The Cyprus holding companies are widely used in the context of international business structuring for the optimization of the channels of incoming and outgoing investment in/from the countries that have signed an agreement with Cyprus on avoidance of double taxation. Recently, the Tax Department has published a guide to VAT accounting for holding companies, which is designed to provide clarity with respect to the circumstances under which the Cyprus holding companies can receive taxable income.

Definition of taxable activities

The common position and practice regarding the regime for levying VAT on dividends remain unchanged. The simple acquisition and ownership of shares in other companies by a Cypriot company does not constitute a taxable business activity in the sense of exploiting assets for income generation. The reason for this approach is that the dividends received from such ownership of shares are considered to arise solely at the expense of ownership of shares, rather than from the form of business activity carried out for the purpose of income generation. Consequently, an enterprise that simply owns shares or a similar form of a stake in another organization is not considered to be taxable. However, if a holding company goes beyond the simple exercise of its rights as a shareholder and takes an active part in the management of its subsidiaries, directly or indirectly, this may constitute a taxable activity.

The test for determining whether such participation in management exists is objective. There are no decisions in the European Court that set out specific rules or precedents on this issue. Each case must be considered individually on specific facts and circumstances. The instruction states that the term “management” can cover a wide range of activities, from organization and administration to the adoption of strategic decisions. These actions can be taken directly, that is, by a legal entity owning shares or indirectly - by a person hired or connected with a legal entity that owns the shares.

Any evaluation should be based on the essence, not on the form. For example, do the directors of affiliated companies exercise autonomous powers to manage their business, or do they simply mechanically approve decisions made at the level of the holding company? These issues should be resolved on the basis of specific facts, such as the degree of duplication or general powers of the director and decisions of the board of directors.

A holding company that has a controlling interest in a subsidiary company clearly has the right to influence the decision-making process in the subsidiary. If the facts show that the holding company exercises this right, any dividends received can be considered a reward for the provided management services and, therefore, income from business activities.
An additional important factor is that the holding company has the necessary human and other resources to provide such services. The instruction states that in some cases the holding company can not use its authority to influence its subsidiary, therefore it is a passive investor with the sole purpose of obtaining dividends without participation in management.

The current jurisprudence is that the company’s participation in the management of the invested company is recognized as economic activity in accordance with Article 3 of the VAT Law and Article 9 (1) of the EU VAT Directive (2006/112 / EU) and therefore it is subject to VAT in accordance with Article 5 of Cyprus Law and Article 2 of the EU Directive.
A holding company, like other companies, must be registered by a VAT payer if its taxable supplies exceed the registration threshold or it receives services from foreign suppliers that must be taken into account within the framework of the reverse charge mechanism.

Otherwise, the holding company can be registered voluntarily. The amount of input VAT that the holding company can reimburse will be based on the distribution between its taxable and non-taxable activities.

The newspaper “Journal du Dimanche” previously published information about the intentions of the French President Francois Hollande to hold a meeting with the leaders of Germany, Spain and Italy on March 6 in Versailles, dedicated to the future of the European Union. This mini-summit, among other things, should have to demonstrate the unity of the leaders of the four major European powers of the euro zone in the face of the many threats and crises that the EU is currently facing. The agenda also included the study of the issues “related to ensuring the strengthening of the development of the European Union”.
On March 6, the government supported the changes to the Law on the Financial Instruments Market, the Law on Alternative Investment Funds and their Managers, as well as the Audit Services Act. What is the ultimate goal of these changes? They should make the EU financial market more transparent and stable, reduce systematic risks, protect depositors, and ensure the effectiveness of financial markets and reduce the costs of their participants. The changes in the laws have been designed to adopt the Directive of the European Parliament and the Council on the markets of financial instruments.
In the process of painstaking work over the directives on the part of institutions and EU Member States, the assessment of the existing supervisory practice of the financial market was made, insufficient transparency in the general financial markets was recognized, actually taking place and partially unregulated trade actions by the regulations were analyzed.
The outcome of the integrated assessment was the conclusion that the existing regulation is not sufficient to ensure the full stability of the financial markets and transparency of their activities. Thus, in order to solve and eliminate the identified shortcomings, the draft directives have been developed.
By adopting the Directive, the financial institutions of the Member States have provided the comprehensive regulation to ensure the protection of depositors. An important part of this regime is the protection of customers’ funds and financial instruments. The duties of the investment brokerage companies is the implementation of appropriate measures to protect the rights in respect of securities and cash assets entrusted to the investment brokerage company, as well as the property rights of the depositor.
Investment brokerage companies will have to implement the appropriate specific order to ensure the protection of financial instruments and customer funds. The main goal of all legislative changes under consideration remains clarification of the legal regulation of investor protection and increase of the transparency of related procedures.
We will hope that, in accordance with the overall strategy, a single integrated legal and economic approach to the legislative reform of the EU countries will effectively ensure fair treatment for all participants in the financial market. And, in order to find always the necessary benchmarks in constantly changing trends and organize effectively your business in the EU and not only - contact the specialists of the company Finance Business Service!

