Malta has matured into an ideal jurisdiction in which to structure an ICO for minimal tax exposure. ICO Malta can help you develop a tax minimisation strategy, one that combines an optimised token offering structure with the utilisation of certain tax provisions and deductions, to adjust your effective  ICO taxes in Malta to 5% or less.

The token issuer does not have a clearly defined duty to withhold taxes during the sale of a token. But what happens after that? For ICO taxes in Malta, the answer to the question “Are funds raised in an ICO taxable?” comes down to the tax treatment status of a “virtual financial asset” as defined by the newly-established Malta ICO regulations framework.

Though we must apply inexact analogies of existing tax law to digital tokens, the circumstances of a token issuance and the rights associated with the token can be analysed to determine an accurate characterisation of the token for tax purposes in Malta, including the treatment of token pre-sale agreements, withholding, and reporting.

If funds received from an ICO can be converted immediately into cash, all proceeds will sit in the cash assets column by default, and a large amount of tax may be due upon the ICO’s conclusion. Of course, ICO Malta recommends strongly against taking this route.

On an ICO’s balance sheet, assets are equal to the total of liability plus equity generated through the token offering. The “profit” assigned to an ICO is calculated in accordance with broadly applied EU “accounting treatment” standards.

There are four accounting treatments for proceeds raised in an ICO that we are concerned with here:

  • Equity – as distributed via a security token offering 
  • Proceeds – as received from the issue of utility tokens, and constituting revenue in the hands of the issuer.
  • Liability – only rarely relevant because an ICO issuer is not typically committed to redeeming tokens at any point in time.
  • Revenue – as stipulated by accounting standards applied to a contract.

Accounting treatment of revenue is used to determine the tax exposure of most ICOs, wherein the contract with the token holders stipulates a performance obligation. In other words, the token issuer is committed to providing a service or product to the customer. The ICO white paper is a contract through which the issuer enters into a commitment with investors to build the service or product in the form of a tokenomic platform. So the issuer’s performance obligation is to build the platform.

The proceeds raised in an ICO are not considered revenue on the first day of the ICO all the way through the end of the ICO. So no tax is due on the ICO until at least after the ICO has concluded. Revenue is realised and made material only after ‘transfer of control’ has occurred, a condition defined by the ability to use all of the remaining benefits associated with the asset. So, as it relates to ICO taxes in Malta, control is transferred, and taxes may be owed when the token issuer goes live with a functioning blockchain network running an operationally-validated tokenomic platform as defined in the white paper.