We all have our favorite restaurant. For some of us, it may be a cozy and comfortable place around the corner, for others it’s a five-star establishment.
Either way, it’s where the waiters greet us and know our favorite dishes, and where the chef may come to say hello after our meal.
If a new dish gets added to the menu, we’ll try it, given the chef’s track record and consistency. We all like choice, and over time new dishes become old favorites.
Entities à la carte
At Otonomos, we also like to cook up new dishes to offer our clients more options, using only the best ingredients and aiming for the highest consistency in fulfillment.
We already offer 18 home-made products in 11 jurisdictions, including the Bahamas, the British Virgin Islands, Canada, the Cayman Islands, Hong Kong, Panama, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States.
Today, we added three more incorporation options to our menu. These include the Isle of Man, Ireland (Eire) and Malta, all available for online order now.
In what follows, we sketch the applicable crypto regs in each of these jurisdictions, and outline the key features of Irish, Manx and Maltese limited companies.
1. Isle of Man: Alone in the Irish Sea but open for (crypto) business
Cryptocurrency regime
Often referred to as “the world’s most attractive base for crypto currencies” - perhaps in the same way British Airways calls itself the “world’s most favorite airline” - the Isle of Man was one of the first to regulate crypto with the aim to attract more business to its island, especially issuers of “virtual currencies”.
In doing so, the Isle of Man was clearly ahead of the curve by introducing early crypto legislation and regulations, with the aim to give businesses a regulated environment in such a manner as to not stifle innovation.
In this respect, in 2015, the Isle of Man’s government amended the Proceeds of Crime Act to include virtual currency businesses within its regulated sector as a “designated business”.
This resulted in certain crypto businesses being subject to anti-money laundering laws, requiring the use of know-your-customer practices, such as collecting identifying information, knowing the beneficial owner of any currency, and record-keeping and reporting requirements for certain transactions.
The Isle of Man recognizes four different types of online currencies:
- “Digital currency” refers to any electronic representation of a fiat currency, and this can include representations of virtual currency.
- “Virtual currency” is a narrower asset and is a digital representation of value which can be traded digitally. The nature of a virtual currency means that it does not need to be centrally controlled or administered. Virtual currency can be either convertible or non-convertible.
- Convertible virtual currency, which includes cryptocurrency, can be converted into a fiat currency, either directly or through an exchange. For a currency to be convertible, there does not need to be a set rate or an established benchmark, but merely a market where ownership rights can be transferred from one person to another, whether for consideration or not.
- Non-convertible virtual currency, once purchased, cannot be transferred to another person and cannot be redeemed for fiat currency, either directly or through an exchange.
Alongside the Isle of Man’s Proceeds of Crime Act 2015, the Designated Business Regulation and Oversight Act 2015 provides that virtual currency businesses are designated businesses that must register with and be overseen by the Isle of Man Financial Services Authority (FSA).
No financial services license for non-security tokens incl. BTC and ETH
Further, and helpfully, the FSA has released guidance that specific cryptocurrencies will not be considered securities, such as Bitcoin and Ether, and will therefore fall outside of regulatory oversight.
This means that companies operating with these assets must register with the FSA as a “Designated Business” and must comply with anti-money laundering and the countering of financing of terrorism requirements, without however needing a financial services license.
This makes it easier to operate a cryptocurrency exchange from the Isle of Man with regulatory certainty: its Financial Services Authority (FSA) gives great clarity on how crypto assets are classified and whether your coin/token will be considered a security, an investment, a utility token, e-money or any other token type.
The Isle of Man also allows for a sandbox environment to test cryptocurrencies and blockchain networks that may be within the regs but for whom full compliance would initially be too onerous.
This “Digital Isle of Man Accelerator Programme” offers three levels of membership to provide assistance to companies at all stages of development. Top level partners of the programme have access to a Regulatory Roundtable designed to give participants the ability to request and help shape future regulations that exchanges and businesses in the wider blockchain and crypto sectors may require in order to accelerate growth and iron out obstacles.
Perhaps as a result, the Isle of Man has seen a local ecosystem of service providers grow and local experience and knowledge of the blockchain and crypto sectors is generally high. The Manx government too is generally supportive of the blockchain sector and FinTech in general.
Key features of the Isle of Man limited company
The Isle of Man prides itself as having the lowest crime rate in the British Isles and having the longest continually running parliamentary body in the world (established as long ago as the 13th century).
Its Limited Company (“Ltd”) is largely modeled on the English limited company, as is the case with other Crown Dependencies.
It is perhaps best known for its tax advantages, offering 0% corporate tax, 0% capital gains tax, 0% inheritance tax, key employee concessions and grants for a variety of costs such as office equipment, rent, marketing, training and others.
Specifically in relation to companies engaged in crypto business, in the past the Isle of Man required that such companies have at least two Isle of Man resident directors, but since a change of rules following COVID-19, this is no longer required.
From an incorporation requirement viewpoint, the Isle of Man requires minimum one shareholder in a limited company. Equally, it requires minimum one director.
Corporate directors are permitted, but they must be either regulated or licensed. There is no standard amount of authorized capital or shares and bearer shares are not permitted.
