Launch of ICOs in Cyprus
Initial Coin Offerings (ICOs) have become an increasingly popular method of raising funds for new business ventures with the intention to finance new projects by utilizing the Blockchain technology.
ICOs are an innovative way of crowdfunding or fundraising through so-called coins or tokens. Start-ups are increasingly using ICOs to raise capital, as it is a much easier and efficient process in comparison to traditional banking.
ICOs normally ussie coins or tokens which are then available for sale in exchange for fiat currencies, or more frequently virtual currencies (Bitcoin, Ethereum, etc). Some of the features of ICOs could be the following:
Some coins or tokens provide access or purchase a service or product that the issuer sets-up from the proceeds of the ICO;
Others provide voting rights or a share in the expected revenues of the issuing venture;
Some have no tangible value; and
Some coins or tokens are traded and/or may be exchanged into fiat or virtual currencies at specialized coin exchanges after issuance.
Even though there is still no specific legislation for ICOs, they are still affected by existing legal frameworks as depending the structure of an ICO it may fall under the scope of existing EU legislation. Firms involved in ICOs are urged to consider whether their activities constitute regulated activities; many times ICOs are considered as financial instruments and would therefore require the relevant license.
Cyprus and ICOs
For example, if a Cyprus Investment Firm engages in services involving cryptocurrencies, they would require authorization by CySEC (following approval and required payments in accordance to CySEC’s directive D 187/02).
ICO through a Cyprus Alternative Investment Fund (AIF).
ICOs could also be considered as AIFs raising capital from numerous investors to invest it according to a defined investment strategy. CySEC may authorized the establishment of an ICO via a Cyprus AIF considering it complies with AIFMD rules.
In addition to the absence of comprehensive current legislation for ICOs, Cyprus favourable tax environment favors the jurisdiction in becoming one the most advantageous in Europe for the tax residency of ICOs.
Cyprus’ tax system is in full compliance with EU and the Organization for Economic Co-operation and Development (OECD) requirements against harmful tax practices, making Cyprus ideal to significantly lowering your tax burden without risk.
Some of the advantages include:
12,5% corporate tax on net profit
no withholding tax is obtained from dividends deriving from subsidiaries;
no withholding tax on dividends paid by a Cypriot company to non-Cyprus resident shareholders (individuals or corporations)
Provisions for reduced VAT paid by companies and in some cases full exemption