ICO (Initial coin offering) is a form of attracting investments in the form of selling a fixed number of new units of cryptocurrency, received with a single or accelerated emission.

In the middle of November, the European financial regulators, including ESMA (the European Securities and Markets Authority), the Belgian FSMA (the Financial Services and Markets Authority) and the Dutch AFM (the Authority for the Financial Markets), issued warnings about risks for the investors and rules applicable to the companies participating in the ICO.

The market of so-called cryptocurrencies has heated up. The approximate total market capitalization of all cryptocurrencies has increased from $ 18 billion in early 2017 to staggering $ 200 billion by the time of writing this article. Needless to say, some people were worried about this hype, and not only the European financial regulators.

ICO is the key concept of cryptocurrency as a type of “crowdsale” (“crowd” and “sale”) where the project developers offer a new type of cryptocurrency (also called “token” or “coin”) using the distributed ledger technology. Cryptocurrency can acquire various characteristics based on the purpose of a particular project: they can be designed for use, in particular, as money resource/virtual money, as a financial instrument or as a means of providing access to a product or service.

Investors are warned about the unregulated character of the space, which is vulnerable to fraud or illegal activity, about high risk and instability of the cryptocurrency rate, as well as the lack of information.

In addition, the companies participating in the ICO are reminded of their obligations under the European financial legislation. The following regimes may be applied to the ICO: the Prospectus Directive, MiFID (The Markets in Financial Instruments Directive), AIFMD (The Alternative Investment Fund Managers Directive) and the 4th EU Anti-Money Laundering Directive. Depending on how the ICOs are structured, they can go beyond the existing rules and, therefore, be outside the regulated space. However, if token coins are classified as financial instruments, it is likely that the companies participating in the ICO carry out regulated investment activities, such as placement, implementation or consulting on financial instruments, management or marketing of collective investment schemes. Each of the ICOs should be evaluated in each particular case, for the purpose of getting into one or a few of the above modes (or any other regulatory regime).

These notifications of the European financial regulators may signal the long-expected start of an extended review of regulatory standards in the cryptocurrency market.

After conducting a series of consultations with the public and interested persons, technical studies and assessments of the financial and economic consequences, the Government of Malta intends to carry out a full reform of the current legislative framework regulating gaming activities.

The proposed reform implies the abolition of all current legislation regulating gaming, and the introduction of a single law - the Gaming Act. The law will enable the competent minister to publish the rules and also give authority to the relevant regulatory body (Malta Gaming Authority - hereinafter “MGA”) to publish the Directives and other regulations if necessary, thereby ensuring timely and flexible interventions, especially with regard to technical specifications and processes.

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Within the framework of optimizing the supervision and modernization of the existing gaming infrastructure, the main state priority in the gambling sphere will be the flexibility of the regulator in the decision-making process and the reduction of the unnecessary regulatory burden, as well as the simultaneous strengthening of supervision in the spheres of the highest risk.

One of the main changes in the course of the reform is the replacement of the current cumbersome system with many types of licenses for a system consisting of only two types of licenses: “business-to-consumer” (B2C) and “business-to-business” (B2B), which will cover different types of activities on several distribution channels. It is expected that this simplification in the licensing system will allow MGA to allocate more of its resources for continuous monitoring of the licensor’s activities for compliance with requirements.

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Other changes include:

  • acceptance of the objective instead of an excessively prescriptive normative approach which will ensure the development of innovations;
  • expansion of the powers of MGA in accordance with changes in the sphere of combating money laundering and financing of terrorism;
  • segmentation of officials on key functions within the licensed activities and ensuring the competence of such a person through certification, relevant experience and continuous professional development;
  • strengthening the protection of players by formalizing the intermediary role of the MGA player support department, assigning of allocation of players' funds and transfer to a single database;
  • introduction of new and more effective criminal and administrative proceedings that allow regulated organizations and individuals to appeal against decisions of MGA in the Chamber on reconsideration of decisions of administrative bodies through a judicial procedure based on the principles of natural law, as well as the introduction of distinction between administrative and criminal offenses;
  • introduction of administration system for the operators experiencing difficulties, as well as facilitating the closure of gambling projects (if necessary) to protect workplaces and players’ funds;
  • transition to automated reporting which will promote the observance of regulatory obligations and increase of the supervision of authorized bodies;
  • strengthening the role of MGA in combating manipulation in sports competitions by introducing new obligations for the operators to monitor and identify suspicious sports bets in accordance with the actions of the National Anti-Corruption Committee, in which MGA also actively participates;
  • extension of the license validity period from 5 to 10 years, provided that certain games offered within the framework of state concession are used;
  • rationalization of taxation by combining the two main levels into one stream;
  • exemption of B2B operators from gambling tax (which makes up to 5% of gambling profits from the players in Malta), which will increase Malta's competitiveness as a center for such operators.

