International December 2018

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Crypto-friendly countries comparison: Switzerland and Malta

Important news for investors in the UAE: 100% foreign ownership of local limited liability companies will soon become possible


In the last two years we assisted to a superfast growth of a new economic sector, which is becoming stronger day by day: the one of blockchain and cryptocurrencies.

As of today, this sector is still under regulated in most of the countries, since the Governments and the International Bodies have not yet managed to define a complete framework on that subject. Despite of a spread deregulation and the loose in value of all cryptocurrencies from February 2018, the sector is still growing and have attracted many attention from all the international authorities and institutional investors, while many countries like Switzerland, Malta, Gibraltar, Estonia and many others enacted specific laws, as Liechtenstein which has implemented a new law which will come into force in 2019.

The EU Commission issued the V AML Directive, which will be effective from 2020. IFM, through Christine Lagarde’s speech, showed a great interest, even arriving in hypothesize the issuing of State cryptocurrencies, using the model of the stable coins. Last October GAFI (OCSE) issued a set of guidelines on AML compliance.

In this paper we outline the main issues of Switzerland and Malta, considering the principles at the basis of their regulations, that are inspiring many other countries in this route.


Moving from Switzerland, as mentioned before, it has been one of the first countries in which authorities tried to regulate the sector, though there is still no published organic law. Last February, the Financial Market Supervisory Authority (FINMA) released a very important paper, the “ICOs Guidelines”, in which the authority considered the most important issues related to the ICO projects.


This paper contains an important classification, that is now basically accepted all around the world: the three-way split of token in (i) payment, (ii) utility and (iii) security. FINMA then explained that a single digital asset may falls in more than one category in case of hybrid tokens.

Pursuant to this split, a token is differently considered basing on its own characteristics: payment tokens (which is basically a synonymous of pure cryptocurrency) are those which are intended to be a means of payment, if accepted, for the purchase of goods and services or aiming to the transfer of value taking advantage of blockchain technology, without any transfer of any kind of right towards the issuer.

Utility tokens are those that allow its underwriters to enter into the digital platform of the issuer, in which they should use their tokens for the services provided; last category is for security token, which are those that represent a security pursuant the definition of the article 2 lett. B of the Financial Market Infrastructure Act (FMIA), in case of the tokens are “standardized and suitable for mass standardized trading”.


The second main issue of the FINMA ICOs Guidelines is the consideration inherent to the anti-money laundering regulation. From the first moment in which cryptocurrencies grew up in importance, the money-laundering implications have been one of the biggest concerns of all the governmental authorities all around the world. The objective of the Anti-Money Laundering ACT (AMLA) is the protection of the financial system and pursuant to its article 2 par. 3 lett. b, those who issue and manage services inherent to means of payment are considered as financial intermediaries. In relation to the issued kind of token, it is possible to fall under AMLA provisions, which is sure for payment and security, while for utility tokens is possible to remain outside that law if the token only provides the access to a platform.

In addition to these Guidelines, the Swiss Bankers Association (SBA) released a few weeks ago a new set of guidelines with the aim of strengthen the lead position of the country in the blockchain-industry and ease connections between banks and start-ups. Pursuant to those guidelines, companies have been divided in two categories, the first for companies without ICO, considered as “standard” companies”, the second for those with ICO, in turn divided in case of the ICO project is funded with fiat currencies (considered “standard companies” as well) or other cryptocurrencies, for which are provided stronger KYC and AML provisions.


Malta has not been one of the first players on the crypto-pitch but is fastly catching up thanks to its new law composed by three bills: The Virtual Financial Asset Act (VFAA), the Digital Innovation Authority Bill (DIA) and the Innovative Technology Arrangements and Services (ITAS). This is one of the first organic law in the world and it does not consider only cryptocurrencies but all the kind of digital assets, blockchain and fintech activities.


The three bills are jointly considered as the Digital Innovation Framework and pursuant to them, DLT assets are divided in four categories: (i) Electronic Money; (ii) Financial Instruments; (iii) Virtual Tokens (Utility token) and (iv) Virtual Financial Assets “VFAs”. Simultaneously has been created the Financial Instrument Test to verify in which category the single digital asset falls.

