August | 2018 | Offshore Companies International

Launching an ICO From Switzerland

As at the time of writing there are no laws or regulations in Switzerland aimed specifically at ICOs. Moreover, hitherto the Swiss Financial Services Regulator (“FINMA”) has been reluctant to share with service providers etc information about how they deal with inquiries regarding ICOs.

In February this year, however, FINMA published a practical guide in regards to ICOs in which it explains how it deals with such enquiries in this field and provides certain details on how FINMA applies Swiss financial market laws to ICOs.

Legal Classification of the Token to be issued

As outlined in the Practical Guide, FINMA discusses the treatment of three types of digital tokens which boast different functions, whilst at the same time acknowledging that mixed forms of Token are also possible (ie “hybrid” tokens).

Payment tokens (ie “pure” cryptocurrencies)

Payment Tokens (which are akin to pure cryptocurrencies) include Tokens which are accepted as a method of payment in particular for the purchase of goods or services. These tokens are invariably not linked to other functions or projects. “Cryptocurrencies give rise to no claims on their issuer“. These tokens are considered a digital means of payment or exchange.

Utility tokens

The second category of tokens, Utility Tokens, are tokens that provide access to a digital application or service by means of blockchain-based infrastructure. Such Tokens do not include any promise of performance or profit expectations.

Asset tokens

The third and final category of Tokens, Security Tokens, “represent assets such as participations in companies” and provide a right to income, dividends or interest. These Tokens in effect represent a claim against the issuer. “In terms of its economic function, the investment tokens are analogous to equities, bonds or derivatives“.

Anecdotally we have seen, that the delimitation set by FINMA between the different categories of tokens is not so obvious in practice. A Token will often have the characteristics of several kinds of Token (e.g. payment token and asset token or utility token and payment token).

Once the token has been classified, the Founders/Promoters of the ICO must determine which financial laws apply to his/her project and what license (if any) needs to be applied for authorizing the Token Issuing Company to issue and trade these tokens.

Determination of applicable laws

On this topic, the Practical Guide provides some guidance:

Payment tokens (“ie pure” cryptocurrencies)

FINMA is of the view that payment tokens do not represent securities, except in the case of a pre-sale of tokens. If however you intend to issue the Token in Switzerland such issuance must adhere to Swiss anti-money laundering (AML) requirements.

Utility tokens

Utility tokens are not considered to be securities provided (a) they only confer on the acquirer the right to access a digital service and (b) can already be used in this way at the time of issue.

Asset tokens

FINMA regards asset tokens as securities and has indicated that the legal and regulatory consequences of such a classification must be adhered to. (For example, if the token has the characteristics of a derivative, its sale may require a dealer’s authorization). Such a classification also invokes obligations under the Swiss Code of Obligations, eg the Promoter will need to have Lawyers draft a prospectus for the issuance of equities or bonds in the form of digital tokens.

Practical Tips

If you are considering launching your ICO from Switzerland, before you incorporate, it would be wise to send an enquiry to FINMA about the applicability of financial market regulation to your proposed ICO and the potential application of licensing requirements (including with your inquiry a White Paper containing all the required information per the Practical Guide).

Next up you’ll need to consider how to legally structure your ICO/Token issuing entity (e.g. via incorporation of a Company or Foundation, type of company, etc.) and how best to minimize taxes both in Switzeland and at home. For example, different tax rates may apply in Switzerland depending on which Swiss Canton you decide to call home.

Following receipt of FINMA’s response to your preliminary enquiry, you’ll need to prepare/draft:

(i) the legal documentation necessary for the issuance of the tokens (ie including an application to FINMA for a license should same be required) and/or a prospectus

(ii) the documents relating to the ICO itself, including the general terms and conditions governing the supply of the Token and the entitlements the Token offers.

In summary, to avoid regulatory challenges, would-be ICO Launchers are strongly advised to carry out a preliminary Swiss legal assessment as regards the token to be issued, and/or to submit an enquiry to FINMA about the applicability (or non-applicability) of Swiss financial market regulations/laws to ICOs and the likely applicability (or not) of licensing requirements.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

ICOs – Do I Need A Special License?

At OCI we incorporate a LOT of ICOs/Token Offering Businesses every month.

By far the most common question we get asked is “Do I need to apply for a Special License For My ICO?”