It is also interesting to know the attitude of MGA to the use of cryptocurrencies in gambling. Realizing the need to keep up with the times, the body is committed to allow its licensees to use cryptocurrency in the near future. However, remembering about the risks, MGA has conducted an appropriate study to develop adequate legal frameworks and restrictions, including the appropriate requirements of the 4th EU directive on prevention of money-laundering, which will also be amended on the introduction of provisions on cryptocurrencies in the near future. The main results of the study will be submitted for public discussion, which will be held in the fourth quarter of this year, according to which results the necessary requirements and restrictions will be established.

At this stage, MGA is completing the Gaming Act and the relevant by-laws in accordance with the results of the conducted studies and public consultations. Further, this package of legislation will be submitted to the Government of Malta to initiate a parliamentary process for its approval. In addition, MGA promises to ensure an adequate transition period and to supplement the legislation with the provisions providing a smooth transition to the new regulation rules after the reform enters into force.

On January 3, 2018, a new MiFIDII will come into force, significantly changing the existing requirements on regulating the financial markets in the EU. We will consider in today's blog what exactly is MiFIDII and how the regulation of the European financial markets will change.
The MiFIDII (Markets in Financial Instruments Directive) is the common name for a complex network of legislation, which includes two Directives and three EU Regulations, supported by a number of technical standards and guidelines of the European Securities and Markets Authority (ESMA). The measures provided for in the Regulations are directly applied in the EU member states. For the implementation of other standards and harmonization of the national legislation, the updated requirements are established by the competent authorities in each Member State.
The current MiFID was adopted in 2004 and it operates with small updates of the end of 2007. Thus, the MiFID not only preceded the financial crisis, but it also did not consider many business models and technologies, which today became a common phenomenon. Consequently, there was an extreme need for such an update. When developing the new provisions, the EU legislators, having taken the opportunity, expanded several existing requirements.
The MiFIDII will affect everyone who works with financial instruments, from operational and business models to the systems, data, people and processes. The most interesting for the financial advisors are the provisions that improve the quality of obtaining permits for the activities of investment companies through the introduction of large prudential requirements for the management bodies, systems and controls, as well as higher requirements for the investor protection in terms of categorizing and disclosing the information to the clients, product management and fair attitude to the consumer.
However, now many independent financial advisers (IFA) in Europe are known as the companies exempted from the MiFID regulation in accordance with the Article 3. In fact, this is the status for the companies carrying out a limited range of the activities of the MiFID, allowing them to choose, if they should be considered as "Investment company" or not.
According to the MiFIDII, the company will have to meet a number of requirements to have this status.

  • It is not permitted to withhold money or assets of the client and, therefore, give or borrow money of their clients;
  • The business of such companies should be limited to the "organization" and "consulting" only for certain types of investments - for example, they cannot make deals for their clients or provide trust management services;
  • In their activities, they can transfer the orders only to the regulated investment companies or credit institutions (or their equivalents of the third countries) authorized by the EU Directive on joint investments in circulating securities, to other regulated funds or listed companies in the stock market with variable capital (for example, investment trusts funds).

Any company that goes beyond these limits should be considered an "investment company". Many companies that do not want to be limited by the transfer of their orders will be treated as "investment companies", but they will be categorized as "exempted from the requirements of the EU Capital Adequacy Directive". These are companies which permits are also limited to advising on investing and / or obtaining and transferring orders, without holding money or securities of the client and without providing depository services. However, such exempted companies may transfer the orders to a wider range of persons than those listed in Article 3 and may provide services in respect of derivative instruments that are non-transferable securities.
Any company providing, for example, dealing services or trust management services, will be governed by both MiFIDII and the EU Capital Requirements Directive, which will be generally higher, with a baseline depending on the specific activities of the company.
The IFA now have to evaluate their activities to check whether they are classified correctly. Any company that needs to change an activity permit (for the transition from the category of exempted companies in accordance with the Article 3 to the category of regulated MiFIDs) must apply to the national authority regulating the financial markets with an appropriate statement so that the regulator can review it and make a decision by January next year.
The MiFIDII contains a requirement that the EU member states cannot regulate in accordance with the MiFIDII activities of the companies, not regulated by the MiFID. But, unfortunately, for the companies exempted from the MiFID in accordance with the Article 3, no less burdensome rules are applied. The regulators will apply the rules, which in many cases are "at least similar" to the relevant requirements of the MiFIDII.
Among the key rules applied to all IFAs, regardless of whether there is an exemption under Article 3, are the following:

  • customer categorization, requirements for agreements and information disclosure;
  • incentives, including the accrual of a consultant;
  • independence and conformity;
  • product management (in terms of distributing the products related in compliance with the MiFIDII to financial instruments);
  • literacy and competence.

