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Malta as your Blockchain Jurisdiction of choice
Malta is the perfect jurisdiction for your blockchain business. It is the first jurisdiction to effectively introduce a holistic regulatory framework targeting all the cryptocurrency and blockchain business.
Coupled with this, one finds highly attractive relocation programmes that entice industry experts to transfer themselves to Malta. With an effective corporate tax rate of 5%, Malta is the most tax-friendly jurisdiction in the EU which is backed up by the largest growing economy in the EU.
Initial Coin Offering (ICO)
This new phenomenon which has become a main player in crowdfunding industry and blockchain community is one of the most advanced methods of raising finance for start-ups. Via the new legislation (including the Virtual Financial Assets Law), Malta has highly regulated the ICO activity with the main focus on investor protection and jurisdiction reputation. Regulation extends beyond licensing, and also encompasses a concept of audit of the DLT platforms and technologies via a licensed System Auditor as well as the appointment of a licensed VFA Agent whose main role is to ensure compliance of the whole project under Maltese regulations.
Provided that the token classifies to fall under the Virtual Financial Assets Law, the Maltese regulation necessitate the following process:
1st step: Incorporation of a Maltese Company that will do the ICO
2nd step: Appointment of a Maltese-licensed VFA Agent
3rd step: Appointment of an MLRO, an Auditor and a Custodian
4th step: IT & Cyber Security Systems must be in place
5th step: Formulation of Anti-Money Laundering Policies
6th step: Setting-up of adequate Record Keeping Facilities
7th step: Audit of the DLT Platform by a licensed System Auditor
8th step: Registration of Whitepaper with the Malta Financial Services Authority
9th step: ICO to commence within 6 months of registration
Security Token Offering (STO)
Evolving from ICOs, STOs are digital assets that allow a company to offer revenue such as annual income or other periodical income, percentage on profits, equity, debt or dividends and sometimes voting rights in exchange for the investment.
Since these are considered as securities, the STO is subject to security regulations and hence needs to comply with any authorisation requirements before being issued. One also has to ensure compliance with every national regulation of every jurisdiction in which the tokens are being offered.
Unless benefiting from an exemption, any STO requires the publication of the prospectus as per the
Prospectus Directive. Notable exemptions include:
- Public offering in the EU or EEA for a total consideration less than €5 million (Cyprus and Malta) over a 12-month period.
- Offer of securities solely to qualified investor.
- An offer of securities addressed personally to fewer than 150 natural or legal persons per EU or EEA member state, which are not qualified investors.
- An offer of securities whose denomination per unit amounts to at least €100,000. Minimum sale price to be €100,000 per unit.
- An offer of securities in the EU or EEA addressed to investors who acquire securities for a total consideration of at least €100,000 per investor, for each separate offer.
Via careful planning, a person can benefit from such advantageous exemptions in order to offer the STO without having to following the requirements of the Prospectus Directive.
Exchange Platforms and Related Blockchain Services
Malta’s regulatory framework also regulates a number of services (i.e. the Virtual Financial Asset Services- “ VFA Services”) relating to cryptocurrency, such as:
- Reception and transmission of orders
- Custodian / Wallet Services
- Execution of orders on behalf of others
- Investment Advice
- Dealing on own account
- Crypto Exchange Platforms
- Portfolio Management
Any of these activities necessitate a license by the MFSA to operate in or from Malta, and the license application is submitted via a VFA Agent. Licenses are only issued provided that the applicant is fit and proper, implying he has the competence, integrity and solvency requirements.
The below is a snap-shot of the main requirements of the licensing process:
1st step: Appointment of a Maltese-licensed VFA Agent, Board of Administrators
2nd step: Appointment of an MLRO, Compliance Officer, an Auditor and a Custodian
3rd step: IT & Cyber Security Systems, AML Policies must be in place
4th step: Setting-up of adequate Record Keeping Facilities
5th step: Audit of the DLT Platform by a licensed System Auditor
6th step: Minimum Capital and Liquidity
7th step: Corporate Governance and Risk Management
8th step: Payment of MFSA fees
How Kinanis Law Firm can assist
Our Firm is ready to assist clients with:
- Legal, Tax, Vat and Accounting advice for the Blockchain project or a VFA License;
- Review and consultation on Whitepaper, Prospectus or Offering Memorandum to confirm legal compliance;
- Classification of Tokens and assets in connection to ICOs, STOs and Licenses;
- Drafting or review on the Website Terms of Use and Terms and Conditions of the Token sale;
- Drafting or review of various agreements relating to ICOs, STOs and Licensing application;
- Drafting and review of the Privacy Policy, Risk Factors and Cookies documents;
- Notification and Licensing to Authorities re: ICO or STO project as well as VFA Services;
- Advice on the ICO, STO and VFA Licensee corporate structure to be used;
- Formation and management of companies to be used in the project;
- Legal analysis of the Maltese or Cypriot regulatory framework;
- Advise on AML, KYC, and Compliance issues – preparation of relevant manuals;
- Advise on Data Protection law issues – GDPR – and Technical support on GDPR issues;
- Support on banking issues for the opening of bank accounts;
- Drafting of Shareholders’ agreements;
- Ongoing legal advising on the matter and related issues.
Disclaimer
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
May 2019