The Geneva ICO Guidelines are not legally binding, but represent the orientation of Geneva concerning ICO regulation (and this in an interest of attracting projects in their territory).
What taxation regime ICOs are subject to?
Geneva sets its own token classification, which is a prerequisite to the determination of the tax regime the ICO will have to comply to. These go as follows:
Payment tokens (synonym to cryptocurrencies): since they are means of payment, they are not subject to VAT. Plus the income from the issuance of means of payment is not considered as revenue, hence it is non-taxable.
Utility tokens (can be considered as security tokens if they serve as an investment tools, according to the FINMA): pre-payment of services under common law. If these goods/services are known, regular taxation applies when the recipient is in Switzerland (7.7%), or exonerated from VAT (0%) if he is abroad. However, in a lot of cases the services are not clearly identifiable or known: the latter cannot applicable in this case.
Asset tokens (FINMA considers them as security tokens): the VAT treatment varies on the “asset” the token is the most similar to (e.g. shares/holdings, ownerships, …). In the case of shares/holdings, the income generated is not be subject to VAT. However, ownership would be, and its determination depends on the type of asset owned.
Hybrid tokens: VAT treatment is determined on a case-to-case basis.
Accounting must also comply with commercial law, or to corrective tax rules when they exist. In Switzerland, accounting must follow the “principe de déterminance”. Taxing on companies currently corresponds to an effective rate of around 24.2% (12% if they are primarily foreign-oriented)
Legally, and regardless of the nature of the tokens issued, the financial resources received in exchange constitute a taxable return that must be credited in the company’s “Profit & Loss” statement. If the project is at an early development phase, the financial resources obtained during the ICO can be registered as a provision against its P&L. These resources should go into the P&L statement as soon as the business develops.
If the company desires to issue asset or hybrid tokens, there should be a prior analysis done in collaboration with the AFCGE to determine the right treatment.
A company should submit, before implementation of the ICO operation, a request of ruling following the canton of Geneva’s structure and containing the information specified in their website: https://bit.ly/2Ku5lLS
IMPORTANT: Switzerland will be abolishing special tax issues soon, putting in place new systems compatible with internationally recognised tax systems.
The Geneva Guidelines identifies 7 areas of qualification for project promoters to analyse and better understand the progress of their project. Warning: the assessment provided is not a qualification of the degree of advancement of the project, nor of the quality of the project (especially not for promotion matters). A dossier needs to be sent to email@example.com with the necessary documents (see list below). Then, DG EDRI experts will qualify within 1 to 4 weeks, send you the results within 1 to 4 weeks (this can be completed with an interview or an expanded Experts Committee). Finally, there is a possibility of establishing contact with ecosystem actors according to identified needs in the qualification.
Composition of the ICO team and its ecosystem (self-explanatory). Long list, see page 7 of: https://bit.ly/2IWF8oG
Technological aspects: relevance of the use of the blockchain technology, and the development stage of the smart contract (concept-coding-test-audit). Documents needed; Yellow paper, Audit report of the smart contract and of other applications used in the ICO.
The Concept & Business plan area takes into account the project’s potential, its transparency, the level of financial resources allocated and the future resource needs ( in both phases of ICO and post-ICO). Documents: White paper, Use of tokens, One-Page summary, Business plan including budgets, any other conceptual document.
Legal aspects: regulatory ones (qualification of the activities to Swiss financial markets, FINMA ruling, affiliation with a self-regulatory organisation), conceptual ones (general conditions of the sale, of the website, disclaimers, white paper, …), and aspects relative to corporate law (analysis, creation, governance). Documents: all available legal documents.
Investor on boarding process: framework of the Swiss Federal Act on Combatting Money Laundering and Terrorist Financing (https://bit.ly/2wNpw3S), and KYC. Documents: information about investor onboarding process, material elements indicating the type of investors, eligible countries, any external service providers and their status vis-à-vis FINMA.
Marketing strategy & Public relations: the ICO’s content, message, visual universe in which it intends to evolve, its target (intended investors), the materials required to launch the campaign, public relations and communication plans... Documents: website, marketing, media, PR plans, planned roadshows, marketing budget.
Calendar, i.e. the specification of the phase the project is in: 1) concept phase; 2) implementation phase, (setting up the team and concept); 3) ICO phase (which can be organised in initial phases), marketing campaign and investors onboarding phase; 4) Post-Ico phase, concretisation of the project in Geneva.