Crypto Compliance and Taxation Outlook of the EU

 

Introduction

The European Union has managed to contribute at least 22% of all economic activity in the globe. In 2018, the gross domestic product of the EU exceeded $18 trillion. Cryptocurrency investors and advocates are watching the EU very closely. Any decision that is made by the EU about digital currencies will impact the global market as well as enterprise adoption of blockchain technology. The European Union has been solidly divided on the role Europe must play in the digital currency and blockchain ecosystem. The state members of the EU have their own policies and attitudes toward Cryptocurrencies. In this article, we cover EU crypto regulations according to the regions that come under its territory. We also will cover the Crypto taxation outlook of the EU countries. Let’s get started.

Crypto Compliance Outlook of the EU

Most of the member states in the EU, token trading and ICOs are evaluated on the basis of case by case. However, questions of utility VS security tokens are still on the way. Issues regarding regulating white label Cryptocurrency exchange are still in play. In this article, we will be covering a few of the member states of the EU, reviewing their policies.

In 2012, the Europe Central Bank managed to become one of the first regulatory bodies who wrote about Cryptocurrency as an emerging trend. The ECB and EU have released new reports, general rules about Cryptocurrencies.

Regulatory in the EU has considered Cryptocurrencies as a lawful activity. However, they do not consider digital currencies as money for traditional means of exchange and commerce. Although, Cryptocurrencies are not discouraged or prohibited in the EU, the Europe Central Bank has not intended to issue a blockchain-based currency as a replacement for the euro.

Exchanges and other service providers are not regulated at a regional level. Nonetheless, the EU and ECB leave exchange regulation up to the judgment of member states. When a Crypto exchange receives approval from the national government, approval functions as a passport for operation around the Eurozone.

In 2018, the EU agreed on the text for the Fifth Money Laundering Directive. This directive will include every Cryptocurrency exchange that put forward fiat conversion. As regulated institutions under money laundering legislation of the EU, crypto exchanges will need to execute KYC and CDD (Customer due difference) on every exchange user.

The mixture of regulations and initiatives that have been taken by individual member states of the EU has made it quite complex for blockchain startups to establish themselves in the EU. There are seven EU countries that recognized the hidden challenges of navigating several regulations. These seven EU countries have started an initiative, known as “Mediterranean Seven”.

     The objective of this initiative is to encourage the use and development of blockchain technology. These EU countries involve France, Spain, Italy, Greece, Malta, Portugal, and Cyprus. Now, let’s discuss the EU states’ attitudes towards Cryptocurrency.

France

Crypto Regulatory Sandbox: Only two ordinances on blockchain technology have passed the French legislature. The first ordinance recognized a fine definition of Cryptocurrencies in French law as a type of coupon. The second ordinance uncovers those hidden potential utilizations toward financial instruments, but Cryptocurrencies still continue to be mainly unregulated in France. France’s markets regulator, AMF is considering a regulatory sandbox that is meant to study the impact of security tokens in the European Union. 

The government of France has indicated signs towards increased regulation and legislation in the upcoming years. Bitcoins and cryptocurrencies are not legal tenders in the EU. However, the ownership of such currencies is legal.

Trading Ban – No

Banking Ban – NO

Tax Haven Region– No 

Best Place for License– No because French regulators have recently released strict rules of licensing for digital asset service providers.

Germany

Crypto Regulatory Sandbox: The Germany Federal Financial Supervisory Authority (BaFin) has undertaken the regulation of Cryptocurrency exchanges in Germany. If you are willing to open a Cryptocurrency service that trades these virtual currencies that are qualify by BaFin, you will require approval from BaFin.

The Germany Federal Financial Supervisory Authority makes regulations on ICOs on the basis of case by case. It does not include any kind of guidelines for what makes a token a security versus a virtual currency.

Trading Ban – No

Banking Ban – NO

Tax Haven Region- Yes, foreign investors do not have to bother about the taxes on interest burden. Germany retains the privacy of account holders. 

Best Place for License- Germany harshly regulates crypto assets. A company seeking to do custody for crypto assets is restricted to provide any other regulated financial or banking services, which requires authorization.

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What compliances should be taken care of for your STO project

 

A security token offering (STO)/tokenized IPO is a type of public offering in which tokenized digital securities, known as security tokens, are sold in cryptocurrency exchanges.

STO is a security token that gives the investor a cryptographic coin or token for the investors. STO is like the initial cash bid, i.e., The deal reflects a token or coin, securities, stocks, immobilizers, trusts, or ICO ownership of the lender. America’s business structure is the best in the world, so several foreign companies try to enter, and US legislation often plays a crucial part in its manipulation. The development of an STO token or the exchange of an STO is not compliant with US regulations for certain countries. The creditors have serious repercussions on the company, including social order and other civil penalties.

