This jurisdiction is favorable for an ICO, however, all the financial risks need to be calculated first.

USA

Laws that can also be applied to cryptocurrency transactions including an ICO have long been in force in the USA. You will need to obtain special authorization or a license to run your cryptocurrency business transparently and legally. Apart from that, cryptocurrency in the USA is classified as property and, thus, all transactions connected with it are subject to taxes.

Conclusion: if you are not an American resident and if you do not have a special license, we do not recommend carrying out an ICO in this country.

Estonia

In Estonia, ICO regulation is neither specified nor mentioned in the national legislation. However, there are cases of transparent registration of companies that have successfully carried out an ICO.

Estonia is a member of the European Union. The procedure of cryptocurrency transactions taxation is regulated by the national legislation of EU members depending on the nature of cryptocurrency transactions. As a rule, for the purposes of taxation digital currency is considered as an intangible asset or commodity.

Conclusion: We see Estonia as a favorable jurisdiction for an ICO.

Which rights a token can give to its holders?

We will list just some of them.

Right to vote;
Access right;
Right to receive a share of profits;
Right to use the service;
Right to purchase company products.

After reviewing the main jurisdictions, taxes and ICO components, let’s move on to considering risks that cryptocurrency investments may run.

Risks ICO poses:

1. Breach of laws that are in force in the relevant jurisdictions.

2. Non-payment of taxes.

In order to mitigate risks, you need to study the selected jurisdiction carefully and identify the level of risk you are running in this country.

To sum up, before taking a decision on ICO, you need to carry out a thorough analysis of all existing jurisdictions, laws, prescriptions; find out everything about the tax policy in these jurisdictions and also analyze your own risks to identify how, where and when to commence the ICO stage. If you see the whole picture and have a clear roadmap, then your ICO will not collide with an iceberg in a vast ocean called “cryptocurrency transactions”.