The rules in which the regulators can provide some discretion to the IFA, exempted from MiFID in accordance with the Article 3:

  • recording of telephone conversations and electronic messages;
  • expediency (existing rules will be applied);
  • systems and management rules (many of them will be used as guidelines, not rules, however, some key requirements, such as conflict of interests, will be applied as rules).

All European IFA, both exempted under the art. 3, and the regulated MiFID, need to review the changes in the rules of the national regulator and conduct an analysis of its activities to assess the segments that are most affected by these changes. By this time, the national regulators should already have a plan and timetable for making appropriate changes, including providing the companies with sufficient time to properly notify the customers and prepare client documentation in accordance with the requirements of the MiFIDII, by the time it comes into effect.

The technology of the distributed registry gives the potential to the companies in different spheres of activity to enable them to work more efficiently, create new business models and launch innovative products. But, naturally, the reasonable question arises: will the technology "Internet finance" be able to justify the arisen agiotage?
The Distributed ledger technology (hereinafter referred to as DLT), also known as Blockchain, refers to the innovations that can offer a tremendous potential to the large companies for more efficient operation and better customer service but it is not sufficiently developed yet for such applications.
The Distributed registries are common databases that contain digital lists of the transaction records. Their unique feature is that the identical copies of the registry are "distributed" between several hosting and information storage servers (hosts) that check transactions written in the form of "packages" by means of the agreed process. After checking, the "packages" are blocked with a cryptographic "hash" or an alphanumeric string of the fixed size, which allows the hosts to check incoming data but does not allow data recovery.
Conceptually, the cryptographic distributed registries are similar to peer-to-peer networks, or so-called credit platforms, in which the intermediary is useless and therefore replaced by the technology. The transactions can be made instantly and directly between two contracting parties, creating an unchanged record and, theoretically, eliminating the risk of not making the calculations and settling differences with the system. The registry also minimizes the probability of fraud, as it allows you to track the history of the origin of the assets and the history of transactions in a single source of reliable data.
As in the case of any other advanced technology, the development of the Blockchain is accompanied by agiotage. Many large financial institutions pay significant attention to the potential of the Blockchain, and some even invest in the innovative laboratories, start-ups or "sandboxes" (so-called test environments where the developers are given the opportunity to test the software in a safe environment).
Nevertheless, despite the agiotage, the Blockchain also has sufficient support. Thus, at the International Economic Forum, which is held every year in Davos, it was noted in the report for the previous year (2016) that the Blockchain "justifies the agiotage" and "forms the basis for the infrastructure of financial services of the next generation".
Perhaps the most notable and well-known application of the distributed registry technology is the Bitcoin payment system, which was launched in 2009. The distributed Bitcoin database contains a report on each transaction using crypto currency, which market capitalization has grown dramatically in the recent months and reached almost $ 35 billion in May, 2017. Such growth shows the growing recognition of Bitcoin as a payment method, but at the same time it generates the gossip that it can be an artificial inflation of the economic growth.
The use of distributed registry technology by the companies (on the example of the insurance services market)
Taking into account the potential, that the distributed registry technology provides, it is not surprising that some companies have launched an initiative to estimate the value or develop jointly the programs. For example, in October 2016, Aegon, Allianz, Munich Re, Swiss Re and Zurich launched the Blockchain Initiative B3i which implies involving insurance companies in joining an industry group to investigate the potential of the distributed registry technology. The group agreed to launch a pilot project using anonymous information about transactions and anonymous quantitative data, in order to conduct research to confirm the mechanism of action of intergroup retrocession (reverse concessions).
Another direction of the development is a broader interaction between the main players in the insurance services market and IT companies. Such a joint approach will allow to pursue not so much revolutionary but evolutionary development policy and testing in this sphere, which, according to the expectations, will lead to the standards of suitability for sharing.
Certainly, there is a feeling of overwhelming excitement around the potential for a more efficient and safer business infrastructure for the activities of the companies. Nevertheless, despite the promises, at the moment the distributed registers are only a small part in the technological environment of the insurance. Very little investment has been promoted beyond the evidence of the concept, and there are serious questions relating to whether the registries will be able to cope with the volumes which are necessary for the operation of the modern insurance markets.
Newbies fighting
In the conditions of the constant development, the new market participants also strive to use the capabilities of cryptographic distributed registries. Among the most famous is the start-up Everledger, which uses the advanced technologies, including Blockchain, smart contracts and automated information analysis to help reduce fraud risks for banks, insurers and open markets; as well as the Plex.ai project is an automated telematics platform that uses the Blockchain technology, artificial intelligence and machine learning to provide insurance for the cars with autopilot. The InsurETH project allows you to purchase insurance against flight delays using the Ethereum smart contact system. The insurance payments are registered as a smart contract transaction, and the compensation is granted based on the provisions of the contract.
Startups
Startup projects have the opportunity to gain the access to the Blockchain technology for a relatively small fee, having built their solutions on such platforms as Ethereum, for example. Thus, the start-up Dynamis builds the contracts on the base of the Ethereum platform for the equal insurance contracts. This company also develops contracts for additional unemployment insurance, using the social network LinkedIn as a reputation system. The applicants for a new policy can use the data entered in LinkedIn to verify their identity and employment status, and the claimants can use their LinkedIn connections to validate that they are looking for work.
In conclusion, it should be noted that technologies have changed an uncountable number of industries, and the next technological revolution seems to be aimed at digitizing all the industries, including the financial services industry. As a result, digital technologies are increasingly penetrating every stage of the financial services. So, right now, the transactions conducted using Blockchain technology, leave a trace on the web forever and give the opportunity to track every move. All the data can be copied, but there is no possibility to edit which minimizes the possibility of fraudulent schemes.
Probably, in the near future most transactions will be conducted using Blockchain technology which will significantly reduce time costs and secure the contract parties from fraudulent schemes. In the meantime, we will be monitoring the development of the technology and monitoring the regulatory news of this relatively new but very actively developing technology.