The VFAA contains the principles at the basis of the VFA services which imply a high level of ethical, fair and laws-compliance work method. Moreover, the service providers will have to guarantee investors and the relevant market, always taking into consideration Malta’s interests.

Pursuant to the law all the operators have to obtain a license and guarantee the compliance with specific requirements. The law provides that a VFA license requires Malta’s establishment for any legal person, with the sole exception to those who want to provide only investment advice if the natural person is resident in Malta.

The figure of the VFA Agent has been created with the main aim to assist companies (or persons) to obtain the licenses, representing the applicant before the authority and checking the compliance of the application, basically acting as an intermediary. Moreover, the applicants must have certain initial capital thresholds in relation to the requested kind of license (€ 50.000 for Class 1 license, € 125.000 for Class 2, € 730.000 for Class 3 and 4).

A set of obligations, as the constant development of the safety procedures of the Cyber-Security Framework, has been implemented and the operators must accomplish to. A big relevance looks at the safety of the environment and that is why all the client’s records must be kept for at least 10 years and produced to the authority in case of request within 24 hours.

Finally, the new law provides the sanctions for the service providers, up to € 150.000 in case of rules breaches.


All the operators are subject to the Prevention Money Laundering Act and they also have to comply with the procedures of the Financial Intelligence Analysis Unit. The VFAA considers VFA license holders as subject person to the AML law as well as token issuers who are also required with further specific obligations as the description of the white-list and AML procedures in its white paper. All the issuers, license-holder and VFA agents are also required to comply with the provisions issued for their specific sector that may be issued from time to time by the authorities.

The Malta Financial Supervisory Authority (MFSA) also released a consultation paper on the Virtual Financial Asset Rulebook to provide certainty and obtain an industry feedback. The Rulebook concerns the set of rules that involves the providers of the virtual asset services, with a particular regard to the set of standards that those providers will have to guarantee to obtain the licenses and to operate.


We have seen that in this situation of deep global uncertainty, Switzerland and Malta have been two of a few pioneers’ countries that worked for an organic solution to regulate the field and we expect also Liechtenstein to grow, basing on the new organic law which is coming into force.

While Switzerland has been one of the first ICO friendly country, with the creation of a wide ecosystem in the Crypto Valley of Zug, Malta published a law on all the virtual financial assets, becoming (or pretending to become) one of the main crypto-hub, especially for investment funds and exchanges. Binance and many other Asian exchanges placed in the island the basis for their European operations.

With the collaboration of the law firm Capital Crypto – Francesco Alberini y Lorenzo Chellini


A law allowing 100% foreign ownership of companies in the UAE is now in force after being published in the country’s Official Gazette. Federal Decree-Law No. 19 of 2018 (Foreign Direct Investment Law - FDI Law) came into force on 30 October 2018, introducing the possibility of up to 100% foreign ownership of a business entity onshore UAE.

Previously, under Federal Law no. 8/1984, as amended by Federal Law no. 2/2015 (Commercial Companies Law), any limited liability company established in the UAE (LLC) was required to have a “local partner”, i.e. a UAE citizen (or a company fully owned by the latter) holding at least 51% of the company’s share capital.

This meant that any foreign investor (either natural or legal person) could at best be the minority shareholder of a company carrying out business “onshore” (outside the UAE free zones and within the country’s mainland), by holding not more than 49% of the company's capital.

Commercial practice of decades has witnessed a frequent role of local shareholders as nominees of foreign investors, holding the majority of the company’s capital in their interest. Commonly, where the majority shareholder was a "silent partner" and the foreign investor was vested with 100% beneficial interest in the LLC, the LLC’s memorandum and articles of association were drafted in such a way as to allocate profit differently from shareholding, and to confer all authorities to operate and manage the LLC on the foreign investor, including the exclusive right to appoint the members of the board of directors, the general manager and other officers.

Besides carefully drafting companies’ memoranda of association, the shareholders of an LLC also frequently entered into contracts generally referred to as side agreements, safeguarding the foreign investor’s rights to the maximum extent permissible by law.

