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In Pursuit Of Another Billion: Three New Bills Will Fulfill The Maltese Dream

Anastasia Ermolaeva

“Operators, investors, entrepreneurs within the blockchain and crypto sphere, you can now operate in a jurisdiction with a regulated environment which will provide you with legal certainty”, -  proudly announced the Parliamentary Secretary for Finance, Digital Economy and Innovation Silvio SCHEMBRI at the recently held Malta Blockchain Summit as the new laws regulating the DLT industry came into force. After receiving the unanimous approval by the Parliament in August, three laws officially began to act on November 1: Malta Digital Innovation Authority Bill, Innovative Technology Arrangements and Services Bill, Virtual Financial Asset Bill.

While the last bill establishes a regulatory system for the MFSA that will help the financial regulator to manage the digital asset market, namely to regulate initial offering of virtual assets, introduce new transparency requirements for DLT-projects and examine their compliance to new principles and in general control the entire ecosystem, the first two are devoted to a new institution developed specifically for the regulation of the DLT industry.

The first bill implies the establishment of a new regulatory body called MDIA. The blockchain expert and academic Dr. Joshua ELLUL was recently appointed as the first chairman of the institution. The autonomous authority will act independently and advance innovative technology arrangements, as well as promote the government policies. The priority tasks of MDIA will be the DLT regulation and the technology-related smart contracts on the island. As Silvio SCHEMBRI said during his speech on the second day of the summit, dedicated to developments and technologies in the industry, MDIA will ensure the market integrity and stability, as well as consumer protection, while the authority will not suppress the development of innovative solutions. "As a government, we are full committed to putting Malta on the map of tech innovation. We already have a strong ICT infrastructure and a very talented human capital”, - pointed out the politician.

The second bill, which contributes to the formation of the regulatory framework necessary for the MDIA operation, will cover the registration of service providers and system auditors and the certification of technological arrangements. Now, companies, willing to hold an ICO and operate on the island, must first pass a financial test that will determine which class of tokens the project issue: utility, security or e-money. The test is conducted by a financial agent, which may be a Maltese company providing financial, legal and/or audit services. Based on the test results, the agent determines what type of a license the application should be submitted for, prepares it together with the project team and submits it to MDIA, acting as an intermediary between the regulator and an ICO.

If the issued tokens belong to the utility class, the company gets rid of the necessity to obtain a license. This is due to the fact that this class of tokens does not imply any participation of the investor in the project capital, and its value is secured by practical use on the startup platform, which hypothetically makes it the least risky out of all kinds.

As for security tokens, the circulation of such digital assets is planned on the exchanges or trading platforms, that are being developed by the Malta Stock Exchange together with the crypto-exchanges Binance and OKex. Transactions with such tokens can be subject to taxation similar to operations with any other security. Therefore, this asset class must be regulated.

All projects, that did not manage to run an ICO before the new law entry into force, and whose tokens fall under the definition of security or e-money, must undergo a pretty long licensing process. Our representative in Malta said that according to the experts' forecasts the first licenses can be issued and obtained only in the third quarter of next year, if the application is submitted now. Therefore, companies that planned to organize pre-sale of tokens in the summer or autumn of 2019 may be quite satisfied with the circumstances, which cannot be the case for those who planned to relocate their business to the island in the nearest future. Given that, many of them are currently considering other options, including Estonia, where they can get a license now. Meanwhile, if they wish, they can apply simultaneously in Malta and Estonia, which will allow them to operate in both jurisdictions in the future.

The inclusion of intermediaries, which will be Maltese companies, in the licensing process will not only develop business on the island, but also cause the tax inflow to the federal budget.

Today, not so many sectors of the economy make a significant contribution to the country's GDP. Among them is the iGaming sector, which brings 11.3% or more than €1.1 bln to the Maltese economy, according to the report of Ernst&Young, presented at the conference. Malta was one of the first countries in the EU to create a regulatory framework for online gaming services in 2004, which attracted a large number of projects in this area: 69% of EY respondents believe that further growth of investments influx in this sector will be a key factor, that will stimulate the country's economy in the next five years. Apparently, inspired by this successful experience, the government seeks to resolve the issue of DLT regulation as soon as possible: this technology already occupies 5% among all innovations of the island, and in the next three years, experts predict the share to increase to 31%.

While a foreign business, that has already settled on the island, has tax preferences and out of 35% of the corporate tax in fact pays only 5%, as non-residents receive a refund of 30%, the Maltese companies have no tax relieves. Hence, creating the institution of a crypto-intermediary, the state allows local businesses to earn, and consequently to make tax deductions in full.

Intermediaries, in turn, are also required to undergo the licensing process, which is why many firms have already started training courses for their employees, who will then have to pass the exam and only then will be able to obtain a license.

Educational programs are supported not only by business, but also by the state itself. While the University of Malta is already running a Master's program in blockchain and DLT, a new Blockchain Academy will only present courses on the introduction to blockchain and DLT, the  technologies implementation in logistics, shipping, aviation, AI, and their regulation in Malta.

The Maltese government is doing its utmost to further strengthen the island's potential as the leader of the new technological revolution. The regulated legal framework for DLT projects will provoke an even greater inflow of foreign investments and at the same time will create new financial opportunities for local businesses, which in turn will increase influxes to the federal budget and give a new impetus to the development of the island's economy.

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