The developers, businesses and ordinary people are increasingly using the Initial Coin Offering, which is also called the ICO or the sale of tokens to raise capital. Such activities provide fair and legitimate opportunities to attract investment. Nevertheless, new technologies and financial products related to the ICO can be misused to attract investors with the promises of high profitability in the new investment space.

Providing this material, we begin a series of articles on crypto-currencies in order to acquaint you with the current issues of regulating a new and actively developing sphere of investment.

Virtual coins or tokens are created and distributed using the distributed registry technologies or distributed storage of reliable records (blockchain technology). Recently, the sale of virtual currency through the ICO is more and more popular. The buyers (investors) can use funds to purchase money (for example, US dollars) or virtual money to buy virtual coins or tokens. The creators (promoters) provide the buyers with the information that the capital raised from the sales will be used to finance the development of the digital platform, software or other projects of this kind, and that virtual coins or tokens can be used to access the results of development, their use or for any other type of participation in the funded project. However, the authors of unsuccessful projects that did not collect the necessary funding must return the invested funds to their owners. After the issue, the virtual coins or tokens may be resold to other persons in the secondary market, virtual currency exchanges or other platforms.

Depending on the facts or conditions in each individual ICO, virtual coins or tokens that are offered or sold can be treated as securities. Thus, the US Securities and Exchange Commission (hereinafter - the Commission) in its most recent investigation report in accordance with paragraph 21 (a) of the Law on Securities Trading of 1934 determined that if virtual coins or tokens are securities, then the offer and sale in the procedure of ICO is subject to regulation in accordance with the federal legislation on the securities.

In its report of July 25, 2017, the Commission described the investigation of the activities of the virtual organization DAO (Decentralized Autonomous Organization) and its use of the technologies of the distributed registry and blockchain to simplify the offer and sale of the DAO tokens to increase capitalization. The Commission applied the existing federal laws of the USA to the new concept, having established that the DAO tokens are securities. It should be noted that those who sell and offer securities in the United States are required to comply with the existing federal securities laws, regardless of whether these securities are purchased in virtual currency or distributed using blockchain technology.

In order to bring a little clarity to this new and complex sphere, we will consider the basic concepts that should be understood if you wish to invest in crypto-currencies or tokens.

What is blockchain?

Blockchain is an electronic distributed register or list of records, very similar to the ledger, which is supported by various participants in the computer network. The system uses cryptography to process and check the transactions in the list, providing the existing and potential users with the assurance that the records are protected. The most famous examples of blockchain are Bitcoin and Ethereum, which are used to track the transactions in bitcoins and ethers, respectively.

What is a virtual currency (crypto currency), a virtual token or a coin?

Virtual currency is a digital representation of values ​​that can be sold digitally and they function as a means of exchange, units of account or means of accumulation. Virtual tokens or coins may also represent other rights. Consequently, in some cases, tokens or coins will be considered securities and cannot be legally sold without registration in the Commission or in accordance with exemption from registration.

What is a virtual currency exchange?

Virtual exchange of currencies is a person or organization that exchanges virtual currency for real money, funds or other forms of virtual currencies. Virtual currency exchanges usually charge a fee for their services. Secondary trade in crypto currency can also be made at the exchange. This may be an unregistered exchange of securities or an alternative trading system governed by the securities laws. Accordingly, when buying and selling crypto currency, you may not have the protection that is provided in case of acquiring shares listed on the exchange.

Who issues virtual tokens or coins?

Virtual money is issued by the virtual organizations, or other companies on attracting investment. A virtual organization is an organization embodied in the computer code that runs on a distributed registry or in a blockchain. The code, often called “a smart contract”, serves to automate the certain functions of the organization that may include the release of certain virtual coins or tokens. The above DAO is an example of a virtual organization.