Legal adherence is an important part of your marketing safety token offer. After all, it’s the only attribute specific to STO that distinguishes STO from ICO. Before you start your STO, it is crucial to complete all compliance requirements. Since STO seeks to lure institutionalized buyers of a stable financial base, contrary to retail investors, the STO will review all legal details of these investors. If you are assured that the STO complies with all laws, you would also be able to do that to draw new buyers. Ensure you are willing to supply prospective buyers with necessary relevant paperwork. Seek to work with specialist lawyers in the STO business to grasp the criteria further. As a guideline, anything relevant to the STO’s law and enforcement should be available to all men.

Following are the new token standards you should be aware of

ST-20

It is a security token standard designed by the Polymath. ST-20 tokens define a set of rules such as who can interact with the token and how within the smart contract. Polymath provides a set of pre-coded regulatory modules that can be executed when using the standard. It’s a simple protection token built by the philosopher. Tokens ST-20 defines a variety of guidelines, such as who should communicate with the token and the manner in which it may be used. Polymath provides a collection of administrative plugins pre-coded to operate while using the requirement.

R-Token

It is similar to the ST-20 token standard, except that it includes three smart contracts (A, B, and C) that enable upgradeability. Smart Contract A is an ERC-20 token that associates with the smart contract B for the rules of who interacts with the token and how. Smart Contract B then refers to smart contract C for the up to date rules of who can communicate with token and how. It is the same as but contains three smart contracts. Intelligent agreement A is an ERC 20 token which links the regulations on who communicates with and how to the reference implementation B. In Smart Contract B, the security framework calls up to current rules to see who can as well as how to interact.

ERC-1404

ERC-1404 standard is designed by the Tokensoft team to enable interoperability of different token standards, including ST-20 and R-token with cryptocurrency wallets and exchanges.

ERC-1400

ERC-1400 is a proposed standard for security tokens that incorporates error signaling, gatekeeper access control, differentiated ownership, and redemption semantics/issuance. The token is backward compatible with the ERC-777 standard for non-fungible tokens. ERC-1400 token standard was designed in cooperation by a team of developers behind ERC-20 and ST-20 standards.

What are the challenges while launching a security token?

1. Each jurisdiction to jurisdiction has to face current challenges, whether how well they interrelate. 
2. Being a traditional asset, it can destroy the status quo, and this would affect the systems that others be able to work in the same manner, which they used to do in the blockchain world. 
3. Being expensive and time-consuming effects, and you have to visit the community to understand the work that transpires and the work that doesn’t. 
4. The biggest advantages are speed and accuracy, which was launched on a regulated exchange where it permits the public with a limited amount to offer, instead of in initial public offering.  
5. Last but not least, the main issue is using the old law for the new technical solutions when innovation was not quick and everyday modification used to adopt this technology, which is trying to fit in the current law and its regulations.

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What an ICO dashboard should look like

 

Digitalization has now stepped a bit forward and now there is great importance for the business to have their online presence. Especially, when it comes to initial coin offering or ICO, it is important to have the trust of the investors along with the customers. ICO is a completely effective way to get investments and funding for your business. 

One of the biggest obstacles, businesses find in raising the fund with ICO is to launch a token sale securely. So to overcome this it has now become essential to perform the KYC and AML checks before gong for a token sale. An ICO dashboard should be highly customizable according to the business and ensure that the ICO transactions are swift. So now let us see what is an ICO dashboard and how it should be according to your business.

What is an ICO dashboard?

Have you ever seen on Word Press? On word press, you get readymade themes and templates that you can use to launch your websites. Just similar life word press, the ICO dashboard is an automated platform that helps you in launching your ICO website. Do you know what the best part of this platform is? Here you can get automated marketing techniques and features that you can apply and take your platform to the next level. It is simply a package that is designed with the motive to fulfill all your business needs. There are some amazing features integrated with the ICO dashboard including the notification facility, creation of the wallet, different payment methods and the coin deposits also. If we state in simple words then it is simply a platform that helps all the ICO startups to make use of all the functions required. Along with providing you the amazing features and functionalities, it also helps you out in resolving your issues related to the site. Also with the help of this platform, you can avail details related to the know-how of token offerings.

Features of Investor Dashboard

Investor dashboards can help you to meet the expectations of the stakeholders and that too by not wasting much resources and time. With the help of this dashboard, you can focus on investors’ needs and thus ensures limpidity, accessibility, and approachability among them. But each investor dashboard must have some features such as:

• Faster and safer sign- up: The sign-up process of the dashboard must be easy and quick to provide a better experience to users. Also, it must be secured by email or phone verification.
• Know your customer: It must provide an automated KYC option to shareholders as it will save overall time while integrating with any third party and increase the token sale. Moreover, it eliminates any legal issues in the future.  
• Multiple cryptocurrencies supporter: Investors always look for an ICO platform that supports various currencies. Therefore always remember to design a dashboard with such feature
• Multilingual: As the dashboard provides its services globally, hence it must be always multilingual
• Wallet services: ICO wallets must be secured, compatible and capable to store multiple currencies with two-factor authentication
• Mobile responsive: user-friendly interface can make them access their transactions from anywhere anytime

This shows that each stakeholder dashboard must contain these features as it will make the investors show more response and interest in the ICO coins.

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