Crypto regulation in Gibraltar

Crypto Regulation in GIBRALTARGibraltar is an example of a jurisdiction that has introduced rules aimed at attracting blockchain and crypto companies. Gibraltar’s approach was named “progressive”, and as a result the country became the preferred jurisdiction for many cryptocurrency companies.

DLT Regulatory Framework

Gibraltar developed particular legislation known as the DLT (Distributed Ledger Technology) regulatory framework, which came into force on 1 January 2018 and applies to firms operating DLT, that is, which is not subject to regulation under any other legal framework,  which uses distributed register technology (DLT) to transfer or store valuables belonging to other persons. Types of activities that require a DLT license include the operation of a crypto exchange, crypto purse service providers and asset storage service providers, cryptocurrency purse providers and DLT-based trading platforms, that facilitate the purchase and sale of goods and services. Firms and activities subject to a different regulatory framework shall continue to be regulated under this structure. Distributors, including cryptocurrency exchanges and depositories, must be authorized and licensed by the Gibraltar Financial Services Commission (GFSC) as DLT suppliers.

Gibraltar cryptocurrency regulation

DLT requirements

The Gibraltar regulator’s approach to the DLT requires DLT suppliers to follow the nine principles developed to ensure that the desired regulatory outcomes are achieved, including investor protection. The nine main requirements of the Gibraltar Regulator are as follows:

  1. Fair and faithful conduct of business – GFSC must ensure that the applicant and the people associated with the applicant are suitable for the performance of relevant DLT activities. The main elements established by the GFSC are (i) integrity; (ii) skills, competence, diligence and experience; and (iii) financial standing;
  2. Give due consideration to the interests and needs of customers and communicate with their customers in an honest, clear and non-misleading manner. The DLT provider should, among other things, make every effort to reduce the risks associated with the use of DLT and apply best practices in the conduct of its business;
  3. Maintaining sufficient financial and non-financial resources – DLT Provider must ensure that it has sufficient financial resources and capital levels,  which should be controlled and sufficient to support business objectives;
  4. Effectively manage, control and conduct business with due diligence, including appropriate risk management for their business and clients, which includes the adoption of appropriate forward-looking risk management techniques;
  5. Have effective mechanisms to protect client assets and money when it is responsible for them – DLT suppliers are expected to take the necessary precautions to protect customers’ assets, and the stored assets will need to be separated from the DLT vendor’s own assets;
  6. Effective corporate governance mechanisms are in place – DLT suppliers must implement strict corporate governance procedures that include (a) the board structure of directors, including the composition to ensure a good balance and a combination of skills and experience to complement the business; (b) adequate application of the principle of «four eyes» (separation of different functions, cross-checking, double signatures, dual control of assets etc.) and (c) Application of reason and direction from Gibraltar;
  7. Ensure that all secure access systems and protocols are maintained to high standards;
  8. Financial Crime Prevention – DLT providers should have systems in place to prevent, detect and disclose financial crime risks such as money laundering and countering terrorist financing (AML/CFT).  DLT providers should adopt and implement adequate preventive measures against money laundering and terrorist financing that are commensurate with their risks, and DLT providers should also report suspicious transactions where applicable; and also
  9. Be sustainable and develop contingency plans for orderly and solvent liquidation of their business.

These requirements and conditions will also apply to the licensing of cryptocurrency exchanges, which trade only virtual assets. The advantage is that there are no restrictions on the provision of services only to professional investors.

According to PwC, Gibraltar ranks third in terms of cryptocurrency hedge fund managers (after the United States and the United Kingdom, and Hong Kong fourth). Gibraltar is also the fourth most popular home for crypto hedge funds. A positive development was the establishment of the Gibraltar New Technologies Association (GANT), which included leading Gibraltarian law firms, accountants and technology companies. GANT has the task not only to accelerate the development of blockchain and DLT, but also to increase the prestige of «new technologies».