The key points that need to be considered when deciding whether to participate in the ICO (for example, the United States)

If you intend to invest in the ICO, below you can find what needs to be considered when making a decision.

  • Depending on the circumstances, the proposal may contain an offer and sale of securities. If this occurs, the offer and sale of the virtual currency must be registered by the commission or conducted as such that are not subject to the registration. Before investing in the ICO, ask the developer if the virtual coins or tokens are securities and whether the proposal is registered in the Commission. When registering, you need to remember a number of important points.
  • if the developer claims that the proposal does not require registration, and you are not an accredited investor, you need to be very careful - most exceptions have net worth or income requirements;
  • although, the ICO is sometimes described as crowdfunding contracts, it is possible that they are not offered or sold in accordance with the requirements of the Crowd Funding Regulations or with federal securities laws in general.
  • Find out what your money will be used for and what rights you get from virtual coins or tokens. The developer must have a transparent business plan, which you can read and understand. The rights that are granted to you as the owner of tokens or virtual coins should be clearly stated in this document. Also, you need to make sure that you can get your money back, if you want. For example, find out if you have the right to return a coin or token of the company or receive a refund. Can you sell your coin or token? Are there any restrictions on the resale of coins and tokens, etc.?
  • In the event if a virtual token or coin is treated as securities, the requirement is set by the federal or state legislation of the US: the professionals in the sphere of investments and firms that offer, participate in the transaction or advise on investment issues should get licence or be registered.
  • Ask whether the blockchain is open and public, whether the code has been published and whether the digital security audit has been conducted.
  • Scammers often use innovations and new technologies to enforce fraudulent investment schemes. Scammers can attract investors by advertising the ICO's investment "opportunities" as a way to join this ultramodern space, promising or guaranteeing high investment returns. The investors should always be suspicious of non-transparent sites, solid sales and promises of disproportionate profits. In addition, it's relatively easy for the people using blockchain technology to create the ICO that looks impressive, even if it's actually a scam.
  • The virtual currency exchanges and other organizations that hold crypto-currencies, virtual tokens or coins may be subject to fraud, technical malfunction, hacking or malicious software. There are also cases of theft of crypto currency by the hackers.

Investing in the ICO can limit your ability to return funds in case of fraud or theft. Despite the fact that you will have the rights in accordance with the federal securities laws, your ability to return investment can be significantly limited.

If you or a company that issues crypto currency, becomes a victim of a fraud or theft and lose tokens, coins, other virtual or even real money, the possibility of refunding your funds can be severely limited. You should also pay attention that third-party "wallets," payment systems and virtual currency exchanges, which play an important role in the use of crypto-currencies, may be abroad or act illegally.

The law enforcement officers may face special problems when investigating the activities of the ICO and, as a result, the means of protecting investors will be limited. Among the main problems are:

  • Tracking money. Traditional financial institutions (for example, banks) are often not associated with the ICO or transactions in virtual currency which makes it difficult to track cash flows.
  • The international component. The ICO, transactions with virtual currency and the users cover the whole world. Although the Commission regularly receives the information from abroad (for example, through cross-border agreements), there may be limitations on how it can use this information, and it may take more time to obtain it. In some cases, the Commission may simply not be able to obtain the information from the individuals or organizations located abroad.
  • Absence of a central regulatory body. Since there is no central authority that collects the information about virtual currency users, the Commission should generally rely on other sources for this type of information.
  • Freezing or providing a virtual currency. The law enforcement officers may have difficulty with freezing or investor funds that are stored in virtual currency. The virtual currency purses are encrypted and, unlike the money stored in a bank or brokerage account, virtual currencies cannot be held by the outside keeper.

Be extremely careful if you find any of the following potential signs of investment fraud.

  • "Guaranteed" high investment yield. There is no such thing as a guaranteed high investment yield. Be careful with someone who promises that you will get profit from your investment, with little risk or no risk at all.
  • Offers without obligations. Sales without obligations can be a part of a fraudulent investment scheme. You should be extremely cautious when receiving such proposals for investment opportunities, especially if you did not ask for it and do not know the sender.
  • It sounds too good to be true. If the investment proposal is too good, then it is most likely to be fraud. Remember that investments that bring high returns are more likely to occur with higher risks.
  • The persuasion to invest money right now. The scammers often try to cause a sense of urgency to get an investment from you. Take time-out for a detailed study of the proposal, before you transfer your money.
  • Unlicensed salespeople. Most fraudulent investment schemes involve the participation of the persons whose activities are not licensed, or firms that have not been registered.
  • No requirements for the size of your income or capital. Federal securities laws require the securities to be registered by the Commission, if the exemption from registration is not applied. Many exceptions for the registration require the investors to be accredited; some others have investment restrictions. Pay special attention to the private (that is, unregistered) investment offers that do not request information about the amount of your equity or income, or existing restrictions on investing.