Manx company like everywhere else require a registered office and local agent. However, a company secretary is not required, nor are local director- or shareholder meetings mandatory.
From an annual requirement point of view, the Isle of Man requires annual returns to be prepared as well as audited accounts. However, small private exempt companies are exempted from audit.
It takes approximately five working days for a company to be incorporated in the Isle of Man.
2. Ireland (Eire): benefiting from language and access to Europe post-Brexit
Ireland and blockchains
The Irish Government has long (wanted to be) seen supportive of the development and adoption of blockchains as a way to encourage digitalization and to foster innovation.
In 2019, the Irish Government committed itself to developing Ireland as a global leader in the financial services sector and announced measures aimed at showcasing Ireland’s credentials as a centre of excellence in the EU for distributed ledger technology, which it lumps together with “FinTech”.
For example, the government’s “Action Plan for 2021” sets out steps to establish an Irish Department of Finance Fintech Working Group.
This Working Group is intended to develop Ireland’s policy positions in response to the EU’s Digital Finance Package, to coordinate the approach to FinTech across the department and to engage with external stakeholders to encourage collaboration between policymakers and the FinTech community.
Since 2018, the Industrial Development Authority (IDA), a semi-state body with a mandate to attract foreign direct investment into Ireland, has worked with the Irish Blockchain Expert Group on the “Blockchain Ireland” initiative in order to enhance Ireland’s blockchain industry and to promote Ireland as a blockchain centre of excellence.
Reasons underpinning this include the following:
- Ireland has no specific legal prohibitions on the ownership or control of crypto assets.
- Nor does Ireland have any specific restrictions on the mining of Bitcoin or other cryptocurrencies.
- Ireland has no specific border restrictions or declarations that must be made on the ownership of cryptocurrencies.
- Ireland has no specific reporting requirements for crypto assets.
- Ireland has no explicit legislature that addresses the treatment of crypto assets in the context of estate planning and testamentary succession.
- Ireland has generally applicable restrictions on investment managers holding crypto assets for investment purposes, leveling the paying field with managers of traditional asset classes.
Irish Crypto regs in a nutshell
Regulations relating to cryptocurrency and other financial services in Ireland are the responsibility of the Central Bank of Ireland.
The Central Bank does not view cryptocurrency as legal tender and no regulations apply specifically to cryptocurrency.
However, a cryptocurrency can fall under existing regulations if it is deemed to be a “transferrable security”.
Under such existing regulations, a transferrable security includes shares, bonds, derivatives and other instruments that give their holders similar rights or entitlements.
As a result, the determination of whether or not a cryptocurrency can be regulated in Ireland is considered on a case-by-case basis.
For example, currencies such as Bitcoin, Litecoin and Ether are not subject to existing regulation, as they are not considered to be centrally issued and give no rights or entitlements to holders.
Recently, Ireland passed a law requiring cryptocurrency companies to register with the Central Bank of Ireland and to comply with the EU’s anti-money laundering guidelines.
These companies are classified as Virtual Asset Service Providers (“VASPs”), and Irish law requires that VASPs who exchange fiat currencies for cryptocurrencies must adhere to “know-your-customer” requirements.
Accordingly, VASPs now have to conduct due diligence on their customers, know the source and destination of their crypto assets and report any suspicious financial activities.
It is the price Ireland pays for membership of the E.U. that it has little room to deviate from E.U.-wide crypto regs.
The other side of the coin (pun intended!) is that crypto entrepreneurs who set up a base in Ireland have a passport to offer their services to each and every country in the European Economic Area pretty much unrestricted, and in a language (English, not Irish…) they are familiar working in.
This is not to be under-estimated and whilst perhaps not the Wild West of crypto some may wish to roam in, the effort of complying is likely outweighed be the size of the addressable market.
The Irish limited company
From a corporate requirement viewpoint, Ireland requires a minimum number of one shareholder.
It also requires a minimum number of one director, who rather annoyingly must be a member of the European Economic Area. If no EEA director can be appointed, an insurance needs to be put in place under section 137 bond of The Companies Act 2014 to cover breaches of the Act.
Corporate directors are not permitted. A secretary is required and restrictions exist regarding the same person acting as secretary, shareholder or director. There is a minimum of EUR 25,000 of authorized capital or shares required. Bearer shares are not permitted.
Ireland also requires a registered office and agent, which Otonomos provides as part of its ongoing entity maintenance services. Local meetings are not required.
From an accounting point of view, both annual returns and audited accounts are required.
It takes between 5 to 10 days to incorporate an Irish Ltd.
3. Malta: Fallen Angel or Future Crypto Island?
Once burned, twice cautious
We all remember Malta’s charm offensive a couple of years ago trying to attract crypto businesses, when Binance’s CZ jumped on stage of Maltese Government-sponsored get togethers declaring Malta a “crypto island”.
On the ground however, despite the user-friendliness of setting up a Malta company, the message hadn't trickled down to local banks and other service providers. Many in crypto who had great plans for operations in Malta came back from a cold shower.