POD/FT regulation

In 2018, Gibraltar’s Proceeds of Crime Act 2015 was amended to extend the obligations under POC/FT to businesses that earn income from any form of sale of tokenized digital assets, whether on its own behalf or on behalf of another person. Licensed DLT suppliers are also required to comply with the Proceeds of Crime Act and relevant instructions issued by the Gibraltar Financial Services Commission.

The EU Fifth Anti-Money Laundering Directive (5AMLD) applies to Gibraltar and has been transposed to Gibraltar’s laws under the provisions of the Proceeds of Crime Act 2015 (Amendment) 2020. 5AMLD has included service providers who exchange between virtual currencies and fiat currencies, as well as custodial purse providers in AML / CTF Regulation. In 2017, however, Gibraltar had already regulated that activity. Under the laws of Gibraltar, anyone who uses DLT to store or transfer property belonging to another person is already subject to the Fourth Anti-Money Laundering Directive. Gibraltar did not include the 5AMLD provisions for cryptocurrency service providers and cryptocurrency wallet providers, as these service providers already have obligations under the GPO and FT as DLT providers.

ICO regulation

DLT rules do not specifically regulate ICOs, although they may fall under existing securities regulations. Gibraltar issued proposals to regulate the ICO in March 2018. The proposed rules would cover the promotion and sale of crypto tokens, secondary market platforms and token-related investment services and would regulate some crypto-related activities,  carried out in or outside Gibraltar. The proposed regime would cover virtual assets that went beyond the DLT and Gibraltar’s financial services and securities laws.

It is important to note that the GFSC has stated that they do not want and do not see for themselves as a regulator the ability to prescribe what looks «good» when selling tokens. The GFSC would rather allow the market of authorized sponsors to offer different options on how a good ICO looks.

In Hong Kong, there are no plans for individual regulation. Instead, regulators have adopted a pragmatic approach whereby the SFC determines the regulatory status of the ICO on a case-by-case basis, depending on whether it has the features of a traditional security. If tokens are considered «securities», any party dealing with or advising on tokens must have a license or registration with the SFC. This is, of course, a clear discrepancy with the regulatory position in mainland China, but it is far from as progressive and active as the efforts in Gibraltar, where Hong Kong is the center of regulatory approaches.

Activities to be regulated under the proposals (if conducted in or from Gibraltar) include:

  1. Promotion, sale and distribution of tokens;
  2. Secondary market trading platforms; and
  3. Provision of token-related investment and related services.

The proposals will also introduce a requirement for an «authorized sponsor» of all publicly proposed ICOs and will regulate the behavior and impose obligations on authorized sponsors, secondary market operators of tokens.

However, the proposals will not regulate the token issuers or promoters, nor the tokens or technologies underlying them. Instead, regulation will be carried out by requiring authorized sponsors, crypto exchanges and service providers to comply with the new rules.

The purpose of the proposed management regime would be to reduce the risks associated with the activity. In the case of token-based crowdfunding, this will require full and accurate disclosure, while secondary market platforms will be subject to rules that ensure orderly and appropriate behavior. Competence requirements will apply to suppliers of investment services. The GFSC would be the appropriate regulatory body for POD/FT, and the provisions of the DLT rules would apply to firms subject to the new token rules.

Promotion, sale and distribution of tokens

The first part of the proposed rules would govern promotion in the primary market,  The sale and distribution of tokens that are not securities (which are already subject to existing securities legislation, as in the case of Hong Kong)direct gifts or donations using the rules. covers the activities

  1. which imply or imply that they are made of Gibraltar;
  2. are intended to attract the attention or access of any person in Gibraltar;
  3. are conducted by foreign subsidiaries of Gibraltar-registered entities (in such cases the person of Gibraltar will be liable); or
  4. Carried out by foreign agents and trustees acting on behalf of Gibraltar-registered entities or on behalf of natural persons, habitually resident in Gibraltar (in such cases the person of Gibraltar shall be liable).

Under the proposals, these tokens are commonly referred to as service or access tokens,  which offer commercial products or services (which may not exist at the time the tokens are sold). Tokens that function solely as a decentralized virtual currency (such as bitcoin) or as a digital currency,  issued by the central bank (CBDC) will be excluded from this part of the rules. However, hybrid tokens (which have a basic economic function that is both virtual currency and also something else) will be caught.