In summary it comes down to this.:

(a) If what you are offering is in effect a Security you will need to apply for a Special License in pretty much any jurisdiction you might be thinking of incorporating in.

(b) If what you are offering would not be classified at law as a Security does the proposed jurisdiction classify a Utility token issuance as a Licensable Activity? If it does then, to incorporate in that particular country, you will need to also apply for the relevant license

Tokens

In an ICO the Issuing Entity (usually a Company) commonly issues a Token in return for a financial contribution by a third party.

Depending on their function, crypto tokens may be classified as Utility Tokens or Security tokens.

Security Tokens typically require Registration as a Security in the country of the offering entity before same can be offered for sale.

Utility tokens, (also known as user tokens or app coins), entitle future access to a company’s product or service. The defining characteristic of utility tokens is that they are not designed as investments; if properly structured, this feature can exempt utility tokens them from laws governing securities.

By creating utility tokens, a startup can sell “digital coupons” for the service it is developing, much as electronics retailers accept pre-orders for video games that might not be released for several months. (Filecoin, for instance, raised $257 million by selling tokens that will provide users with access to its decentralized cloud storage platform).

Utility tokens however present challengers to Regulators as regards their legal characterization. The nature of a utility token typically is to permit the holder to access a service provided by the issuer’s platform. This is commonly a pre-sale made by a start-up seeking capital to develop the promised service. While token-holder rights bear resemblances to, for example, licensees, franchisees, or club memberships, utility tokens may have other features that lend securities-like properties to them.

What is a Security?

Generally, the term “Security: is used to describe a financial instrument which contains a promise by the issuer, (which is usually a company), to pay the holder of the instrument a defined amount on or by a specified date (this date is when a debt security is said to “mature”), usually with interest.

In the United Kingdom, the term “security” applies only to equities, debentures, alternative debentures, government and public securities, warrants, certificates representing certain securities, units, stakeholder pension schemes, personal pension schemes, rights to or interests in investments, and anything that may be admitted to the Official List.

Some jurisdictions however have given the term Security a very broad definition For example in the USA a Security is defined as “ any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing“

The scope of the term “security” has been more extensively explored in the U.S. The most well known case on this point is a decision of the U.S. Supreme Court in SEC v. W.J. Howey Co. (328 U.S. 293 1946) (‘Howey’s case). Howey’s case established that an “investment contract”, which is one type of security as defined by the Securities Act of 1933, means “a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”

If the Token you are offering clearly operates like equity or debt (via payments, voting rights, etc), then almost certainly your Token would be classified as Security.

Under Hong Kong Law the concept of what is a Security, is in general consistent with best international practices that prohibit accessing public capital unless registration or authorisation requirements are complied with or a relevant exemption applies. The Securities and Futures Ordinance (‘SFO’) s definition of “security” provides little assistance in relation to tokens that do not clearly fall into pre-established categories, such as shares or debentures. In Hong Kong an entitlement to participate in a Collective Investment Scheme (“CIS”) ” can also be considered a Security That said the definition of “collective investment scheme” (‘CIS’), is widely drafted and remains open to interpretation in its application.

Summary

In short if a crypto token derives its value from an external, tradable asset, it would be classified as a security token.

Specifically if a Token promises the holder the right to share in the profits of and or management of the issuing Company, or a relative thereof, almost certainly such an offering would be considered a Security and would need to be registered as such in the proposed country of incorporation.

If, however, what you are offering is but a Utility Token then in 90% of tax free or law tax jurisdictions (eg Hong Kong, Seychelles, Belize, Nevis, Panama, Dominica etc) you should not need to apply for any form of Special License.

That said certain jurisdictions have decided to specifically make Utility Token Offering ICOs a licensable activity. These jurisdictions currently include Gibraltar and Malta. Hence if you intend to incorporate in one of these jurisdictions (even if what you are offering is not a Security) you will need to apply for an ICO License.

If you are about to launch an ICO and are in any doubt about your licensing obligations/requirements you should seek legal advice in the proposed country of incorporation, prior to launch.

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Get Around The New ESMA Forex Trading Rules – GO OFFSHORE!

On the 1^st June 2018 the European Securities and Markets Authority (ESMA) announced radical changes to the ability of EU Forex Traders to access leveraged trading. The new changes which came into effect on 30 July 2018 include a cap on the amount of leverage that can be offered to retail traders, negative balance protection and a 50% margin close-out rule.

