ICO regulation. Estonia

Over the past decade, Estonia has become one of the most successful European countries in the field of business, mainly due to its sophisticated digital solutions and a progressive model of e-government. Personal interaction between state organizations and the applicant is minimized due to the maximum possible use of information technology.

Despite the fact that the Estonian regulator shares the approach on the application of securities legislation to security tokens, ICOs are allowed in the country subject to a number of conditions.

In Estonia, you can create a company online in 15 minutes, and pay taxes in 3 minutes. Income tax on retained and reinvested earnings is 0%, 95% of tax returns filed online. Estonia ranks first inInternational Tax Competitiveness Index Rankings , second place in the Index of Economic Freedom in Europe . Estonia has concluded investment protection treaties with 31 countries, including the USA, Germany, France, Finland, Sweden, Norway and Switzerland, as well as double taxation avoidance agreements with 53 countries. All foreign investors can create a company and conduct business in Estonia on the same terms with local investors.

At the European Union level (Estonia is a member of the EU) ICOs are not prohibited. On November 13, 2017, the European Securities and Markets Authority (ESMA) establishedA non-exhaustive list of requirements, noting also that the national laws of EU Member States are also applicable to ICO regulation. ESMA has determined that compliance with the following regimes and obligations is required:

• The Alternative Investment Fund Managers Directive Directive, which establishes the rules for authorization, operation and transparency of alternative investment fund managers who manage and / or sell alternative investment funds (AIFs) in the EU;

• The Fourth Anti-Money Laundering Directive prohibiting money laundering and terrorist financing, on December 15, 2017, the European Parliament and the European Council adopted a new version of the Fourth Anti-Money Laundering Directive, which also potentially applies to ICOs in view of the fact that ICO transactions may carry a certain degree of money laundering risk;

• Directive on financial instruments markets (Markets in Financial Instruments Directive), aimed at creating a single market for investment services, investment activities and providing a high degree of harmonized protection for investors in financial instrument markets;
  

• The Prospectus Directive as regulatory regimes directive on the prospectus to be published upon public offering of securities or their admission to trading, aimed at providing investors with adequate information when raising capital in the EU.

• Directive on financial instruments markets (Markets in Financial Instruments Directive), aimed at creating a single market for investment services, investment activities and providing a high degree of harmonized protection for investors in financial instrument markets;

• The Prospectus Directive as regulatory regimes directive on the prospectus to be published upon public offering of securities or their admission to trading, aimed at providing investors with adequate information when raising capital in the EU.

In addition, ESMA warns that ICO carries high risks for investors:

• This is an unregulated area and therefore vulnerable to fraud and illegal activities.

• High risk of loss of invested capital

• Lack of exit mechanisms and extreme price volatility

• Inadequate information provided to investors

• Defects in technology. Distributed network or blockchain technology is still not deeply tested.

Despite the vagueness of regulation at the EU level, in general, ICO is allowed, but taking into account the explanations of the Estonian Financial Supervisory Authority (EFSA), which believes that the analysis of tokens should take into account actual circumstances and the content prevail over form (ICO also includes the concept of initial placement of tokens, since cryptocurrencies and tokens are interpreted by EFSA as synonyms).

EFSA shares the views of regulatory authorities in the United States, Canada and Singapore. Tokens that give investors rights in relation to the issuer, or tokens whose value is tied to future profits or activities of the company, are more likely to be recognized as financial instruments. Thus, the issue of such tokens can be recognized as the issue of financial instruments and should be regulated by the Securities Market Act, Law of Obligations Act. In this case, you will need to go through all the necessary procedures for notification and registration.

In addition, in some cases, the activities of ICO organizing companies, as well as persons selling tokens in the secondary market, may be recognized as the provision of investment services. The implementation of such activities requires the availability of appropriate licenses and permits.

If a company provides loans at the expense of funds raised as part of an ICO, the norms of legislation on credit organizations may apply to its activities.

According to the decision of the Supreme Court of Estonia, the sale of bitcoins as an entrepreneurial activity is the provision of services in relation to alternative means of payment. In accordance with Estonian legislation on combating money laundering and the financing of terrorism (Money Laundering and Terrorist Financing Prevention Act), an EFSA permit is also required for such activities.

Because ICO models and tokens vary widely, each ICO condition must be evaluated individually. EFSA recommends that anyone planning to create an organization to issue tokens or issue tokens issuers, ICO organizers, distributors and relevant trading platforms conduct a legal analysis of their compliance with applicable law.

In August 2017, Estonia revealed that it was considering the creation of the world's first national cryptocurrency. Called estcoin, the digital currency will be part of the current program in Estonia - e-residency. The goal of this program is to provide almost anyone who has access to the Internet with the opportunity to create a business in Estonia without even stepping onto the land of the Baltic state.

On December 19, 2017, Caspar Korjus, Managing Director of the Estonian E-residency program, said that the e-residency program is state-owned and, like most startups today, it can be financed through ICOs.

Corius proposed three possible scenarios for issuing estoins:

1. Estcoin as the first social token. It will be used as a stimulant for the formation of a "digital nation". E-Residency members will join it first.
2. Estcoin as a token for smart contracts, which will become the basis of a secure government identification system. It will be used to sign documents and access services when working with smart contracts.
3. Estcoin is like the euro. This is not about issuing an alternative currency in the eurozone, but about a token, which will combine the advantages of decentralization of virtual currencies and the stability of paper money. In this case, only e-Residency members will be able to use the token.

It should be noted that the president of the European Central Bank criticized such a proposal by the Estonian government to create its digital currency, indicating that the euro is the only current currency in the EU. Estonia is currently studying comments and opinions on estcoin in order to better understand how to structure it better.

The intention to create their own cryptocurrency clearly shows that this small European country is ready to rapidly introduce new technologies, including blockchain.

See also: ICO in search of jurisdiction .