Structuring an ICO in Gibraltar – Factors to Consider

The Government of Gibraltar has publicly announced its intention to introduce regulations relating to, amongst other things, the promotion and sale of tokens in and from Gibraltar (the “ICO Regulations”). This regulatory regime shall complement and operate in parallel to the existing, recently established DLT Providers licensing framework, applicable to companies which transmit and store value belonging to third parties using distributed ledger technology. The Gibraltar Financial Services Commission (“GFSC”) has indicated that, whilst token sales themselves may not fall within the scope of the DLT Providers licensing framework, the ICO Regulations will provide rules and standards which an ICO launched or conducted from Gibraltar must comply with.

The offering and sale of tokens as a means of raising finance for the development, marketing and/or operation of a particular venture, raises various considerations. Some are critically important at the outset when structuring an ICO. The legal, regulatory and accounting characterisation of a token is highly dependant upon the nature of the rights and/or obligations attached to the token in question, as well as its intended use, value and velocity within the economy that is created following the development and operation of the ICO project. Given the myriad ways and methods in which such tokens can be issued and sold, and the almost infinite range of potential tokens which may be created, it is necessary, at the outset, to ensure that there is a proper analysis of the rights and/or obligations attached to the tokens and an assessment of the underlying token economics. This analysis would subsequently inform what the appropriate treatment of the token should be from a legal, regulatory, accounting and tax perspective.

The structuring of the token and the ICO is critical to achieving the goals of the founders and to boost the project’s prospects of success. Those considering an ICO should seek to address various key matters, such as:

• Nature of the rights, obligations and attributes of the tokens;
• Legal establishment & suitable legal entity to conduct the token issue and sale;
• Group corporate structure and intra-group service level agreements;
• Structuring of legal arrangements between the token issuing entity and platform/service provider and/or intellectual property owning entity;
• Accountancy matters – e.g. how will the proceeds of the token sale be treated from an accounting perspective and reflected in the accounts?
• Taxation structuring – e.g. how and where will the proceeds of the token sale be subject to taxation and on what basis?
• Marketing and promotion of the tokens – jurisdictions targeted and complying with local legal requirements in this respect.

The above list is a short sample of the issues which must be considered by a team embarking on a token sale. Getting the right advice in relation to such matters and adhering to best practices is paramount to ensuring the legality and success of the ICO and that of the wider, underlying project.

At Hassans, we understand that there is no “one-size fits all” approach to structuring an ICO. We work closely with the client and their accounting/tax advisors to devise and implement the most appropriate structure to meet the needs of the client and promote the success of the ICO and underlying venture. We have a large, experienced team with extensive knowledge and a proven track record of finding solutions tailored to the needs of our clients.

Token sales are multi-jurisdictional, often global, events. It is therefore essential that any structure implemented draws on professional advice from multiple jurisdictions as may be relevant to the project in question.

As Gibraltar’s largest and leading law firm, Hassans has access to an extensive network of global, tier-one professional advisors and intermediaries across many jurisdictions.

Hassans has been consistently ranked as the leading law firm in Gibraltar by Chambers Europe, Chambers Global and Legal 500 (the most respected industry-standard rating agencies for law firms, globally). The Hassans FinTech team consists of 12 experienced practitioners co-led by partners Anthony Provasoli and Vikram Nagrani. Our FinTech team’s approach is to have a partner actively supervise and involve themselves directly in the advice and support that is provided to clients. It is important to us that you get the best advice and in-depth industry experience we can provide.