Despite the fact that a number of countries took a clear position towards ICOs (as a rule, such clarity is connected with prohibitions), discussions about the definition and taxation of ICOs/cryptocurrencies continue. The takeaway is that the legislation in this area is ever-changing, and forces the founders to take into account not only existing laws, but also draft laws and authorities statements.
In this article, we give a brief overview of countries that have more or less clear attitude towards ICOs. We have divided the list of jurisdictions into those where ICOs are allowed (regulated or not regulated) and banned.
The European Union doesn’t have a single and definitive attitude toward ICOs. The problem is occuring both at the EU and state level. With all the concern for a common market and minimizing the differences in national laws, many issues are being elaborated by each country individually.
On November 13, 2017, The European Security Markets Authority (EU-ESMA) issued two warnings, one on risks of ICOs for investors and one on the rules applicable to firms involved in ICOs. ESMA suggests that investors may be unaware of the high risks that they are taking when investing in ICOs. Additionally, ESMA is concerned that firms involved in ICOs may conduct their activities without complying with the relevant applicable EU legislation.
At this time, an ICO is a subject to a number of requirements, namely:
- the Prospectus Directive (EU rules on the information that must be provided by companies that want to attract investors, raise capital and finance their growth),
- the Markets in Financial Instruments Directive (EU laws aimed at strengthening the protection of investors),
- the Alternative Investment Fund Managers Directive (EU law on the financial regulation of hedge funds, private equity and real estate funds),
- the Fourth Anti-Money Laundering Directive (the prevention of the use of the financial system for the purposes of money laundering or terrorist financing).
The scope of Anti-Money Laundering Directive extends to token issuers. They should take appropriate steps to identify, understand and mitigate the risks of money laundering, as well as assess any data protection. This process is generally referred to KYC: Know Your Customer, the customer identification procedure, that typically includes the collection and analysis of identity data.
So, before running your ICO campaign, conduct a proper check to understand legal requirements and environment for token sales, and make sure, that you know your backers. A professional ICO-platform will help you avoid KYC-related problems. COINAdmin allows you to review information about your investors and decide whether to grant or decline token purchase rights for selected participants based on legal compliance.
Switzerland. There is no regulatory framework, however The Swiss Financial Market Supervisory Authority (FINMA) sets up a number of requirements for ICOs to comply with, such as money laundering, banking, securities and collective investment laws. The guideline, issued by FINMA, distributes tokens into three types: payment, utility and asset tokens, depending on their functions.
The United Kingdom. The regulator’s activities are limited to issuing warnings, whereas ICO operators are free to interpret laws. According to The Financial Conduct Authority (FCA) statement, ICO projects are still experimental and therefore pose risks to investors. Altcoins, on the other hand, are recognized as private currencies.
The United States. An attitude on ICOs varies from state to state: from absolute freedom to obtaining licenses associated with the release of altcoins. On the federal level, token sales are expected to be licensed the same way as if they are not ICOs. The United States Securities and Exchange Commission (SEC) adheres to the position that most ICOs should fall under the definition of securities, therefore, they are required to be registered.
Australia is one of the first countries to implement ICO regulation. Depending on the specifics of an ICO, it must provide disclosure documents and obtain a license. However, Australian officials have released a draft law on the establishment of a regulatory sandbox, which implies an easing in the licensing requirements for FinTech startups.
Japan. The country that implemented a crypto licensing last year, is aimed at regulation of ICOs. According to The Financial Services Agency, ICO activities should be subjected to the standards of the Payment Services Act and the Financial Instruments and Exchange Act. At the moment, the FSA follows the world trend, issuing warnings to investors involved in ICOs.
Israel. The Israeli Securities Authority intends to impose taxes on ICO tokens. So, mining and altcoin trading are already subject to taxation: capital gains tax, corporate income tax and value-added tax.
Singapore. In addition to the statement published last year that some ICOs fall under securities laws, the Monetary Authority of Singapore (MAS) issued a guide on conducting ICOs.
Canada. To control ICOs, a regulatory sandbox has been developed. According to the Canadian Securities Administrators, altcoins are defined as securities and designated as intangible assets.
Russia. While it is not prohibited to conduct ICOs in Russia, the government is working on creating a legal framework. Among other things, registration and taxation of altcoins mining is expected to take action in the nearest future. According to officials statements, the securities laws may also be applied to ICOs.
Also in the list of countries where ICOs are allowed: United Arab Emirates, India, Philippines, Turkey, Cyprus, Mexico, Brazil, Isle of Man, Gibraltar, South Korea, Thailand, Nigeria and others.
China. According to the People’s Bank of China (PBoC) requirement of 2017, ICOs are banned for business as well as for individuals. Also under the ban is cryptocurrency trading for businesses. However, the total ban may soon be ceased, according to the forthcoming legislative acts.
Not many countries have completely banned ICOs. As a rule, the ban on token sales is connected with the prohibition of cryptocurrencies. Often, they are defined as a payment conduit (Morocco) or entities without physical security (Algeria).
In some cases (Ecuador) altcoins are prohibited in connection with the development of a national cryptocurrency, which should reduce dependence on the US dollar. The use of cryptocurrencies as payments may lead to punishment up to imprisonment (Macedonia).