Unless further details are included in the proposed legislation or guide, the current proposals provide little clarity on which tokens will be subject to the new legislation and existing securities laws, which will remain unregulated. In that way, regulation of the ICO proposals will still require an analysis of the nature of the rights attached to tokens and their intended use. From a European perspective, the closest equivalent of the American concept of security is probably the unit in the collective investment scheme. There is currently no guidance on how this concept applies to ICOs. It is unclear from Gibraltar’s proposals whether they will cover all «service tokens» regardless of whether they can be traded on the secondary market.

Disclosure rules

The proposed rules for the promotion, sale and distribution of tokens would require adequate, accurate and balanced disclosure so that anyone considering buying tokens in the primary market could make an informed decision. The rules may prescribe that, at a minimum, the disclosure is appropriate and in what form the disclosure is made (for example, in a key fact document of no more than 2 pages). Gibraltar’s FSC may from time to time publish instructions on disclosure rules.

Financial crimes regulation

Businesses that receive any form of token income into their own account or from another person have been included in the Proceeds of Crime Act 2015 (POCA) Amendment, which came into force in March 2018. Thus, issuers are already legally required to perform AML and CTF checks on token buyers.

Authorized sponsors

The proposed rules would establish a regime for the authorization and supervision of token sponsors (authorized sponsors) who would be responsible for ensuring compliance with this part of the rules. An authorized sponsor must be appointed for each public offering of tokens promoted, sold or distributed in Gibraltar or from Gibraltar. Authorized sponsors may be appointed as promoters of Gibraltar or promoters of the proposal, wherever they may be.

Authorized sponsors would need to have the knowledge and experience of the ICO as well as the intelligence and administration of Gibraltar. They will be allowed to delegate some of their work to others, including offshore parties, but will remain directly responsible to the GFSC for the actions of their delegates.

Rulebook

Under the proposed regime, authorized sponsors would have to have one or more sets of rules for the proposals they sponsor.  Authorized sponsors are considered to be best placed to identify best practices for the proposals they sponsor and are free to apply different codes to different categories of tokens and offers. Codes of practice may cover issues such as the application and distribution of sales proceeds.

The Code of Practice should be included in the authorized sponsors’ agreements with their ICO clients. The submission of codes of practice will be part of the application process for an authorized sponsorship license. Preliminary report of changes in codes of practice is required and it will be treated in the same way as other important changes in business.

It is proposed that the rules define the principles governing the contents of the rules. Authorized sponsors would have the right, subject to approval, to establish their own methodologies for implementing the principles.

Authorized sponsors’ registers, codes of practice, sponsors’ clients and tokens

GFSC will establish and maintain a public register of authorized sponsors and their codes of conduct (past and present).

The GFSC will add to the public registry the following information on public offers provided by authorized sponsors of public proposals in which they participate:

  1. the client(s) for which they operate;
  2. tokens included in the proposal;
  3. code of practice applicable to the proposal; and
  4. any interest that they and their associates have in the proposed tokens.

New controlled activity and offense

A new supervised activity by an authorized sponsor is proposed, and advertising,  The sale or distribution of tokens in or from Gibraltar without complying with the following requirements shall be considered an offense:

  1. Requirement for an authorized sponsor;
  2. Requirement for a current record in the public registry;
  3. Certain disclosure obligations; and
  4. Relevant POCA provisions, where applicable.

The promotion, sale and distribution of the public offering of tokens can be done only once while the offer is in the registry.

Secondary market activity

Proposals include the regulation of secondary market platforms operating in or outside Gibraltar that are used for token trading and, to the extent not covered by other regulations, their derivatives. The rules seek to ensure that these markets operate in a fair, transparent and efficient manner and that organized trade takes place only on regulated platforms.

The proposed rules will set out requirements for:

  1. Public disclosure of trade activities;
  2. GFSC transaction disclosure; and
  3. Specific supervision of tokens and token derivatives positions.

