The UK has long been a “classic offshore” with low tax rates and excellent business conditions: a developed banking system, the presence of large stock exchanges, and more. The UK is good for creating a holding company, but it is still better to issue tokens during an ICO in more suitable jurisdictions, for example, the Cayman Islands or the British Virgin Islands.
The UK is one of the leaders in the development of blockchain projects and cryptocurrencies, as well as one of the most favorable and convenient jurisdictions for conducting a cryptocurrency business. This is also confirmed by the Atomico Venture Fund report. The state openly supports startups that are related to digital currencies. In addition, the United Kingdom has a well-developed banking and financial sector, as well as all the necessary infrastructure for a comfortable business.
Despite the general support for the idea of introducing the blockchain and cryptocurrency into the life of the state and citizens, the final position of regulators on the legal aspects of activities related to cryptocurrency has not yet been worked out. In fact, the cryptocurrency is in the gray zone, i.e. in a legal vacuum. For this reason, there is a possibility of introducing a special regulation that can play against companies that have chosen the United Kingdom to hold an ICO.
Often, British companies are used as project headquarters or only service companies are there, and the tokens are produced in more “favorable” jurisdictions for this, such as the Cayman Islands, the British Virgin Islands, Switzerland or Singapore.
Legal regulation of cryptocurrency
In the period from 2014 to 2017, the Financial Conduct Authority of the United Kingdom confirmed шт its statements that Bitcoin is not a currency (most likely, in the sense of “means of payment”) therefore, the cryptocurrency can in no way be governed by UK financial law.
For example, the Law on Electronic Money (Electronic Money Regulations 2011; hereinafter – EMR 2011) states that a cryptocurrency is not “electronic money” since its issuance is not carried out centrally. In this regard, the relevant authorities do not have the authority to regulate cryptocurrency. Cryptocurrency is also not a “value” in accordance with the Payment Services Act (Payment Services Regulations 2009; hereinafter referred to as PSR 2009) and, according to this document, it is not a banknote, coin, electronic money, or other scriptural money.
Thus, cryptocurrencies in the UK at the moment are still considered a unique combination of numbers, which is obtained as a result of complex mathematical calculations and algorithms. Therefore, Bitcoin and other cryptocurrencies are not subject to the Anti-Money Laundering Act (The Money Laundering Regulations 2007; hereafter MLR 2007), as well as other provisions of the UK financial law.
FCA has also created a program called Innovation Hub. Its participants may be cryptocurrency companies that receive free advice on the legal regulation of their current or future activities. Before launching their business, companies can test their business model for compliance with current legislation. Innovation Hub members have the right to operate without obtaining the necessary licenses and prior registration with state authorities.
In addition, companies are turning to FCA for legal advice on cryptocurrency regulation in the UK. In most cases, the FCA reports that the cryptocurrency and related issues are not regulated at all, and therefore issues related to regulation are beyond the scope of the FCA. That is why in the UK there is a specific situation in which, if there are rules and explanations and there are no regulations for the legal status of tokens, cryptocurrency companies try to follow as many rules as possible that can be applied to the ICO.
Legal regulation of tokens and ICO
In September 2017, FCA, in an interview with The Financial Times magazine, also stated that the majority of tokens sold under various ICOs fall under the current regulatory framework of the country.
“Many ICOs do not fall into the regulated field. Nevertheless, depending on the structure and characteristics of the sale of the token sale, part of the investment can be regulated by law, and companies and firms participating in the ICO can carry out regulated activities, ”said the representative of FCA.
True, the regulator did not indicate in which cases the provisions of the legislation in the field of securities and the stock market would be applied, and in which not. Based on this, this issue is still not resolved, despite the statement of the regulator.
Taxation of operations with cryptocurrency
Residents of the World Bank are subject to taxation based on global activity (so-called worldwide income). Thus, LTD (an analog of a limited liability company), which conduct fundraising by issuing tokens, will pay taxes regardless of whether they will restrict the access of UK residents to the token sale or not.
Non-residents of the United Kingdom and limited partnerships (LLP) are considered “transparent”, that is, they pay only income tax, which was received from UK resident customers (UK source income), in particular, in the case of providing services to residents of the UK.