Seven opportunities: Baht, Blockchain & Bitcoin
Thailand as the safe haven jurisdiction for crypto-related business ventures
After the hype: Cryptocurrencies, crypto trades, brokerages, exchanges, as well as Initial Coin Offerings ICO, experienced in the last 18 months a huge popularity by risk-hungry investors. In most jurisdictions, such businesses are even as of today unregulated. As a result, some have seen their investments wiped out by unscrupulous characters, fraudulent coin offerings, and scams.
Regulatory framework: Thailand did the smart move to open the markets under clearly defined rules. With the publishing of two Royal Decrees, various regulations by the SEC, and, finally, announcements by the Bank of Thailand, the regulatory framework for digital asset businesses in the land of smile is completed. Thailand offers regulated crypto ventures at a reasonable level. The article “Baht, Blockchain & Bitcoin – Crypto-Business In Thailand” describes why you should not do your ICO and crypto business in Thailand despite but because of its regulatory framework.
Sophisticated legal support: PUGNATORIUS Ltd. has been from the beginning one of the few pioneers and industry-makers in Thailand’s industry 5.0 markets. Backed by a broad overview and unique experiences with crypto exchanges, ICOs, trading, brokerage, and mining ventures, a solid working relationship with Thailand’s SEC, and the tax structuring know-how for cross-border ventures, the Bangkok law firm offers a comprehensive support to successfully accomplish blockchain-linked businesses in Thailand and abroad.
A brief history of time: Thailand’s place in the blockchain world
30/07/13: Under a ruling issued by the Bank of Thailand, it had been illegal to buy and sell Bitcoins, to buy or sell any goods or services in exchange for BTC, to send any BTC to anyone outside of Thailand, or to receive BTC from anyone outside the country. This crypto ban had been silently dropped on 15/02/14.
14/09/17: The Securities and Exchange Commission, Thailand (SEC Thailand) issued the statement “SEC Thailand’s Viewpoint on ICO“.
27/10/17: The SEC Thailand issued a Public Consultation Document Aor Tor Ngor 34/2560 which is commented in “CryptoFinTech in Thailand: The Thai Initial Coin Offering (TICO)”
12/02/18: The Bank of Thailand published a circular letter to Thai banks and financial institutions to separate cryptocurrency transactions from traditional bank business.
14/05/18: The Royal Decree on Digital Asset Business: It deals with ICO fundraising and transactions involving digital assets. Under this legislation, all market participants (“stakehodlers”), including ICO issuers, digital exchanges, brokers and dealers involved with digital asset transactions had to register with the SEC within 90 days after the effective day and to apply for an approval to conduct digital asset business at the Ministry of Finance.
14/05/18: Royal Decree on Digital Asset Taxation: additional taxation rules for digital asset transactions, in particular, withholding tax and VAT obligations. The tax decree is effective immediately without the need for additional regulations. The new, extended taxation rules are explained in detail in “Seven official statements on digital asset taxation in Thailand“.
03/07/18: SEC regulations #15/2561 regarding the offering of digital tokens to the public, and #16/2561 regarding rules, conditions, and procedures for approving the provider of the digital keeper system (effective date: 16/07/18)
24/07/18: Thailand’s SEC starts accepting license applications
01/08/18: The Bank of Thailand revokes it circulate letter as of 12/02/18 which bans banks from any dealings with cryptocurrency and digital asset businesses. It allows certain activities to banks and gives more flexibility to their subsidiaries. Under the new announcement, Thai banks and financial institutions are still banned from direct dealings with cryptocurrencies.
15/08/18: Registration deadline for existing crypto businesses as a requirement to maintain operations during the license application process. Qualified exchange companies are Bitcoin Co (bx.in.th), Bitkub Online Co Ltd (bitkub.com), Cash2Coins Co Ltd (cash2coins.com), Satang Corporation Co Ltd (tdax.com), Coin Asset Co Ltd (coinasset.co.th) and Southeast Asia Digital Exchange Co Ltd (seadex.io), and, as a trader / dealer, Coins TH Co (coins.co.th). Digital Coin Co Ltd (thaiwm.com) has issued a letter to the SEC requesting the withdrawal of a license to sell digital assets to the SEC and ceasing the service from September 28, 2018.
22/08/18: The Bank of Thailand described an introductory roadmap for ‘Project Inthanon,’ to develop a proof-of-concept prototype for wholesale funds transfer by issuing a wholesale Central Bank Digital Currency (CBDC). The BOT is partnering eight participating banks in a collaborative project that will use R3’s distributed ledger technology (DLT) platform. The ultimate purpose of the effort is to use the digital currency to facilitate interbank transactions and to enhance the efficiency of the Thai financial market infrastructure.
26/10/18: The SEC issued a notice mentioning that no ICO has yet been licensed under the new regulatory framework in Thailand. Nine tokens are listed which had been objected by the SEC for not having accomplished the licensing procedure because no applications are yet accepted by the SEC.
Seven opportunities for foreign investments in Thailand’s crypto-industries
Based on the current legal, tax and business frameworks, seven business cases are highlighted as a guideline for international investors:
Business case #1 – Thai cryptocurrency exchange: The official terminology under the new Thai legislation is “Digital Asset Exchange”. Detailed regulations provide a complex but manageable legal environment.
Local exchanges have to be set-up as a Thai Company Limited with a minimum registered equity. The license procedure involves the SEC as well as the Ministry of Finance. A one-time cryptocurrency exchange license fee, as well as trading value-linked annual license fees, have to be paid.
The moderate regulatory hurdles for exchange businesses in Thailand should not be seen as a deal-breaker but as a strength when competing with no regulation / no trust legislation in other jurisdictions.