These rules will cover the secondary market for trading all tokenized digital assets, including virtual currencies, and will, as far as possible, model the market platform in accordance with MiFID 2 and the Financial Instruments Markets and Amendment Regulations (MiFIR).

Authorized secondary token markets

Proposals include the addition of new controlled activities to operate the secondary market platform used for trading tokens and their derivatives. The GFSC will allow and control the operators of the secondary token market, as well as maintain a public registry of such operators.

Token investments and support services

The proposed legislation would include new supervised activities to provide investment and additional services related to tokens in or from Gibraltar and, to the extent not provided for in other regulations, their derivatives.

This part of the rules is intended to provide advice on investment in tokens,  virtual currencies and digital currencies issued by the central bank, including:

  1. General recommendations (fairly and neutrally stating facts regarding investments and services in tokens);
  2. Product-related recommendations (selective and subjective presentation of the advantages and disadvantages of specific investments and services in tokens);
  3. and personal recommendation (based on the specific needs and circumstances of the individual investor).

Our highly experienced and trusted lawyers will be pleased to provide you with tailored support in registering with the Register of Virtual Currencies and in obtaining a crypto license in  Gibraltar. We closely monitor local regulations and are therefore well prepared to guide our clients through every stage of the registration process in an efficient manner.

Establish a Crypto Company in Gibraltar

If you’re looking for a maturing crypto jurisdiction that can offer a reliable regulatory framework, take a look at Gibraltar, a British overseas territory that was among the first countries to recognise and regulate cryptocurrencies. The government continues to improve national legislation so that the industry can benefit from regulatory clarity and continue to gain the trust of investors and customers.

Gibraltarian companies are governed by the Companies Act 2014 which was harmonised with the EU directives when the country was part of the EU and is regularly amended to meet the latest international standards. The registration process of Gibraltarian companies is governed by the Companies Ordinance Act 1984.

The Gibraltarian jurisdiction offers plenty of advantages, to name a few:

  • Income sourced from outside of Gibraltar isn’t taxed, also no taxes are levied on capital gains, dividends, sales, gifts or wealth and VAT isn’t part of the country’s taxation framework either
  • It’s known for stability and openness to innovation
  • A well-developed business infrastructure with world-class public services
  • Nominee directors are permitted
  • The simplified company formation process
  • Competitive operational costs
  • A highly trained and productive workforce

Types of Business Entities

To run a fully licensed crypto business in Gibraltar, you have to establish either a Private Limited Liability Company (LTD) or a Public Limited Company (PLC). There are no residence requirements for the founders, shareholders and directors, although it’s expected by the licensing authority that senior management will reside in Gibraltar.

The key difference between public and private companies is that shares of public companies are issued through an initial public offering (IPO) and are traded on public exchanges, while shares of private companies aren’t offered to the public.

The Companies Act 2014 provides the following definitions and rules pertaining to the level of personal liability of the company’s owners:

  • A company is a limited company if the liability of its members is limited by its constitution and that limitation may be by shares or by guarantee
    • If the liability of a company’s members is limited to the amount, if any, unpaid on  the  shares  respectively held by them, the company is limited by shares
    • A company is limited by a guarantee when each member undertakes to contribute an amount specified in the founding documents in the event of insolvency or being wound up
    • A company limited by guarantee may also have a share capital

Documents required to register a company in Gibraltar:

  • Articles of Association
  • Memorandum of Association
  • A detailed business plan that includes a business model, objectives, a marketing plan, financial forecasts, sales strategies, etc.
  • Proof of identity of founders, shareholders and directors
  • Proof of residential address of each member of the company (bank statement or utility bills received within the last three months)
  • A power of attorney if a company is established remotely

A Memorandum of Association of any company must include the following:

  • A compliant name of the company
  • A statement that the company will have a registered office in Gibraltar
  • A statement that the liability of its members is limited
  • Whether the company is public or private
  • If a company is limited by a guarantee, the document must specify the details and conditions of contributions of each member, such as their commitment to contribute to the assets of the company if it should be wound up
  • If a company has a share capital, the document must include the amount of the share capital with which the company should be registered and the division of the share capital into shares of a fixed amount as well as the names of each shareholder and the respective numbers of subscribed shares

The Memorandum of Association must be signed by each shareholder in the presence of at least one witness, who must attest to the signature.

