Type of company covered in our publication
The type of company for which we are considering a tax return for income tax and VAT in the perspective of an ICO is Cyprus Private Company Limited by Shares (LTD), which is a tax resident of Cyprus. This type is most suitable for business characteristics for the proposed ICO operation.
We mainly see foreign funds conducting ICO projects. This begs the question whether only charitable foundations can conduct all types of ICOs. It has been proposed to use limited liability companies with a guarantee with or without equity or trust trust as another option.
For reasons that are not the subject of discussion in this publication, we will not consider the possibilities suitable for a particular type of ICO with a charitable purpose, and not a business.
On the contrary, Private Company Limited by Shares (LTD), a non-tax resident of Cyprus, may be a suitable option for an ICO under appropriate conditions, but we do not approve of this approach, despite its huge tax benefits, due to the existence of hidden risks.
Tokens are “contracts” that guarantee certain rights to investors or users. The issuing company determines the rights or requirements that it undertakes to provide to investors or users through tokens.
In each case, tokens can have different forms and classifications.
The following categories exist.
Payment, currency tokens
These are tokens similar to cryptocurrencies, with exclusively transactional purposes, having no connection with the project or the capital in the company. They are intended to be used only as a method of payment. Such tokens do not have security features.
These are tokens used to access products and services offered on the issuer’s platform. The issuing company has a contractual obligation to exchange them for a service or product, or to allow the use of a platform offering services. They have no connection with the share capital of the company. Such tokens do not have security features.
Valuable investment tokens
These tokens are similar to stocks, debt instruments or derivatives. They guarantee the right to receive dividends from the company (for shares, bonds, interest payments and other derivative payments). Such tokens have security features.
Hybrid Token Type
Despite the presence of three main categories, most issued tokens are hybrid in nature and consist of all three classes mentioned above, or any two of them. They are of the currency and / or commodity type and / or the nature of investment in assets, or all at once.
As a result, the taxation of hybrid tokens depends on the category to which they belong when used. If it is used for payment, then it is considered so, if, as a commodity, then, as a commodity, despite the hybrid nature.
The term securities, according to Cypriot law, is defined by MiFID (European Union Directive “On Financial Instrument Markets”) and for translated securities means the following:
“Transferable securities” are those categories of securities that are negotiable in the capital market, with the exception of payment instruments, such as:
(a) shares in companies and other securities equivalent to shares in companies, partnerships or other organizations and depositary receipts in respect of shares;
(b) bonds or other forms of securitized debt, including depositary receipts in respect of such securities;
(c) any other securities giving the right to purchase or sell transferable securities, or giving the basis for a monetary settlement with securities, currency, interest on income, goods or other means.
We draw your attention to the fact that this article is for informational purposes only. For more advice, contact us at the contacts listed on the site.