Many start-ups are considering the question of whether they should carry out an ICO. Besides locations such as Switzerland and Liechtenstein, the option of an ICO in Malta is increasingly being discussed. That’s little surprising, given that Malta is not only an internationally renowned financial centre, but has also become known as the “Blockchain Island” thanks to its technology-friendly regulation. The Maltese parliament is currently working on the adoption of 3 important legislative initiatives that could make Malta the world’s first address for ICOs.
These are the Virtual Financial Assets (VFA) Act, the Malta Digital Innovation Authority Act and the Innovative Technology Arrangements and Services (ITASA) Act.
Content and objectives of the legislative initiatives
The so-called Virtual Financial Assets (VFA) Act receives particular attention. This Act contains the provisions that will be applicable to the legal authorisation and regulation of Initial Coin Offerings (ICO) and Crypto Currency Exchanges in and from Malta. 4 types of licences are defined which can be applied for by interested companies.
These 4 licenses (VFAA Class 1 — Class 4) differ in the scope of the authorisations and the amount of the one-time application fee as well as an annual supervision fee. The act further specifies what information a white paper must contain and what requirements must be met for it to be approved and published. Terms such as virtual financial assets, smart contracts or VFA agents are also defined, with the latter referring to attorneys registered with the MFSA who may accompany an ICO.
The Malta Digital Innovation Authority Act contains all the necessary legal provisions to establish the Malta Digital Innovation Authority (MDIA), abbreviated as the MDIA. The Malta Digital Innovation Authority will act as the regulatory authority for the industry and will be headed by a Board of Governors. The aim is to create binding and appropriate rules that promote and support the establishment of the blockchain scene in Malta without creating unnecessary obstacles to the efforts and potential of the scene’s start-ups.
The Innovative Technology Arrangements and Services (ITASA) Bill details requirements and procedures for registering and certifying technology vendors and technology arrangements in Malta. The latter may also include software and architecture based on DLT technology or smart contracts as well as Decentralized Autonomous Organisations (DAOs). However, the proposal focuses in particular on the area of crypto currency exchanges. The aim of this legislative proposal is to make Malta the first choice as a location for such exchanges (as has already been achieved with Binance and OKEx).
How Companies Can Benefit From These Legislative initiatives
Companies can benefit from the legislative initiatives adopted in many ways. First of all, the clear legal framework gives companies certainty as to how and whether their token model is covered by legal regulations. The VFAA also defines when and which type of token is involved. A pure utility token is completely exempt from the regulations. A security token, on the other hand, entails certain information requirements. Through the newly established MDIA, the DLT model of the company can be approved and potential investors can thus present a certificate from the regulatory authority of an EU country.
A further benefit is the reputation that Malta is building with this framework as a technology-friendly and trustworthy ICO location. Trust that will help companies to obtain the necessary support from investors and banks. Added to this are the establishment in an EU member state, which allows a perfect market entry into the European Union, favourable tax rates and the general technology-friendly attitude of the MFSA towards block-chain technology and the implementation of an ICO in Malta.
What is the chronological order of the legislative initiatives?
However, it is important to note that the VFAA is currently (as of mid-September 2018) not yet in force. The three draft laws were submitted to the Maltese parliament on 26/06/2018 and unanimously adopted, and the three legislative initiatives were finally passed into law on 4 July. As the Maltese parliament stressed in a press release dated 20.07.2018, the approved VFAA will only enter into force at a later date after some detail work. Even though no fixed date has yet been set, we strongly assume that this will be the case in October of this year.
First, feedback from the stakeholders concerned is to be incorporated. For this purpose, the MFSA published two rulebooks on sub-topics of the Act in July, on which interested parties were able to submit ideas and concerns. The MFSA will now draw up supplementary provisions for the VFAA taking these ideas into account. With its publication in the Government Gazette, the VFAA will finally enter into force in Malta.
Why Malta is positioning itself as a pioneer for DLT
Malta has recognized the innovative and disruptive potential of blockchain technology and set the course to become a global blockchain hub. In fact, the world’s first officially legislated framework for DLT technology has been adopted. As a pioneer, the government creates security in an innovative area that has been characterized by legal uncertainty up to now. Contrary to the frameworks of Switzerland or Liechtenstein, which focused primarily on the classification of tokens and the associated legal implications, Malta has acted according to the “technology first” principle and created a framework that offers sufficient flexibility for the variety of future applications of DLT.
The motivation is clear: they want to create new jobs and benefit from tax revenues from this promising industry. Innovative start-ups from all over the world are to be attracted by the technology-friendly regulations and settle on the sunny Mediterranean island. This is good business — for the business location Malta as well as for the companies that will settle here.
Why Malta is THE place for an ICO
The legal framework seals Malta’s position as an optimal ICO location. Behind this is an innovative and technology-friendly regulatory authority that is particularly interested in the technological details of the DLT model mentioned in the white paper. Start-ups can have their whitepaper approved and their DLT model accredited.
Malta as an EU state and member of the EURO zone is more attractive and trustworthy as an ICO location than choosing a dubious offshore location. With the official language English and a reputation as an international financial location, there is a rich supply of qualified workers here. Favourable tax rates also make Malta an attractive ICO location for start-ups from all over the world. In addition to the significantly lower corporate income tax compared to Germany, this also includes ICO-friendly regulations. Thus it is possible with a well thought-out arrangement that no taxes are levied on capital raised from ICOs.
If you are also interested in holding an ICO in Malta, we will be happy to advise you. Learn more about our concrete services and consulting in the area of blockchain and ICO.