Recently, the President of the Czech Republic has adopted the amendments to the Law "On the Residence of foreign citizens" (hereinafter - the Law). The basis for such changes to the Law was the obligation of the implementation of the EU Directives on seasonal employment and permits for the employees transferred within the framework of international concern. However, the bill introduces various measures to combat illegal employment, the problem of which is acute in the Czech Republic. In addition, a number of measures are being introduced for the immigration support of the new investors. The specified changes are the largest since the times of introduction of the institution of the Labor Card in 2014 and they will come into force during August of this year.

In view of the fact that the amendments to the Law are directly related to the creation and promotion of business in the Czech Republic, then we will focus on the key points and try to understand them.

Some of the changes will affect the certain categories of the citizens who are not the EU citizens and have seasonal employment, as well as the managers, specialists and trainees of the international corporations who have been expanded to work in the Czech Republic for a certain period of time. There will be a special type of work and residence permits for this category of employees, which implies a special order of receipt. This kind of permits will not replace the existing labor, as well as blue cards, and can be used along with them.

As for the new investors, the changes do not imply any simplification in obtaining a permanent residence permit or in obtaining citizenship, since this kind of procedures in the Czech Republic, unlike some EU countries, is simply absent. However, the entrepreneurs and official representatives of the companies will be able to obtain an investor's card that will legitimize a long-term stay in the Czech Republic. This type of card can be obtained in an accelerated order within 30 days. In addition, the family members of such investors will be able to obtain the long-term residence permits for the purpose of family reunification, on the basis of which they will be able to live and work in the Czech Republic. It should be noted that such an investor must meet a number of requirements, namely: the minimum investment size should be at least 75 million crowns and at least 20 jobs should be created within the framework of this investment.

At the present time, the investors who meet the requirements of the Czech legislation can use the existing "Welcome Package" project and get a work card, also in an accelerated order.

Moreover, today the citizens of the countries that are not the members of the European Union and are official representatives of the Czech companies ("jednatel") can exercise their powers on the basis of an entrepreneurial visa or a work permit and a work card.

In accordance with the new rules, the official representatives will exercise their powers solely on the basis of entrepreneurial visas or an investor's card.

It is also worth noting that, according to the changes, a new concept of "unscrupulous employer" is being introduced. The employer who do not fulfill their tax obligations, the obligations with respect to the contributions to social and medical insurance, performs the activities that differ from the indicated in the register or also has a fictitious place of registration will be considered unscrupulous.

In addition to all of the above, the changes will affect labor and blue cards. So, the action of the work card will automatically expire 60 days after the termination of the employment contract if no application for a new card has been submitted for this period or after this application has been rejected. At the same time, a period of 60 days is provided during which it is possible to apply for a new card in the Czech Republic after termination of the employment contract. For this moment, in the event of the expiry of the employment contract, a new application can be submitted only from abroad.

In conclusion, it should be noted that until now the blue card has not had significant advantages over the work card. For example, the presence of the blue card issued by another member of the European Union did not give the right to work in the Czech Republic. However, in view of the approved changes, now it will be possible to start working on the basis of the card issued by another member state of the European Union, provided that the employee has applied for a blue card in the Czech Republic.

On July 27, the list of organizational and legal forms of foreign counterparties on the countries / territories was officially published (and therefore entered into force), operations with which can be recognized as controlled for the purpose of control of transfer pricing (TP). This list was approved by the Resolution of the Cabinet of Ministers of Ukraine No. 480 of July 4 of this year (hereinafter - the List) for the implementation of the provisions of the Tax Code of Ukraine on TP, namely the clause "d" 39.2.1.1 art.39, and it is another criterion for the recognition of the operation as controlled one. If we look more widely, this can be seen as the next step of our government within the framework of global campaign on de-offshoring, namely to fulfill the commitments to implement the BEPS plan (its minimum standard), which Ukraine assumed with the acquisition of an official BEPS membership from 1 January, 2017.

The list includes more than 90 organizational and legal forms from 26 countries and territories. The absolute majority of organizational and legal forms on the list are partnerships (about 80% of total amount). There were also some forms of investment funds and companies, limited liability companies, associations, international companies, etc. It is noteworthy that the List includes the forms of the companies not only of those jurisdictions that are traditionally used in tax planning schemes (for example, the British LLP or the UAE free zone company), but also organizational and legal forms in the jurisdictions with traditional tax load (Germany, France, Poland) and even exotic for our perception types of the companies of Asian countries (Korea, Japan, Israel).

The Government used the data of the OECD report on taxation of partnerships, as well as the information bases of the International Bureau of Fiscal Documents, to compile the List. The main criterion was the payment of profit tax.

