Setting up a Blockchain Technology Company

Malta: the ideal location for your Blockchain company

Mr. Steve Muscat Azzopardi | 19 Oct 2018

malta citizenship

Being the first to enact a framework to regulate blockchain,  publish various consultation papers and introduce numerous Blockchain initiatives, Malta, the Blockchain Island is making big steps forward in the realm of blockchain and Distributed Ledger Technologies (DLTs). As upheld in Chetcuti Cauchi Advocates’ report entitled ‘Blockchain, Crypto and ICOs - A Legal Review of Leading Jurisdictions’, Malta’s comprehensive approach has attracted various investors to its shores. It is, therefore, no surprise that Malta occupies the largest share of cryptocurrency trading volume in the world. In light of this, it is useful to understand why and how to set up a blockchain technology company in Malta.


Setting up a Blockchain Technology Company – The benefits
Efficient Corporate Tax 

Apart from being able to incorporate a company in Malta in less than 48 hours, efficient tax treatments are a notable advantage of Malta companies. Although Malta’s corporate tax rate stands at 35%, a tax refund system returns a part of the tax paid back to shareholders upon dividend distribution. The refund could range from 100%, 5/7ths, 2/3rds, or  6/7ths, mitigating the corporate tax charge considerably.


Tax incentives for Highly Qualified Persons 

After becoming a member of the European Union, Malta underwent substantial development and growth in the financial, gaming, and aviation services industries which created the need for more highly qualified workers in these fields. With this in mind, the Malta Highly Qualified Persons Rules came into being. Persons holding a particular office in Malta are, therefore, able to benefit from the Malta Highly Qualified Persons Rules, offering a tax rate of 15% on their employment income generated in Malta.  

Therefore, if a blockchain technology company is set up in Malta, both the shareholders and persons holding a particular office will benefit from this tax treatment.


The Malta Innovative Technology Arrangements and Services (ITAS) Act

All blockchain technology companies must comply with the ITAS Act and any supplementary rules.

The First Schedule of the Act provides which digital structures constitute an innovative technology arrangement (ITA) as follows:
•    software and architecture which is used in designing and delivering DLTs, which ordinarily uses a distributed, decentralised, shared and/or replicated ledger, may be public or private (or a hybrid of the two), is permissioned or permissionless (or a hybrid of the two), is immutable, is protected with cryptography, and is auditable;
•    smart contracts and related applications, including decentralised autonomous organisations (and other similar arrangements);
•    any other innovative technology arrangement which may be designated by the Minister, on the recommendation of the Malta Digital Innovation Authority (MDIA).
These structures may be the subject of an application to the Authority for certification, which may be obtained once the ITA has satisfied the general and specific requirements of the ITAS Act. This will be valid for 3 years. 

 


What are the requirements for the certification of an ITA?

The requirements to be met are adherence to the principles of legality, integrity, and transparency, as well as the following specific requirements:
1.    The ITA, administrator of the ITA and, in the case of a legal organisation, shareholders who hold more than 25% of the shares must be fit and proper;
2.    the ITA software must be reviewed by an independent and registered system auditor;
3.    the ITA’s characteristics must adhere to reasonable standards and comply with the ITAS Act and any subsequent Rules which may be issued;
4.    the MDIA has discretion to require a high-level review/audit on the characteristics of the ITA, particularly in complex cases;
5.    a registered technical administrator must be in office at all times;
6.    apart from the requirements of the ITAS Act and future Rules, other mandatory safeguards must be implemented with respect to AML/CFT, consumer rights and other mandatory laws;
7.    important user information must be stated in English and must be accessible and in an intelligible format;
8.    the English language prevails over the underlying code of the ITA.


Recognition of Innovative Technology Service Providers (ITSPs)

The ITAS Act provides the requirements for the Recognition of Innovative Technology Service Providers (ITSPs):
•    an ITSP may be an individual or a legal organisation;
•    an ITSP has fiduciary duties as regards information submitted by customers and is bound by professional secrecy;
•    the ITSP must be fit and proper. In the case of a legal organisation, shareholders holding 25% of voting shares, and any administrator must be fit and proper;
•    the ITSP must have qualifications and/or experience in the particular class applied for;
•    the ITSP must have sufficient technical resources/third party support;
•    the name of ITSPs under the category it determines.


The Role of Systems Auditor

The Systems Auditor is independent of all persons owning, administering, operating, or otherwise involved in the innovative technology arrangement, confirms that the ITA meets reasonable standards, reviews the software comprising the ITA, and gives assurance in the case of any alterations in the software. The term of registration of the Systems Auditor is two years.

 


Is Physical Presence Required When Setting up a Blockchain Technology Company?


Should it be the case that there is no person involved in the administration of the holder who is resident in Malta, a local resident agent must be appointed. This means that, provided that a local resident agent is duly appointed, the holder is not legally required to be physically present in Malta. 


Steve Muscat Azzopardi is a senior manager in the Corporate and Fintech Practice Groups at Chetcuti Cauchi Advocates. To find out more, contact Steve or visit our Fintech page.

 


Request More Information
Please send me legal and other updates

Key Contacts

Dr Maria Chetcuti Cauchi

Senior Partner & Founder, Global Property Investment

+356 22056875

Mr Steve Muscat Azzopardi

Senior Manager, Corporate & Fintech