Last year I wrote a piece on how Gibraltar Private Foundations can serve as “off-chain” support vehicles for decentralised crypto protocols. One year on and the up-take of such structures has been significant. With such structures working well, it is time for Gibraltar to be considered as a very viable option for such Foundations and a direct competitor to Switzerland, Singapore and Panama.
With respect to Crypto Foundations, Gibraltar is clearly now a front-runner. Gibraltar is a crypto-friendly jurisdiction having had a DLT Framework in place since 2018. In addition, Gibraltar scores highly with respect to compliance with OECD and FATF international standards.
With this backdrop, we can look at how Gibraltar Foundations can be used as support vehicles for decentralised crypto protocols. With protocols being decentralised, Foundations are critical in coordinating the efforts to build, support, grow and improve the protocol. The Foundation can be funded in various ways including by way of proceeds from a token sale or via donations from stakeholders. Foundations can distribute funds and make grants with much more flexibility compared to a regular company as that is the whole purpose of the Foundation, which is contrast to a company which operates for the benefit of its shareholders. Furthermore, a Foundation may create a subsidiary operating company if this helps it to further its objects. From a tax perspective, a Gibraltar Foundation will likely not have any income that will be assessable for tax as Gibraltar uses a territorial basis for taxation and only taxes income that is derived or accrued from Gibraltar. In addition, there is no VAT or capital gains tax in Gibraltar.
The Private Foundations Act 2017 allows for the establishment of foundations in Gibraltar. A foundation is an entity with separate legal personality which is able to hold and deal with property in its own name as absolute legal and beneficial owner, for the specific purposes that are detailed in the Foundation Charter. The purposes can be very wide, need not be charitable, and indeed can be “anything capable of fulfilment” as long as they are not illegal, immoral or contrary to public policy. A Gibraltar Foundation requires one of its councillors on the Foundation Council to hold a Class VII licence (professional trustee).
Advantages of a Foundation
- Unlike a trust, a foundation has legal personality and can hold assets as legal and beneficial owner. The concept of the trust is often met with confusion or difficulty in civil law-based jurisdictions, which may not recognise it. Conversely, the use of foundations is common in civil law jurisdictions, and this understanding can often facilitate transactions and planning.
- Having a Professional Trustee firm as a requirement can give comfort to the stakeholders of the foundation.
Suggested purposes of a Crypto Foundation:
The purposes of a Crypto Foundation can cover:
- Support the promotion and development of the protocol;
- Contract advisors and employees, and create incentive plans to help develop the protocol;
- Support and finance appropriate research and development in the field of distributed ledger technology;
- Promote, and educate the public on, distributed ledger technology;
- Engage with various businesses, partners, banks, regulators, authorities and other third parties for the benefit of the protocol;
- Receive and distribute contributions and participate strategically in other entities or projects with a view to benefitting the protocol directly or indirectly;
- Acquire, hold or grant trademarks and other intellectual property rights or licences;
- Organise conferences and other events that support and promote the protocol;
- Promote and support all applications using the protocol’s platform; and
- Build an active community for the protocol’s platform.
“Gibraltar Foundations provide a robust structure to support decentralised crypto protocols. The fact that foundations are easier understood than trusts in civil law jurisdictions, is also a key advantage if the protocol’s community is international.”