That is, from now on, the fiscal authorities believe that if a non-resident is established in one of the organizational and legal forms of one of the states specified in the List, he does not pay the tax on the profit of the enterprise, including the income outside the state of registration, and / or he is not a tax resident of the country of registration. Accordingly, all the transactions of the Ukrainian taxpayers with such counterparties, with the volume of more than 10 million UAH for the reporting period will be recognized as controlled, and therefore the TP rules will be applied to them.

The only way to avoid control is to prove the opposite, that is, the payment of tax by a non-resident in the country of registration in the reporting year. Then business transactions with this non-resident in this reporting period will be recognized as uncontrolled, if, of course, there is compliance with other criteria defined by law. This possibility is provided for by the part 2 par. 39.2.1.1 art.39 of the Tax Code.

The bad news is that neither the procedure for confirming the tax payment nor the list of documents by which such payment can be confirmed has been established. And this means that, in practice, a taxpayer may face difficulties in proving the fact of paying a tax in the country of registration to the Ukrainian fiscal authorities.

The matter of the possibility of applying the provisions of agreements on avoidance of double taxation to the payments of such non-residents is not less important. Most likely, it will become difficult to use in practice the advantages of the international agreements in the tax sphere for non-residents, whose organizational and legal form is included in the List.

Another important issue - which reporting period will the transactions with counterparties be started to monitor, which organizational and legal form is included in the List? We assume that the disputes will inevitably arise on this issue, since the Tax Code contains two conflicting norms. Thus, the second part of par. 39.2.1.2 Article 39 establishes the moment when this criterion of the controllability of business transactions comes into force - on 1 of January of the reporting year, following the calendar year in which the countries were included in the List. This means that the deals made since 2018 will fall under the control of the TP.

At the same time, cl.41 Subsection 10 of the Transitional Provisions of the TCU states that economic transactions with non-residents, which organizational and legal form is included in the List, are recognized as being controlled from the date of introduction of the List. And this means that this norm makes report for the operations committed this year already.

We still incline to the first option, because the second one contradicts at once two basic principles of the Ukrainian tax legislation, established in art. 4 of the TCU: presumption of legitimacy of the decision of the taxpayer in the event of legal conflict and stability - a ban on the introduction of any elements of the taxes and fees in less than 6 months before the start of the new budget period.

Summarizing, we want to note that Ukraine is moving towards a worldwide policy to fight with tax evasion and approving the concept of paying taxes at the place of business and earning income. It is also obvious that in the future such a struggle will only intensify. The approval of the List has become, even though expected, but still a challenge for the businesses using the tax optimization schemes with the help of the foreign partners and counterparties. We see this as another signal to the need of revision of such structures.

At the end of June, the President signed a law on removing the barriers for the foreign investors, which amends a number of existing legislative norms. In this publication we try to understand what it means for the investors themselves.

So, the main achievements of the law are the establishment of the procedure for obtaining the work permit for a foreign investor at the legislative level, as well as determination of the possibility to obtain a residence by the investor (hereinafter - residence), not only permanent but also temporary.

As for the work permit: the law clearly stipulates the procedure, all the necessary documents and requirements. Among the main documents are only four:

1. Application of the employer in the prescribed form
2. Copies of the passport of a foreigner with the translation
3. Color photo of a foreigner 3,5x4,5
4. Draft employment contract with a foreigner

The additional documents (listed in the law) are required only for certain categories of the foreigners. It is also important that the law explicitly prohibits authorities demanding any other documents not provided for by law from the foreigners or their employers (both when registering the work permit and when applying for a temporary residence). We remind that earlier the procedure for obtaining the work permit for a foreigner was established by by-laws which often gave the officials the opportunity for manipulation and abuse.

As for the residence permit, the law establishes an opportunity for the investors to obtain not only a permanent residence permit, but also a temporary residence permit. The difference is that a permanent residence permit assumes immigration to Ukraine. Earlier, an investor who did not stay in labor relations with his own enterprise did not have the right to obtain a temporary residence permit, and the registration of a permanent residence permit took a very long time - up to a year. As a result, during the first year of work, the investor did not have the opportunity to control the work of his company in Ukraine.

With the entry into force of the new law, namely since September 27 of this year, a foreigner will be able to issue a temporary residence permit in just 7 working days if he is a founder, participant, beneficial owner or controller of a Ukrainian legal entity, and the amount of his share in the capital of this legal entity is not less than 100,000 euros at the official rate of the NBU. The standard validity of temporary residence permit for the investors is 1 year.

At the same time, the information that the foreigner is the founder / owner / beneficiary of the legal entity, as well as the information on the official exchange rate on the date of investment, cannot be required by the territorial body of the state migration service, but it must receive it independently.

It is important to remember that it is possible to apply for a temporary residence permit through a representative (by proxy), but it is possible to pick up the completed document only in person.

As you can see, although this law has become not as significant as it may seem from its title, but it is still a step towards the foreign investors. We hope that this trend will continue in the national legislation.