Private Limited Liability Company (LTD)

A Private Limited Liability Company (LTD) is one of the most common legal business structures in Gibraltar. It can be established within a week by one or more legal entities or individuals who have no residence or nationality restrictions.

Requirements for a Private Limited Liability Company (LTD) intending to engage in crypto-related business activities:

  • At least one shareholder of any nationality (no residence requirements)
  • At least one director who must have an impeccable reputation and actively participate in the commercial activities of the company (no residence requirements)
  • Minimum share capital (paid-up) – 100 GBP (approx. 117 EUR) but it’s ultimately determined by the complexity of the crypto business model
  • At least two employees in Gibraltar, one of them must be a key staff member other than the director
  • Local company secretary
  • Business website
  • Operating platform
  • A registered office in Gibraltar

Such a company must submit annual financial statements and when its annual sales exceed 500,000 GBP (approx. 586,000 EUR), it’s obligatory to appoint a local auditor, registered with the Gibraltar Financial Services Commission (GFSC).

Public Limited Company (PLC)

A Public Limited Company (PLC) can be established and entirely owned by foreigners. If all the documents are in order, a new company can be set up within two weeks.

Requirements for a Public Limited Company (PLC) intending to engage in crypto-related business activities:

  • At least two directors (no nationality or residence restrictions)
  • At least seven shareholders (no nationality restrictions)
  • Minimum share capital (paid-up) – 20,500 GBP (approx. 24,000 EUR) but it’s ultimately determined by the complexity of the crypto business model
  • A company secretary
  • Business website
  • Operating platform
  • A registered office in Gibraltar

When your crypto company is fully operational, you must remember to keep consistent records of all your business transactions for at least six years which include the following:

  • Cryptocurrency transactions
  • Contracts relating to the purchase of the company’s shares
  • Purchased equipment, machinery and assets, including purchase receipts (you then can claim Capital Allowances)
  • Sales invoices
  • Bank statements
  • Debts the company owes or is owed
  • Details of payments made to employees

Such a company is required to appoint a local auditor who will carry out a statutory audit and file audited annual financial statements.

Whichever company type you choose, note that all non-English documents must be accompanied by a notarised translation into the English language. If you’re looking for a certified translator or a notary public, reach out to us and we’ll gladly assist you.

What You Need to Do

To establish a fully licensed crypto company in Gibraltar, you have to take the following steps:

  • Reserve a unique company name at the Companies House Gibraltar who will issue a business name registration certificate
  • Find an office in Gibraltar where your local staff will be based and all the legal and state correspondence delivered
  • Open a corporate bank account at a Gibraltarian bank
  • Transfer share capital to the new bank account
  • Pay the registration fee of 100 GBP (approx. 117 EUR)
  • Pay Stamp Duty of 10 GBP (approx. 12 EUR) on share capital
  • Submit all the required documents along with an application for registration of the company to the Companies House Gibraltar
  • Register with the Income Tax Office (the company and the employees)
  • Register with the Employment Service
  • When a company is registered, submit a crypto licence application

Your crypto company must be fully licensed by the Gibraltarian authorities before the start of its operational activities. A crypto licence, or a DLT Provider’s licence, the core purpose of which is compliance with AML/CFT rules, is issued by the GFSC who is also responsible for the overall supervision of the crypto market participants.

The process of obtaining a crypto licence in Gibraltar is well-structured, transparent and efficient but might be costly depending on the nature of the licensable activities as the amount of the application fees can vary from 11,800 EUR to 35,000 EUR. It takes around three months to process an application, provided that it’s duly completed.

The application process consists of the following stages:

  • Pre-application engagement
  • Initial application assessment
  • Full application and presentation

A complete list of company-related state fees payable to the Companies House Gibraltar can be found here.

