Malta is at the forefront of distributed ledger technologies, positioning itself as a leading and friendly regime resulting in Malta being the jurisdiction of choice for companies engaged in Blockchain technology and cryptocurrencies.
As early as February of last year, the government was in full swing to promote a national Blockchain strategy, a task force was set up to provide guidance and technical input, a wide range of discussions and consultations has followed and Malta has now adopted a robust and comprehensive regulatory framework which caters for both innovation and stability of the financial ecosystem.
Malta being an EU country since 2004, with a very attractive tax regime and over 70 double tax treaties worldwide, has for many years been the ideal jurisdiction to invest in. Malta has always been opportunistic on envisaging upcoming niche industries which would heavily contribute to the Maltese economy. Back in 2004, Malta was the first country in the EU to regulate iGaming, which has turned out to be a huge success. The current Government is seeking to mirror image the success the country had in iGaming with Blockchain technology.
Backed by a strategic location, safe and pleasant lifestyle, highly qualified and flexible workforce and a very good ICT infrastructure, Malta has solid grounds to ensure DLT, Blockchain, FinTech, AI, IoT and other innovative technologies will make this industry a huge success.
Malta has achieved a comprehensive regulatory framework, which depicts the following:
A holistic legal framework
A number of jurisdictions have worked, during the last few years, to regulate the DLT related businesses. However, even the most active jurisdictions, have been mainly focused on blockchain based cryptocurrencies and initial coin offering without embracing the sector in its entire extent.
The milestones of the Maltese DLT and virtual financial assets regime gear toward the development of the innovative technology sector, by:
1. Establishing an ad hoc Authority to address the issues and to focus on the technology arrangements and their use cases to promote government policies, educate and facilitate the advancement and utilisation of innovative technology in use cases (Malta Digital Innovation Authority Act “MDIA” – Act No. XXXI of 2018);
2. Setting up a voluntary regime for the registration of technology service providers and certification of DLT Platforms (Innovative Technology Arrangements and Services Act – Act No. XXXIII of 2018);
3. Providing for a mandatory regime to regulate the initial offering of DLT assets, VFA Agents, and VFA Service Providers.
Pursuant to the aforementioned acts, MDIA will ensure that only the software architectures that meet certain requirements concerning system security, integrity, transparency and auditability will make their way toward the seal of quality, while Malta Financial Services Authority, the single regulator for financial services activities in Malta, is granted with the power to regulate and supervise initial issuance of DLT assets (eg.: ICO, token generation events or similar) and the operation of license holders (eg.: brokers, advisors, exchanges etc).
Well established financial sector
Malta is an internationally recognised financial services hub. The sector’s integrity and stability are critical contributing factors to the impeccable reputation of Malta in the global scenario and are expected to fuel further growth in DLT ecosystem. The new industry can make use of the long standing experience of the investment advisors, fund managers, forex brokers and market makers, commodity, equity and trader makers that are already hosted in the island and benefit from their expertise in financial services sector.
Both, the legislator and the DLT industry stakeholders are fully aware that the soundness of the market and its immaculate reputation constitutes a precious commodity, thus they are adopting all the necessary measures to safeguard it while implementing the DLT framework.
World-class information and communications technology infrastructure
It has always been considered strategically important to the country’s human and economic advancement to be well connected with the rest of the world. As such, there has been a great deal of investment and consolidation in order to create and ensure a reliable Information Communication Technology (ICT) infrastructure. Malta has an excellent satellite technology and high capacity fibre optic submarine cables which link the island to the mainland Europe.
Malta’s fully liberalised and developed ICT infrastructure has certainly contributed to the island fast becoming a regional centre of excellence in ICT and financial services and it will surely contribute to Malta becoming the Blockchain Island.
Efficient tax regime
Malta is the only EU member state with full imputation system. A long-standing, full imputation tax system has existed in Malta since 1948 and has gained approval by EU when Malta acquired the status of a member state. The rate for corporate taxation in Malta stands currently at 35%, however, upon the distribution of dividends, shareholders receive credit for any tax paid by the company and may qualify for a refund generally equivalent to 6/7ths of the relevant tax paid in respect of trading income and 5/7ths of the relevant tax paid in the case of passive interest and royalties, thus resulting in most of the times in a combined net effective tax rate of just 5%.
