Initial Coin Offering (ICO) Through Cyprus

Initial Coin Offerings (ICOs) are gaining considerable recognition in the finance world. ICOs are considered somewhat a contemporary method of collective funding; nonetheless, despite its novelty, ICOs are becoming the go to method in terms of fundraising start-ups and other entities whose objectives are commonly the financing innovative Blockchain technology schemes.

Due to Cyprus’ favourable tax environment, it’s foreseeable that Cyprus will become one of the most favourable European jurisdictions for the tax domiciliation of ICOs. The absence of specified legislation for ICOs has permitted ICOs domiciled in Cyprus to follow regulations and guidelines set out by other closely relevant legislation and directives. Until an official regulatory framework specifically for ICOs is developed by the Cyprus Securities and Exchange Commission, (CySec), the guidelines set under the European Securities and Markets Authority (ESMA) are followed.

ICOs through a Cyprus Company

A Cyprus Company can be used as an element in an ICO project allowing investors to take advantage of Cyprus’ tax environment as well as benefit from the expertise offered by the vast number of professional advisors available in Cyprus. Setting up an ICO through Cyprus also means that ICOs must also abide by European laws and regulations covering any transparency issues that currently exist in the ICO market, which in turn increases an ICO’s legitimacy.

ICO through a Cyprus Fund

Alternative Investment Funds (AIFs) with Limited Number of Investors, (AIFLNP), possess no restriction in terms of investment policy and therefore applications for the establishment of an ICO via an AIFLNPs intending to trade in cryptocurrencies or investing in ICOs seem to be accepted by CySec.

The Tax Aspects of an ICO through a Cyprus Company

With the lack of specified tax codes for ICOs in Cyprus by the Cyprus Tax Authorities, current common practice is to apply existing taxation and VAT provisions in correlation with the International Financial Reporting Standards (IFRSs). Generally, the tax treatment of an ICO will depend greatly on the form of the tokens (e.g. utility tokens, asset backed tokens, etc.) that are being issued.

If there is uncertainty regarding the Cyprus taxation of an ICO, a tax ruling may be obtained by the Cyprus tax authorities. To be considered a tax resident of Cyprus it’s strongly advised that the Cyprus Company in which an ICO will derive from fulfils all the requirements for being considered a Cyprus tax resident to be able to benefit from the tax advantages that Cyprus has to offer.

  • Cyprus Corporate Tax Rate: Cyprus possesses favourable tax laws, offering a low corporate tax rate at only 12.5%, and with strategic tax planning,  further tax reductions are possible. 
  • Cyprus VAT Rate: The standard VAT rate is set at 19%; with VAT applicable within the borders of the European Union, VAT on ICOs is applicable depending where tokens are being offered. VAT requirements for tokens vary as they largely rely on where in the world tokens of an ICO are being offered.
  • Intellectual Property (IP): ICOs stem from the formation of intellectual property, therefore ICOs can significantly benefit from Cyprus’ IP Box Regime. Cyprus’ favourable IP Box Regime is designed so that 80% of Qualifying Profits generated from Qualifying IPs can be considered as expenses. This means that only 20% of generated income is subject to 12,5% corporation tax, thus effectively lowering the IP tax rate down to 2,5%.

In conclusion, many advantages can be derived from launching an ICO from Cyprus and albeit the fact that there is no specific regulation on the matter as yet, Cyprus’ legal framework together with its unique business environment which promotes entrepreneurship and innovative ideas can be the right jurisdiction for investors who wish to build a strong ICO structure and benefit simultaneously from the flexible tax laws in place.

The content of this article is for guidance purposes only.  For any specific project, please seek expert advice. Our team of professionals in collaboration with tech professionals in Cyprus can assist with all aspects of your ICO. You may contact us at sdionysiou@dplawcyprus.com or info@dplawcyprus.com 

 

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