Have you been thinking of Malta’s DLT regulations? If you are an entrepreneur looking to start a blockchain or distributed ledger technology (DLT) business, chances are that you already thought about Malta for your startup. Although DLT and blockchain startups are now regulated in Malta, you may still want to think twice about Malta as the ideal destination for your blockchain or DLT company.
Malta is no stranger to being progressive with regulations. It was the first country in 2004 to introduce online gambling regulations in the EU. Malta is highly reliant on that industry now, making up 20% of its GDP. Malta was eager to replicate that success with DLT and blockchain, resulting in Malta’s DLT regulations, or locally referred to as VFA Regulations (virtual financial assets). This includes initial coin offerings (ICOs), distributed ledger technology and blockchain technologies. Malta enacted its bills on the 4th of July 2018.
Read on to get insight into some of the biggest problems faced by small blockchain based startups, under Malta’s DLT regulations. We also explore some of the blockchain startup costs you may be facing in the process if you seek a VFA license in Malta.
Table of Contents
- In Malta, it is impossible to open a bank account
- It is very expensive to submit a white paper
- Your VFA license costs can be very high!
- You’ll need an overpriced VFA agent
- High competition for a limited talent pool
- It is not all doom and gloom
- What it costs to open a company in Malta
- Malta Blockchain startup in conclusion
1. In Malta, it is impossible to open a bank account
Business owners have been very outspoken over the problems they have faced with opening bank accounts in Malta. The local banks are still very cautious about the blockchain industry and what it could mean for their international reputation. When business owners apply for opening bank accounts in Malta, banks usually reply that it is outside of their risk appetite.
Once Malta’s DLT regulations were in place, it was the expectation that opening up business bank accounts would be easy too. Sadly, this has not been the case at all. It is one of the biggest problems that blockchain businesses are facing in Malta.
2. It is very expensive to submit a white paper
If you want to run an ICO (Initial Coin Offering) in Malta, you can expect to pay top dollar. This is highly disproportionate to the average amount raised by ICOs. The number of ICOs raising $100,000 or less has increased from 20% in Q1 to more than 50% in Q3 2018.
For ICO’s especially, you are required to register your Whitepaper with the authorities, which will cost €8,000 ($9,000). You must also pay an annual supervisory fee of €2,000 ($2,240). To make matters even worse, these rates are twice of what it was then the Malta DLT regulations were implemented in July 2018. I suspect that the reason for these higher rates is that the Maltese regulator had initially anticipated higher demand for opening a business in Malta. But due to the crypto winter that started in early 2018, demand was slowly decreasing, resulting in higher overhead costs than initially expected
In addition to this, you are also required to hire a third party to audit your smart contract, which can run you into the thousands.
3. Your VFA license costs can be very high!
To start a blockchain business in Malta, you need to get one of four available licenses. Which one you will need, will depend on what your core activities will be. The cost of a license range from €3,000 to €12,000.
You must also pay an annual supervisory fee. The cost of which depends on your revenues at the end of the year. The supervisory fee will cost from €5,500 (revenues <= €50,000) up to €550,000 (revenues up to €1,000,000,000).
4. You’ll need an overpriced VFA agent
To adhere to the VFA regulations in Malta, you must hire an officially registered VFA agent (Virtual Financial Asset). The VFA agent is responsible for ensuring that the White Paper complies with the VFA regulations. The agent will be your point of contact with the Maltese regulator, and will generally guide and advise you on your business obligations and responsibilities. The VFA agent is also considered the last line of defense for AML purposes.
Hiring a VFA agent will cost you between €10,000 and €15,000, depending on which part of the regulatory framework you fall under. This is not a one-time requirement. You will need to have the VFA agent appointed for as long as your business is operational. The fee is therefore not a one-time fee, but an annual expenditure.
5. High competition for a limited talent pool
Malta was the first to introduce gambling regulations in 2004 in EU. This resulted in high demand for a growing talented workforce. While the Maltese workforce is highly educated and skilled, you will no longer get the same cost savings that you used to. Salaries have been on the rise, especially in the technology sector. As competition has geared up in recent years, the available talent has decreased, which in turn, has driven up salaries. It is not uncommon for a programmer to charge €50,000 per year today. Naturally, junior developers will cost you less. Given this, there are certainly more cost-effective locations to consider if you are tight on cash.
It is not all doom and gloom
If you want a low tax on your earnings, Malta has one of the most favorable conditions within the EU. It is often referred to by the European Union, as a tax haven. Which is naturally not something they are pleased about. As long as you are not married to a Maltese national or have a permanent address in Malta, you can benefit from significant tax rebates.
While most Maltese will have to pay 35% tax on any dividends (earnings) distributed, you will most likely be able to benefit from a meager 5%! Any registered accountant in Malta will be able to provide you with full details on how to take advantage of the tax benefits Malta offers for foreigners.
What it costs to open a company in Malta
Opening a company in Malta is relatively easy, and should only take you a few days. The cost of starting a Limited Liability Company in Malta will vary and depend on whether you want to do all the steps yourself, or you want to hire an accountant to do it for you. If you decide to have a professional do all the hard work for you, you can expect to pay around €1,850 for a Limited Liability Company. Usually broken down as follows:
- Professional fees to draft the company’s Memorandum of Association (MOA): €700
- Setting up of the company’s bank account: €350 (€250 annual maintenance fee)
- Registration of the company for tax purposes: €125
- Registration of the company for VAT purposes: €125
- Minimum share capital (to be deposited in the company’s bank account): €250
- One time registration fee payable to the ROC and other expenses paid upon the incorporation of the company: €300
You will also need a registered address in Malta and an assigned secretary. Both are offered by almost all accountants in Malta at very reasonable rates (less than €500 a year). You can also settle with a simple PO box from the local postal service Maltapost, starting at €46.59 per year. You can read more about it here.
Malta Blockchain startup in conclusion
The costs for starting a blockchain based business in Malta starts from €29,700/$33,250. I also strongly recommend that you include in your costs the fees for writing up Terms and Conditions and Contract of Sale. The combined cost of this will range from €3,000 to €15,000 – depending on who you hire.
If you are considering starting a small business with limited capital, you may be better off considering other locations such as Bulgaria and Estonia. Both countries are very open to blockchain technology companies in general, and with much lower startup costs.