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While ICOs in the US have come to a complete standstill, in some jurisdictions they’re just taking off.
Just take the small island nation of Bermuda, which recently awarded its first certification for an ICO to fintech company Uulala (UULA).
In both the US and Bermuda, new regulatory regimes for crypto projects are being established, but with very different results.
In Bermuda, increased regulatory certainty makes the system clearer and simpler, and is specifically designed to encourage new entrants to the market.
In the US, the SEC’s attempt to treat all ICOs as securities offerings has made the process significantly more costly and complex. So much so that compliance alone can cost projects millions of dollars in legal fees and the penalties for non-compliance are too terrifying to consider.
While no jurisdiction is completely beyond the purview of US regulators, there are still tremendous advantages for establishing a crypto project in a more crypto-friendly environment. And so far, it looks like Bermuda is gearing up to be one.
Read on to find out more about Bermuda’s new ICO regulations and whether or not you should consider the jurisdiction for your next crypto project.
Bermuda’s new ICO Regulation
On July 9th, the government of Bermuda put into effect the Companies and Limited Liability Company (Initial Coin Offering) Act 2018, which is the country’s first attempt at establishing regulatory certainty for token offerings of any kind.
The requirements for registration are fairly straight-forward, including: details of any persons connected to the business, licenses, development of the project, the target market, the amount of capital raised, the nature of the product itself, compliance measures and the technical aspects of the blockchain used.
This piece of legislation applies to ICOs that make public offerings to more than 35 entities or individuals, but exempts private ICOs with fewer investors.
Keep in mind however, that if any US persons are solicited, you may be subject to SEC securities regulations. This means either registering your offering or applying for an exemption with the SEC. So be careful!
Accessing financial services continues to be one of the biggest headaches for ICOs, exchanges and crypto businesses in general. And unfortunately, Bermuda is no exception. While the government has shown that it is open to ICOs, local financial institutions remain more cautious. Though it is hoped that the establishment of regulatory certainty may help open traditional financial institutions to the industry, we have not seen this in practice yet.
To help this along, the government of Bermuda has also announced that it is working on a series of amendments to the Banking Act. The aim of this legislation will be to allow the formation of a new class of Fintech Banks to give crypto projects greater access to banking services.
With clearly established regulations and a government that is actively working to facilitate business, Bermuda has definitely earned its place amongst the band of crypto-friendly nations.
Bermuda is a Great Jurisdiction in General
It’s not just the country’s attitude toward crypto that makes it a quality jurisdiction to consider. Bermuda has long been seen as a great jurisdiction for business in general. It has a very stable economy, extremely low tax rate, and an overall great business environment. In addition, its close proximity to the US makes it ideally placed for many.
Bermuda is best known for its zero tax rate on income and corporate taxation. This applies only to products and services sold outside of the country, which is perfect for your typical crypto-related business.
On top of this, the government of Bermuda has a reputation for solid regulatory stewardship and good communication with businesses. Some would say this is actually an advantage over a hands-off approach, as it typically gives businesses a good amount of lead time before new regulation is introduced.
As mentioned above, banking is still a challenge for many business that incorporate here, but this not a new challenge to crypto-related businesses in general. However, the fact that the government has recognized this and is taking steps to amend their Banking Act in favor of crypto-related businesses is undoubtedly a good sign.
Like Zug, another drawback may be the cost of living in Bermuda, which is relatively high. But at the end of the day, it’s the price you pay for living on a Caribbean island. With beautiful beaches and perfect weather all year long, for many the high cost of living is well worth the markup.
What does this mean for Crypto Law Insiders?
Business-friendly jurisdictions want to attract crypto-related businesses to their shores because it means more jobs, more GDP, and more tax revenue. We saw this first with Malta, then Gibraltar, and now Bermuda. We expect even more countries to follow suit in the coming months and years.
That said, you can’t have your cake and eat it too.
Choosing an offshore jurisdiction does not take you beyond the reach of the SEC and US securities regulations. If you intentionally or unintentionally interact with US investors or consumers you will be under the purview of US regulators, so it is crucial to always take steps to remain compliant.
Nonetheless, choosing to base your business in a crypto-friendly jurisdiction like Bermuda can give your project a host of other benefits, like low taxes and regulatory certainty. And when that also means living on white-sand beaches in the Caribbean, it sounds like a smart move that Insiders should consider.
Dean Steinbeck is the Managing Director of Crypto Law Insider, the leading legal authority for entrepreneurs and investors in the cryptocurrency and blockchain ecosystem.
Dean is a US corporate lawyer with a focus on data privacy and technology. With over 15 years of experience representing VC-backed software development companies, Dean has found himself at the center of multiple blockchain projects and is currently recognized as one of the top attorneys in the cryptocurrency space.
Dean currently serves as General Counsel for Horizen (formerly ZenCash), a privacy-oriented cryptocurrency and cutting-edge blockchain platform. Prior to Horizen, Dean was General Counsel at TigerConnect, the leading communication platform in the US healthcare market. His experience gives him an in-depth knowledge of the legal intricacies within blockchain technology, data privacy, intellectual property, venture capital funding and regulatory compliance. Click here to learn more about Crypto Law Insider.