ICO Guidelines Issued By Lithuania’s Finance Ministrybr>
The Finance Ministry of Lithuania has issued comprehensive guidelines for cryptocurrency and initial coin offerings (ICO).
According to the guidelines, ICO tokens may grant different rights to their owners, such as the right to participate in the company management process, receive part of the company’s profit, receive part of the company’s income, receive interest for invested funds, recover the invested funds and receive additional income through redemption of the tokens, and sell the tokens to another person. If the tokens issued grant one or more of the rights described above, the probability exist that it will be considered as security and the obligation to comply with relevant legislation will follow.
“Bank of Lithuania acts as a regulatory authority of financial markets in the Republic of Lithuania,” the ministry said. “Only the entities that are planning to provide regulated financial services and (or) projects which released tokens that have characteristics of securities will be under its scrutiny.”
The ministry further notes that if funds collected during ICO are intended for the formation of the capital of a newly established Financial Market Participants (FMP), the capital formation requirements applicable to a specific form of financial institution shall apply.
The ministry also outlines the treatment of cryptocurrency for different tax purposes, as well as tax exemptions and deductions.
“For the purposes of VAT, the virtual currency is considered as the same currency as euros, dollars etc,” the ministry said. “For the purposes of other taxes, other type of instrument, e.g. certain types of tokens, may be recognized as a virtual currency as well. Whether a certain token is to be considered as a security token, the opinion presented by the Bank of Lithuania concerning the recognition of such a token as securities does not necessarily mean that for tax purposes this token will be treated the same way.”
Funds collected through ICO are not considered to be the subject of corporate income tax when tokens issued have the characteristics of securities, and when tokens issued grant the right to use a product or services by paying in token.
“In cases when tokens issued through ICO are not considered as securities or an advance payment for goods or services, but only confirm the fact of the payment without granting any rights, the funds collected are recognized as the income when the tokens are transferred (issued),” the ministry said. “Income of residents from purchase-sale of virtual currencies, or from sales of produced virtual currency may be charged as income from individual activities, if such activities satisfy the aggregate criteria of continuity, autonomy and pursuit of economic benefits. Income received from individual purchases and sales of virtual currencies will be taxed standard 15% fixed income tax rate.”
Vilius Sapoka, the Minister of Finance of Lithuania, said that the the guidelines are “another step towards more certainty and transparency in regulatory, taxation, accounting, and other requirements as well as better cooperation between different stakeholders.”
“We can not ignore the development of new financial instruments and phenomenon of blockchain technology,” Sapoka said. “We do believe that certain usage of it, such us ICOs, should be regulated. We acknowledge that the brave new crypto economy world is here to stay, this is why we encourage and invite its participants to innovate and create in Lithuania.”