Similar to the online exchange is the operation of a cryptocurrency ATM (Bitcoin ATM, BTM), enabling walk-in customers to buy Bitcoin and/or to sell Bitcoin for cash.
In the future, all crypto exchanges listing security tokens may be required to register as securities brokers.
Business case #2 – Thai Digital Asset Dealer: A person who services or holds himself out to the public as available to purchase, sale or exchange of digital assets for his own account in the normal course of business outside a digital asset exchange.
The business as digital asset dealer requires a Thai company, the license by the SEC as well as the approval by the Ministry of Finance. Certain license fees have to be paid and limitations apply to operate the business.
Private sales of cryptocurrencies and digital coins remain possible. The red line to businesses which require a crypto license, have to be carefully observed. This is relevant especially regarding person-to-person (private2private) e-marketplaces like LocalBitcoins, etc.
Instead of “physical” coins, crypto derivatives are another possibility to invest in the digital coin market. Specific investment offers could be qualified as Ponzi scheme resulting in a higher risk profile than to simply hold cryptocoins in a wallet.
Business case #3 – Thai Digital Asset Broker: A person who services or holds himself out to the public as available to be a broker or an agent for any person in the purchase, sale or exchange of digital assets to other persons in the normal course of business, in consideration of a commission, fee, or other forms of remuneration.
The business as digital asset broker requires a Thai company, the license by the SEC as well as the approval by the Ministry of Finance. Certain license fees have to be paid and limitations apply to operate the business.
Business case #4 – Thai ICO Portal: This type of digital asset business has the purpose to approve the Thai ICO and to monitor the issuance of ICO tokens on its website. main tasks are screening the characteristics of digital tokens, the qualification of the issuer, the accuracy of the registration statement and the whitepaper. The ICO portal company must have adequate resources to evaluate an ICO issuer’s project regarding structure, business plan, technical capacity, source code, and others.
These regulated tasks can be combined with unregulated advisory services.
The business as ICO portal requires a Thai company and a specific license by the SEC. Certain license fees have to be paid and limitations apply to operate the business. Thai and foreign ICO advisory is license-free, while the ICO financing has to follow SEC requirements.
Business case #5 – Thai initial coin and security toke offering: ICO investments by private persons and companies are similar to crowdfunding ventures. The main elements are described in the article “Fit for Thailand’s ICO in seven steps“. The ICO can generate utility tokens, securities or cryptocurrencies. These categories result in a different handling by the authorities.
The Initial Coin Offering can be done for the tokenization of traditional assets like real estate, gold, equity, and bonds creates interesting opportunities. Details are discussed at “Proof of Asset: Seven criteria for the asset-backed token due diligence“. False statements might result in a non-approval by the authorities and/or the liability of the ICO promoter and other participants.
The Thai ICO requires a Thai Co., Ltd. with either a Thai majority shareholder or a BOI promoted business. The licensing process involves in a first step an ICO portal company and in a second step the SEC. Licensed ICO businesses have to follow certain limitations and requirements as defined in the license certificate.
The decision to start an ICO abroad is a highly sensitive task. By a negligent structure, Thai regulations and tax laws are still applicable and the promoter, as well as other participants, run into severe problems. Details are explained in “Seven steps for the offshoring of ICOs“.
The list of seven cryptocurrencies, allowed by Thailand’s SEC to be traded as trading pairs, contains Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, and Stellar. A trading pair refers to a trade between one type of cryptocurrency and another. The SEC’s criteria are, above all, consensus credibility and cryptocurrency liquidity. The SEC might update this list in the future.
As a further development (ICO 2.0) the issuance of tokenized securities will gain importance and significance. Security tokens provide to the investor equity, dividends, profit share rights, voting rights and other rights. Regulations and legal limitations cover the issuing, the transferring and even the marketing.
Business case #6 – Thai Crypto Mining: Instead of crypto coin purchases, a direct investment in crypto mining is an interesting alternative. Mining is required to confirm, validate and secure the global record of all transactions. The miner receives his remuneration in the form of the cryptocurrency he is mining. Business models are (i) autonomous mining, (ii) cloud mining and (iii) promoting an IMO.
The profitability of crypto mining depends on seven parameters, which are
- (1) the total investment costs for mining hardware and software,
- (2) hash rate (GH/s), (3) coin difficulty, (4) block unit, and
- (5) power consumption and (6) power costs (THB/kWh),
- (7) the cryptocurrency exchange rate.
Thailand as a tropical country is pretty hot which results in high cooling costs. Also, the electricity price is high, and the mining facility is too noisy to be kept in the own apartment.
Under an Initial Mining Offering (IMO), mining equipment is sold to the investors, while the mining operation is carried out by the promoters on their premises under a pooled investment agreement and the proceeds are paid out based on the hash rates.
Crypto mining activities have to be aware of the complex tax implications in Thailand and abroad. Efficient tax planning requires a cross-border structure and a contractual framework that is in compliance with current and future regulatory requirements.
Business case #7 – Foreign Digital Asset Business in Thailand: Dedicated foreign exchange ventures with any link to Thailand – assets, staff, risks, or profits – should be carefully reviewed whether they fall under the Thai regulatory framework. If the registration is required but remains undone, the Thai participants face draconic penalties including jail terms. Details on this aspect show the article “Offshore crypto ventures from Thailand“.
Professional services in Thailand’s and international FinTech sectors
PUGNATORIUS Ltd. offers mainly these seven legal and tax services:
- Thai crypto-compliant company formations
- Regulatory-avoiding and tax-efficient cross-border structuring
- Digital asset and financial services licensing
- Blockchain and ICO advisory services
- Thai and cross-border tax structuring
- Cryptotransaction support services
- Legal opinions and professional statements