Further, the Maltese jurisdiction benefits from an extensive network of double taxation treaties which gives both treaty and unilateral relief to companies that prefer Malta as their country of domicile.
The operators of businesses running or making use of DLT can easily take advantage of the present regime and operate in a low corporate tax environment.
Innovation friendly authorities
Malta the Blockchain Island has made a brilliant strategic move by positioning itself as a refuge for Blockchain companies to pursue to their ambitions in an environment where they feel safe and free to do so. As cryptocurrencies become more widely accepted, countries that make life easier for investors, exchanges and developers will have a distinct advantage over those that make it harder.
The regulating authorities in Malta offer a firm but yet flexible frame of mind. While no standard is compromised, ideas and project are openly discussed with the regulator, whilst new stakeholders and innovative proposals are always welcomed to the Maltese shores.
Biggest name in the industry
Hard work pays off, and as a result Malta has managed to attract the attention of the largest Blockchain and innovative technologies players in the industry. Binance, OKEx, ZB.Com, Neufund, Bitbay, Waves, just to mention a few have all publically stated their relocation to Malta. Thus generating thousands of new jobs on The Island.
Possibility to certificate DLT platforms
A framework and an ad hoc authority, that is the first of its kind in the world, is set up in Malta to ensure that the innovative technology arrangements are suitably designed and are operating effectively. The authority, relaying in the tests performed and reports drafted by registered auditors, will grant recognition only to those platforms, or parts thereof, that meet the high standards set in relation to security, processing integrity, availability of information, confidentiality and protection of data.
Regulated ICOs and licensed DLT service providers
Malta is the first country in the world to introduce a comprehensive regulatory framework around ICOs, tokens and cryptocurrencies. This will ensure certainty on the treatment of your token. Malta, as a jurisdiction, does not regulate virtual tokens, generally known as mere Utility tokens. So as long as your token is a Utility token, you are free to run an ICO in and within Malta without triggering the application of any regulatory framework.
A security token that is however not a security as per current legislation, will be subject to disclosure requirements. These disclosure requirements are a standard that raise the bar to help attract only serious ICOs. After all, you are giving rights, obligations to token holders. This would usually make your token more attractive than other ICOs, leading contributors to actually expect something in return. With this right, you naturally have more obligations. No genuine ICO wants its token holders to contribute without clearly knowing what they are contributing to. Choosing Malta as your ICO jurisdiction, will give comfort to your token buyers.
Under a framework that mirrors the principles and procedures of conventional financial services, the crypto operators, exchanges dealing in virtual financial assets, market makers, brokers, custodians and nominees, will be regulated and licensed pursuant to the new legislation to set up a fit a proper ecosystem which is sound, stable and offers peace of mind to investors.
Malta’s future education system
The University of Malta and the Malta Information Technology Agency have signed an agreement where a fund of €300,000 will be made available for those students who wish to pursue their studies in Blockchain and distributed ledger technology in the forthcoming academic year. The scholarship scheme can be used on any existing programme at the University, including but not limited to students who will be specialising in ICT, law, finance and engineering.
In addition a centre for distributed ledger technologies is established within University of Malta to offer continues education and training pertaining to Blockchain/DLT.
Malta’s future banking system
It is always promising to hear the likes of Revolut and other banks offering new solutions in Malta.
Founders Bank will be the newest addition to the rapidly growing, full-value Blockchain ecosystem on Blockchain Island. Once licensed, this bank will offer the first step towards an offering through the blockchain-based equity fundraising platform Neufund and issuing its own legally-binding equity tokens. Binance, the world’s largest crypto exchange, is one of the first and major investors in the company.
The future for The Blockchain Island looks very bright, and we at CSA have heavily invested in this area to ensure our clients are serviced in the best possible way. Get in touch should you have any queries.