If you are a European forex trader the net effect of these changes is that you now have a greatly reduced ability to make profit from forex trading.

But there is a solution.

The Solution is to set up an Offshore Company and have that Company open a Brokerage account a/with a non-European Broker. This will afford you access to the best possible trading terms, particularly in terms of leverage (and can potentially deliver a tax planning opportunity, see below)

To summarise how it would work is:

You set up a zero tax International Business Company (“IBC”)
The IBC opens an account with a non EU Broker
You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
Ideally the IBC should be seen to be managed/controlled/owned from Offshore (which can be achieved via the deployment of an Offshore based Nominee Director and Nominee Shareholder etc)
For all intents and purposes the IBC’s trading profits are generated in a nil tax environment ie tax free/offshore (ie provided the IBC is structured/administered properly)
When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)
That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are ordinarily resident for tax purposes though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)
If you don’t want the authorities to know how much money you are earning by way of wages you could also use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine (though technically, unless it’s a loan drawdown, such a receipt would be assessable income for tax purposes)
The majority of trading profits could be reinvested Offshore potentially tax free. This will enable you to build your Capital base much faster thanks to the power of compounding

Would you like to know more? Then please Contact Us:

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Scottish LPs (Scotland Limited Partnerships)

A Scotland LP is a privately-owned Limited Partnership wherein 2 or more persons or corporate entities are nominated as the Partners/Members of the LP. At least one of the Partners in the LP must be nominated as “General Partner (i.e. “Managing Partner”). The Partners/Members may be natural persons or corporate bodies from any country (ie there is no requirement to have a Scottish resident Partner).

Key Features:

Minimum two partners (Nominee partners can be provided)
Company House will hold in the public records only the names of the Members/Partners (which are commonly offshore entities).
Each Scottish LP must have a Registered office in Scotland (which service OCI can provide)
There is no requirement to keep accounts
There is no requirement to file a tax return with the Scottish/UK Revenue Service
There is no audit requirement
Shelf partnerships are available for purchase
Not perceived as a “Tax Haven” Entity but can achieve the same ends (ie a nil tax result, see below)
Particularly advantageous for those looking to do business in Europe
Low set up cost (can be capitalized with as little as GBP2!)
No requirement to file beneficial owners’ details
Nominee Partners can be deployed
Board Meetings can be held anywhere
VERY high political/economic stability
Affords access to UK Banks

Common Uses For Scottish LPs

Non-Resident Scotttish LPs (ie where the Partners are companies/persons based outside the European Community) are commonly used for:

the holding of investments/assets including real property, Mutual Fund Interests, IP etc
holding the shares of limited companies
international trading operations
consultancy and personal service companies

Taxation

A Scottish LP is not liable to declare income or pay tax in the UK where the members of the Scottish LP are based outside the UK and there is no business activity taking place inside the UK.

LPs are classified, for tax purposes as pass through entities. That is the Partnership is not liable to file a tax return or pay tax provided it distributes its income to the Partners. In accordance with general UK tax protocols, the income of the LP is treated as being the income of its Partners, and therefore the Partners agreed share of Partnership profits are only taxable in the Partners’ countries of residence (eg the jurisdiction of incorporation, in the case of corporate Members).

Where the Partners of a Scottish LP are themselves zero tax entities (eg 2 tax free International Business Companies or nil tax Offshore trusts or nil tax Private Foundations) profits generated from a Scottish LP can be banked free from tax.

Price and Inclusions

OCI (www.offshoreincorporate.com) can assist you to set up a Scottish LP.

Included in the all-inclusive set up price of $800 for a Scottish Limited Partnership are the following components:

Services:

Unlimited name availability inquiries
Advice from an experienced International Corporate Lawyer on how to structure your Limited Partnership
Preparation (overseen by a Lawyer) of application to register the Limited Partnership
Preparation (overseen by a Lawyer) of the Limited Partnership agreement
Preparation (overseen by a Lawyer) of the Statement of Particulars
Attending to filing the Limited Partnership registration request with the registry
Attending to payment of government filing fees
One year’s Registered Agent’s service in the country of registration
One year’s Registered Office service in the country of registration
Mailing address in the country of registration
Delivery of registration pack by international courier (ie DHL/Fedex/TNT etc)
Unlimited free legal consultations for 12 months