Taxation of Crypto Companies in Gibraltar

In Gibraltar, no crypto-specific tax has been introduced. All crypto companies are obligated to adhere to general taxation principles and in most instances pay general taxes which are collected and administered by the Income Tax Office. The tax year runs from the 1st of July to the 30th of June.

Gibraltarian crypto companies are usually liable for paying the following general taxes:

  • Corporation Tax (CT) – 12,5%
  • Social Insurance (SI) – 20%
  • Stamp Duty (SD) – 0-3% for real estate or 10 GBP (approx. 12 EUR) per share

The tax treatment is ultimately dependent on the company’s nature of economic activities and its residence status. A company is considered a tax resident in Gibraltar if it’s managed and controlled (by making corporate level decisions) from Gibraltar or from outside Gibraltar by permanent residents of Gibraltar.

The Corporation Tax is regulated by the Income Tax Act of 2010 and is levied on profits that derive from income sourced in Gibraltar. This means that if your income-generating economic activities are carried out outside of Gibraltar, your crypto company isn’t liable for paying the Corporation Tax.

If your crypto company is licensed in Gibraltar or is licensed in another country but had been passported into Gibraltar, its income is automatically considered as sourced in Gibraltar and is therefore subject to the Corporation Tax.

As a tax resident, you might be eligible for numerous tax allowances and tax reliefs which can be a significant accelerator during the first year of operations.

The following capital allowances are available in Gibraltar:

  • The first-year allowance for plant and machinery of up to 60,000 GBP (approx. 69,600 EUR) of purchase or, in the case of higher costs, 50% of expenditure in the period is fully deductible
  • Computer equipment up to 100,000 GBP (approx. 116,000 EUR) of purchase or, in the case of higher costs, 50% of the expenditure in the period is fully deductible
  • A pool allowance of 25% annually on a reducing balance basis

According to the Social Security (Insurance) Act (Amendment Of Contributions) Order 2021, if your company is registered in Gibraltar, it’s normally liable for paying weekly Social Insurance contributions regardless of the location of the employees, provided that they’re registered with the Employment Service. The contributions start from 28 GBP (approx. 33 EUR) per week and can’t exceed 50 GBP (approx. 58 EUR) per week.

A startup with up to 20 employees and a small business with up to 10 employees can claim a credit of 100 GBP (approx. 116 EUR) per employee in the first year in relation to Social Insurance. Moreover, new businesses are supported through the employment incentive where a further deduction is available based on 50% of the fixed salary cost of new employees hired after the 1st of July 2021.

Training costs incurred by employees studying for a qualification relevant to the job are allowed as an expense deductible against the profits of a business at the rate of 150%.

Gibraltar has only one international agreement on the elimination of double taxation which is signed with the UK. Crypto companies can still avail of the tax relief which is available to those who are subject to paying the Corporation Tax under the Income Tax Act of 2010 but can prove to the Income Tax Office that they have paid or are liable for paying income taxes in another jurisdiction on the same profits or gains.

Support for Crypto Startups in Gibraltar

Gibraltar-registered crypto companies can benefit from several initiatives established to support the development of crypto and other blockchain-based products and services. One of them is the New Technologies in Education (NTiE) group formed by the government in partnership with the University of Gibraltar and several leading cryptocurrency businesses. The group aims to offer blockchain-technology-related education which is undoubtedly a driving force of innovation-oriented businesses.

Another noteworthy initiative is the GCF’s Innovate and Create Team whose role is to encourage and facilitate innovative businesses by clarifying regulatory matters and helping the entrepreneurs to shape effective go-to-market strategies for their products and services.

Our team of dedicated and quality-focused lawyers will be delighted to provide you with tailored, value-added support in establishing a cryptocurrency company in Gibraltar, including the submission of a crypto licence application. From the very start of the process, you’ll be backed with expertise in the swiftly evolving AML/CFT legislation, company formation, reporting and tax advice. Contact us today to receive a personalised offer.

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At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.

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Registration number: 14153440
Licence number: FIU000186
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Address: Sepise 1, Tallinn, 11415, Estonia

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