Before FDI Law, 100% foreign ownership of limited liability companies was only permitted in free zones, which are designated geographic economic zones within the UAE, considered distinct legal jurisdictions, allowed to regulate, license and register corporate entities independently. The UAE boast more than 30 free zone jurisdictions.

Besides proximity to logistic infrastructures, and custom duty benefits, the key advantage offered so far by free zones to foreign investors is that free zones allow 100% foreign ownership of entities without the need to involve a UAE national. However, companies established in free zones are generally not permitted to carry on business in the UAE outside the free zone boundaries, in what is considered the UAE mainland.

This framework often discouraged foreign investor setting up in the UAE mainland, because of the possible interference of a majority shareholder not involved in the business. Indeed, terminating the relationship with a partner for breach of the provisions set in the memorandum of association has often led to the dissolution of the company, exposing foreign investors to an undesirable risk.

Moreover, in projects requiring large equity investments, investors were often forced to finance their local partner, and could not avail themselves of the diluting effect of a share capital increase, as a resolution leading to local ownership being lesser than 51% would have been invalid.

In the light of the above, it is clear that FDI law represents a major development, aiming to achieve a balanced and sustainable development in the UAE by increasing the flow of foreign direct investments. The advantage carried by the new law is that it has been removed the daunting prospect of allowing a third-party to hold a large stake in the companies’ business, except for some restricted sectors.

The Decree introduced a Foreign Direct Investment Committee, which will be formed pursuant to a resolution by the UAE Cabinet and chaired by the Minister of Economy. The Committee will be responsible for referring recommendations to the Cabinet in connection with sectors, activities and benefits to be granted to the FDI Projects.

A dedicated FDI Unit is also to be established within the Ministry of Economy, which will amongst other roles clearly set out in the Decree, focus on proposing the policies and procedures relating to FDI and how best to implement new projects.

The FDI Unit will also provide a database containing comprehensive data on current and upcoming investment projects in the UAE.

A large part of the implementation of the resolution of the UAE Cabinet is entrusted to the related implementing regulations, which will regulate essential aspects, such as the indication of the sectors and activities allowed, as well as the possible need for the involvement of an “external sponsor” (non-shareholder UAE citizen) or further limitations on corporate governance.

The Decree provides that a “positive list”, which includes sectors for which it will be allowed to exceed 49% of foreign ownership, will be issued by the Cabinet according to the proposal by the Minister and recommendation by the Committee.

In case a sector of the economy is included in the “positive list”, the UAE Cabinet may mandate that certain requirements are satisfied by the company or its shareholders. By way of example, the UAE Cabinet may:

  • Indicate the level of foreign ownership permitted in the relevant sector (which could be 100%, but could also be less than 100%);
  • Place restrictions or requirements in respect of the type of legal entity which may carry on business in the relevant sector;
  • Apply minimum capital requirements;
  • Impose Emiratisation requirements.

The Decree does, however, provide a negative list of sectors that cannot be served by 100% foreign companies, which includes:

  • Oil exploration and production;
  • Investigation, security, military (including manufacturing of military weapons, explosives, dress, and equipment);
  • Banking and financing activities;
  • Insurance;
  • Pilgrimage and Umrah services;
  • Certain recruitment activities;
  • Water and electricity provision;
  • Fishing and related services;
  • Post, telecommunication and other audiovisual services;
  • Road and air transport;
  • Printing and publishing;
  • Commercial agency;
  • Medical retail (including pharmacies);
  • Blood banks, quarantines and venom/poison banks.

The FDI law sets out the procedure which foreign investors will need to follow in order to apply for permission to take advantage of the increased levels of foreign investment that may be permitted in the sectors of the economy that are listed in the “positive list”. An application which is rejected may be appealed under a procedure set out in the FDI Law.

The law, eagerly awaited by the business community, is expected to change not only the investment landscape of the UAE but also create significant growth opportunities by attracting more foreign direct investments, especially into the non-oil sectors.

Thanks to this and other bold reform initiatives (VAT introduction, bankruptcy law) the UAE is seeking to boost investor confidence over the past several years. Economists expect an annual surge of up to 15-20 per cent in FDI flow once the law comes into effect.

With the collaboration of the law firm Baitulhikma – Marco Zucco