ICOs are decentralized and unregulated, right? While this is true, the unregulated nature of this innovative form of fundraising is largely misunderstood. So, yes, countries are still formulating rules governing token sales and no central authority has successfully implemented a regulatory framework. But that doesn’t mean a crypto or blockchain based startup is completely unregulated.
Although you’re planning on raising funds via token sales, your project belongs to a specific industry, which could be infrastructure, data storage, healthcare, asset management, music, real estate or logistics. All countries have a unique and well-defined regulatory framework for every industry. Moreover, there are regulations governing companies.
So, depending on where you incorporate your startup, the entity may take different forms, become eligible for different taxes and would have to comply with different privacy, KYC and other laws. Hence, the need to make an informed decision regarding the jurisdiction for your startup and ICO.
Crypto / ICO Related Factors to Consider
The first thing to check would be the stance of the country vis-à-vis cryptocurrencies and ICOs. Regulators are in the process of formulating guidelines, but governments have made several announcements related to cryptos, blockchain and token sales. So, you already know whether a region has a positive, neutral or negative stance. This theme could underline the regulations, once finalized.
You would also do well to check whether the country has clear guidelines related to crowdfunding and protecting investor rights.
General Factors to Consider When Choosing the Jurisdiction
Does your industry enjoy a priority status? Some regions favor certain industries and encourage them through more lenient regulations, incentives and tax breaks. So, consider which countries favor your industry. The benefits go beyond easy regulatory compliance. These regions would attract more experienced workers and better ancillary businesses servicing the favored sectors.
Is the country small business friendly? Some countries consider small businesses as vital to their economies and encourage them through incentives such as tax breaks, grants and assistance in research, training, marketing or other critical activities.
How smooth is the general governance? Some regions not only have simpler compliance requirements, but also make adherence easy and fast.
What other laws will apply to your startup? For instance, the region may have regulations for protecting consumers. Consider whether these guidelines are clear and how quickly disputes in these areas are resolved. Some countries are considering tokens as securities, which means that securities laws would apply to your ICO. Of course, your consumers and investors may be located anywhere in the world, so the laws of the country where you set up your startup may not even apply to them.
What’s the tax structure? There are many taxes that may apply to your startup, including corporate income tax, sales tax and VAT. On the other hand, there are tax havens, like Gibraltar.
While ICO-related regulations are still in the process of being developed, there are certain countries that have come to being known for their ICO-friendly stance. Leading among these are Switzerland, Estonia, Gibraltar, the United Kingdom and Singapore.
Do keep in mind, however, that regulations are evolving continuously; and the jurisdictions seeming neutral today may be the most favorable ones of tomorrow.
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