In recent years, there has been a growing interest in the financial and investment world towards blockchain technology and funding based on virtual currency. The business model, in which a company involves investments in fiat or virtual currency in order to develop its software or raise capital - and in return issues tokens to its investors, is called an initial coin offering (ICO).
Every company that is about to conduct an ICO is faced with numerous questions regarding local legal framework. Although, Estonia has long been a favorite among foreign investors due to the successful marketing and operation of the e-Residency program, the existence of a supportive legal framework in the area of cryptocurrency and ICO may become as a positive surprise for many.
According to Estonian laws, the ICO’s shall be registered with the Financial Supervision Authority (FSA) only in case the issued tokens qualify as securities. Tokens are classified as securities, if (1) they can be transferred on the basis of an at least unilateral expression of will or (2) if they provide voting or decision making rights in the issuer or (3) give the investor a certain return expectation regarding their investment.
Provided that tokens offered within an ICO qualify as securities, the provisions of the the Securities Market Act (SMA) regulating offerings of securities and the provision of investment services apply. It is also important to assess whether a prospective ICO is a public offer of securities in terms of § 12 (2) of the SMA. If the offer is deemed to be a public offer, a prospectus of an offer must be prepared and registered with the FSA.
Due to the difference in the business models of ICO’s and the large variety of tokens offered, every ICO should be assessed separately. FSA advises all ICO related businesses to complete an analysis on whether a security is involved in order to comply with Estonia’s legal framework. FSA also issues warnings on its website about non-authorized financial service providers in Estonia. Last year there was 450 alerts published, a hundred more than a year earlier.
According to various studies, Estonia is among the top 7 countries when it comes to the favourability of establishing a business and conducting ICO’s. In addition to favorable regulatory framework, it is easier and cheaper to start and run a business in Estonia than in many other “ICO friendly” countries, such as Singapore, Switzerland, USA, Malta etc. Estonia has also a good image for supporting start-ups and new technological business ideas, which can be used in favor of a new business. We often see this in the field of ICOs, where many ICOs offered in other countries are conducted by companies registered in Estonia.
Incorporate in Estonia is the only corporate service provider in Estonia offering full support during an ICO. We help our clients start their business in Estonia in accordance with current law and therefore advise clients already in the phase of business model creation.
While the entrepreneur is busy compiling a whitepaper (business plan) for the company, we can already start with the establishment of the company based on clients’ profile.
Our qualified specialists will then assist in the analysis of the clients’ whitepaper to determine whether there are security or utility type tokens. During the analysis, we can point out possible shortcomings in the whitepaper and make recommendations to adjust the business model to meet current regulations.
Once the company is incorporated and all the necessary preliminary steps have been taken, we can advise the client on matters related to the organization of the ICO.
After the establishment of the company, we offer the option of paying the share capital in a virtual currency, as this solution will allow to show the company with sufficient capital in the ICO phase and make it possible to withdraw dividends from the company.
When planning and conducting crypto-business in Estonia, it’s important to keep in mind that purchasing and selling cryptocurrencies are subject to anti-money laundering regulations. Therefore, a license must be issued by the Financial Intelligence Unit (FIU) for the service of exchanging a virtual currency against a fiat currency and for providing a virtual currency wallet service. Incorporate in Estonia has a long and successful experience in applying for cryptocurrency exchange licenses, and so far all of our clients have received a positive response from FIU to their applications.
We offer the opportunity to open an IBAN account for trading and receiving ICO funds at a UK based payment service provider. As we are a service provider specialized in crypto business, we naturally accept payments in virtual currency at the customer’s request.
Dealing with crypto-assets requires a detailed understanding of the technical complexities of blockchain technology on one hand, and relevant accounting concepts on the other. At Incorporate in Estonia we have specialists who are familiar with ensuring the correct accounting treatment is applied.
There is no way today to make legitimate payments in cryptocurrencies between two companies, since it’s not possible to link the wallet to a specific company. It means that cryptocurrency is generally anonymous and anonymity creates several challenges to involving stakeholders: authorities and companies.
Our service will provide business owners a modern alternative to traditional money transfer services offered by banks and FinTech companies. A unique cryptographic ID is generated for an Estonian company based on a blockchain technology, which enables to make non- anonymous cryptocurrency payments and prove belonging of funds to a particular company.
This service is our own unique development currently at the MVP (minimum viable product) stage, suitable for all crypto enthusiasts who choose to establish their company in Estonia.
Please sign up for BETA version of the product here, and we will notify you when Beta is ready for testing!
If you have any further questions on this subject, please do not hesitate to contact us at email@example.com
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