The truth is that Malta as a Member of the EU cannot afford to go out on a limb on crypto and was probably called to order by Brussels.
That’s not to say Malta is actively making life for crypto operators difficult, which in the current climate probably qualifies as being “crypto friendly”.
Whilst cryptocurrencies are not legal tender in Malta, the Maltese government does recognize them as “a medium of exchange, a unit of account or a store of value”, so pretty much every use case is covered.
We call it “crypto receptive”, meaning you won’t get a no at first, but you will need to be aware that alongside existing anti-money laundering and counter-terrorism financing legislation, the Maltese Government issued a trio of digital assets-related acts, namely the Malta Digital Innovation Authority Act, the Innovative Technology Arrangements and Services Act and the Virtual Financial Assets Act, which complemented and occasionally superseded earlier blockchain legislation.
- The VFAA legally defines classes of cryptocurrencies and regulates both the offering of virtual financial assets to the public as well as services based around such assets.
- The ITAS Act provides for a voluntary regulatory system for a number of technological arrangements and services including distributed ledger technologies.
- The Malta Digital Innovation Authority Act has set up a Malta Digital Innovation Authority as the competent authority for ITAS.
What’s not included in Malta’s existing cryptocurrency regulations is a specific tax legislation, except that it is established that no VAT is currently applicable to transactions exchanging fiat currency for crypto.
Malta is especially sensitive to the issue of potentially being perceived as lax on AML. In its 2019-2020 strategic plan the Malta Financial Services Authority indicated that it “will actively monitor and manage business-related risks pertaining to licensed virtual assets and cryptocurrency businesses” so as to better address money laundering and other financial crime risks.
More recently, in an attempt to catch a second tech wave, the Maltese government indicated that it will focus on the integration of artificial intelligence with cryptocurrency regulation and there is a possibility that it will implement specific guidelines for security token offerings.
As a result, the future may see additional regulations being put in place.
The net of all this is that Malta is a “receptive” crypto jurisdiction with brand new regs that reward those who are wiling to put up with a significant compliance burden with access to the entire EU market for their regulated crypto business.
This is especially the case for gaming-related businesses including blockchain gaming, who have a clearly prescribed pathway to getting a gaming license in Malta.
The Malta limited company: 300 days of sunshine per year :-)
Such blockchain gaming businesses and Web3 projects more broadly who wish to use Malta as their base will typically incorporate as a limited company (Ltd).
Setting up a company in Malta offers numerous tax benefits, but a discussion of how these compare to other jurisdictions is outside the scope of this article. Suffice to say here that foreign-owned Maltese companies are entitled to a tax refund that results in a 5% corporation tax, the lowest corporate tax rate in Europe. Furthermore, foreign-owned Maltese holding companies are exempt from all tax. In addition, Malta has no withholding taxes or stamp duty, and there is no dividend tax in certain circumstances.
Language too is a plus for Malta. The presence of English-speaking professionals makes it highly convenient for many international business operations.
And post-Brexit, Malta is a clear contender together with Ireland for a low(er) tax, English speaking gateway to the common European market.
Finally, if you are going to spend time there, Malta has 300 days of sunshine per year, the highest in Europe!
Formation requirements
From a corporate requirement viewpoint, Malta requires a minimum number of one shareholder.
Equally, it requires a minimum number of one director. In contrast with Ireland, corporate directors are permitted, but at least one director must be a natural person, which means a physical director is required upon formation.
Also, a company secretary is required and restrictions exist regarding the same person acting as secretary, director or shareholder. There is a minimum of EUR 1,165 authorized capital or shares required and bearer shares are not permitted.
As with any jurisdiction, Malta requires a registered office and agent on the island. Neither local directors nor local shareholder meetings are required.
Following incorporation, a Maltese company will have certain minimum obligations including the keeping of registers of members and directors, and filing an annual return to the Registrar, which has to be signed by the company’s Director or Secretary.
Otonomos and its agents in Malta can take care of all your Maltese company ongoing maintenance, in addition to filing for the actual formation which takes about 14 days.
Conclusion: A buffet of jurisdictions
At Otonomos we strongly believe letting jurisdictions compete to attract company formations does not lead to a “race to the bottom” on tax and regulation, but is an equation every sovereign nation has to solve for itself on the basis of its relative strengths and weaknesses.
The Isle of Man, Ireland and Malta have done just that, fully aware of their competitive position and how they need to remain attractive to new technology companies in crypto and AI.
Of the trio, Ireland is the one who arguably has made the least overtures to crypto since it can afford to be more complacent, given its strong attraction as European HQ for big tech and its emphasis on FinTech.
Isle of Man has shown foresight but perhaps with too much of a small island mentality.
Malta has been burned once and is now twice cautious partly because Brussels is looking over its shoulders and is concerned not to be seen as a Fyre festival for crypto.
All three have their place in a Web3 entity stack and we’d be happy to explore these 3 new jurisdictions, together with the 18 already on offer, on a call with you.
> We’d be happy to guide you through these new jurisdictions or talk about alternative incorporation options. Please use our Calendly to book a FREE 30-mins call with a specialist in our team in the Americas, Europe or Asia.
