Fintech Regulators - A Brief Comparison of different jurisdictions

Dr. Priscilla Mifsud Parker co-authored with Sarah Vassallo | 26 Mar 2018

Fintech Regulators  A Brief Comparison

Jurisdiction

Regulation in Place/Plans to regulate

Treatment of Cryptocurrency (e.g. property, commodity, currency etc)

Tax Treatment

Regulation/ Opinion on ICOs

Malta

3 bills to set out a framework for ICOs and VC services, as well as a legal basis for a new authority overseeing such services;

  • The Malta Digital  Innovation Authority Bill
  • The Technology Arrangments and Services Bill
  • The Virtual Currencies Bill

 

The proposed VC bill provides for ICOs related to VCs which do not qualify as financial instruments under the European and national investment legislations.

The TAS Bill will limit the definition of technology arrangements to DLT platforms and smart contracts.

Maltese tax legislation recognises payments in kind as a medium of exchange and treats the latter in the same manner as transactions via traditional currencies. Accordingly, in the absence of specific legislation, transactions using virtual currencies as a medium of exchange should – for tax purposes – be treated in the same manner as transactions made via traditional currencies or payments in kind.

 

Malta is expected to have new developments with regards to regulations, especially dealing with DLTs and token offerings. It has created the Malta Digital Innovation Authority, responsible for the regulation and incentivisation of the aforementioned industry in both Malta itself and the EU as a whole.

Estonia

A recent amendment to the Money Laundering and Terrorist Financing Prevention Act provides that providing services of the exchange of virtual currency or custodial wallet services, requires authorisation by the Registrar of Economic activity. However, there is no future legislation planned.

Amendments to the Estonian Anti-Money Laundering and Terrorism Finance Act define a virtual currency as “a value represented in the digital form, which is digitally transferable, preservable or tradable and which natural persons or legal persons accept as a payment instrument, but that is not the legal tender of any country or funds…”

Cryptocurrencies are not subject to VAT.

 

The Estonian Income Tax Act defines cryptocurrencies as property for the purposes of income and social taxes.

A Government agency has recently proposed the launch of a token dubbed at ‘estcoin’ which would complement the Baltic nation’s e-residency programme. Should it become reality, it is envisaged that these tokens may be used as a medium for the exchange of goods and services both in and outside of Estonia.

Gibraltar

As of 2017, regulatory framework on cryptocurrency and businesses offering services is in place. The regulation provides for commercial usage of distributed ledger technology as used to store data or to transmit value.

Gibraltar’s value-based approach to regulation, whereby any entity seeking certification is assessed on a case by case basis, is innovative.

 

Gibraltar is set to introduce the world’s first regulations for ICOs, after having introduced the first Regulations on Distributed Ledger Technology Providers. Lawmakers are discussing a draft law which shall regulate the promotion, sale and distribution of tokens connected with the British overseas territory.

Israel

No formal legislation for DLT-based businesses.

The Israeli Tax Authority believes a cryptocurrency is an intangible asset which is used for investment purposes only. It defined a cryptocurrencies as “unit[s] used for barter [that] can be used for investment purposes.”

The Israeli Tax Authority has shed light on the taxation of cryptocurrencies, whereby they’ll be taxed as capital gains. Companies selling cryptocurrencies are also subject to VAT. Private investors, however, will be exempt from any VAT obligations as cryptocurrencies are an intangible asset used for investment purposes.

Israeli authorities are encouraging the implementation of rules regulating ICOs. Indeed, the Israeli Tax Authority has already drafted a plan for the taxation of ICOs.

Switzerland

The Swiss Financial Market Supervisory Authority (FINMA) issued guidelines on the application of securities regarding ICOs. Tokens are classified as;

 

  • Payment;
  • Asset;
  • Utility; and
  • Hybrid tokens.

 

Data Protection will also play an important part due to the act of storing personal or legal entity’s data when applying for ICOs.

Each token has a different treatment and will be subject to different regulations. They are also not to be treated as securities.

FINMA, moreover, classifies tokens by6 payment, asset, utility tokens and hybrid tokens.

 

FINMA states that they are nonetheless still subject to the Money Laundering Act, as long as they only provide access rights to a non-financial application of blockchain technology.  

The tax implications are as follows: a stamp duty of 1% on the issuance amount of the shares that a corporation issues; a withholding tax on dividends of 35%; a VAT on the provision of goods and services of 7.7% and a Corporate Income Tax between 11.5% and 24.4%.

The income generated through a token offering can be off-set against the actual expenses of the project, reducing the tax burden on the principle of matching of revenue and cost.

 Switzerland offers a solid and friendly regulatory environment. Indeed, FINMA has put forward guidelines regarding the application of securities to token offerings.

United States

Has not explicitly legislated on cryptocurrency regulations.

 

The Uniform Law Commission however has drafted the Regulation of Virtual Currency Businesses Act. It will not apply to persons holding or using virtual currency for personal use, govt banks or persons whose activity is to be $5k or less on an annual basis. It is mainly geared towards companies engaged in virtual currency business activities.

Commodities Futures Trading Commission: virtual currencies fall within the definition of commodities and will fall under the Commodity Exchange Act of 1936.

 

The Internal Revenue Service (IRS) does not interpret virtual currencies as currencies – these will not be taxed under foreign currency gain or loss in the U.S.

Regarding the tax treatment, tokens that are regulated under securities regulations will be subject to taxation treatment on securities. However, the Internal Revenue Service (IRS) stated that virtual currencies are regarded property and will be taxed accordingly.

Payment transmission operations are usually regulated on a state level. In turn, this facilitated the creation of the Federal Trade Commission, the Commodities Futures Trading Commission and the Securities and Exchange Commission.


Request More Information

Please send me legal and other updates

Key Contacts

Dr Priscilla Mifsud Parker

Senior Partner, Corporate, Tax & Immigration

+356 22056122
pmp@ccmalta.com

Mr Steve Muscat Azzopardi

Director, Trust & Corporate Services

+356 2205 6328
steve@ccmalta.com