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Austria’s business location advantages in the fields of cryptocurrencies and blockchain

Advance of new technologies as an opportunity for startups

In recent years, we have experienced how an increasing number of startups across the globe have dared to base their business models on cryptocurrencies or have used the versatile blockchain technology in other areas in order to drive innovations. Nevertheless, the choice of a business location for their (future) company is essential for such startups. This is due to the fact that cryptocurrencies are comparatively new manifestations and the specific legal regulations for virtual currencies required to varying degrees rarely exist. The challenge is to integrate cryptocurrencies and the like in the fabric of existing legal systems, taking the need for special rules into account. Accordingly, the first obstacle for startups is to select the most attractive business location for them and their business activities. 

Austria as an attractive crypto location

At an early stage, Austria began to analyse the potential of cryptocurrencies and blockchain and has basically displayed a very open and positive attitude. This is also reflected in the various projects/ideas designed to promote the business location and in the evaluation of possible uses of the technology (for example, have a look at the current Culture Token pilot project of the City of Vienna). The public authorities involved in reviewing business models, especially Austria's Financial Market Authority (FMA) have shown that their intention is not to place unnecessary obstacles in the way of crypto startups, provided the innovation models are sufficiently developed and financed. For a long time, the government's work has also featured a digitalisation drive which is trying to optimally facilitate the technological achievements of the 21st century and create the best conditions (for example via digital applications/dispositions by means of a mobile phone signature).
 
Austria is considered to be one of the trailblazers in the field of eGovernment in Europe. Excellent technically trained potential employees complement the overall picture and create attractive conditions so that crypto startups are increasingly locating in Austria. It is hardly surprising that numerous prominent companies in the sector have already established business operations in Austria e.g. the crypto trading platform "Bitpanda", the Bitcoin broker "Coinfinity" and the "House of Nakamoto", a Bitcoin store in the heart of Vienna. The raising of capital via largely unregulated crowdfunding models based on the issuance of new cryptocurrencies (Initial Coin Offering) or the issuance of tokens, which securitise specified advantages, rights or an equivalent value (Initial Token Offering), have proven to be promising measures in the past. For example, such tokens are generated on the Ethereum platform and traded for the virtual currency. In this regard, the most common is the ERC20 token. The first Initial Coin Offering was handled in 2017 by the company byte heroes GmbH for the "Herosphere" project in accordance with Austrian law.
 
Bitpanda GmbH operates the Bitpanda Global Exchange as an exchange and professional trading platform for cryptocurrencies and as an end customer trading platform with a cyberwallet for cryptocurrencies. In addition, a programming interface for developers and sellers is offered in order to link external programs to Bitpanda and carry out automated payment transactions. Trading among different cryptocurrencies is also possible. The cyberwallet enables acquired currencies to be stored and kept on the servers of Bitpanda (safe storage). Furthermore, Bitpanda also offers precious metals such as gold and silver. In July 2019, Bitpanda GmbH implemented an internationally renowned Initial Exchange Offering (IEO) and publicly offered the Bitpanda EcoSystem Token (BEST) as a utility token. BEST is an ERC20 token with a total quantity of up to one billion, providing users with an easy opportunity to diversify their portfolios with cryptocurrencies, digital assets and digitalised precious metals. BEST is listed and can be traded on the Bitpanda Global Exchange for available legal tender (Fiat currencies) and Bitcoin (BTC).

Regulatory developments

In Austria, virtual currencies were exempt from regulations for a long time, whereas Germany classified them as financial instruments and imposed market entry barriers on them. However, a legal definition of virtual currencies was specified on an EU level within the context of the 5th Anti-Money Laundering Directive, which also regulated service providers in this field for the very first time. A registration obligation exists in Austria since 10 January 2020 (with the Financial Market Authority - FMA), which, amongst other things, applies to exchanges involved in the exchange of cryptocurrencies. The rules also apply when virtual currencies are sold or bought for commercial purposes and the service is rendered in the country or is offered in the country from a foreign service provider.
 
In the case of international startups, it might be necessary to register with the relevant regulatory authorities in several EU member states. The objective of the compulsory registration is to require such service providers to determine the identity of their own customers and check the origin of asserts in order to prevent money laundering and the financing of terrorism. For this purpose, it is necessary to undergo a risk assessment of the startup's own business model and to establish an internal control system. A law firm specialising in cryptocurrencies and blockchain is Stadler Völkel Rechtsanwälte GmbH. By the way, it happens to be the first law firm in Austria whose legal consulting services can also be paid in Bitcoin.
 
"In any case, a legal review of the specific business model is recommended, in light of the fact that the simple deployment of digital assets or a blockchain does not necessarily entail compulsory registration with the FMA", says Arthur Stadler, founding partner of the law firm Stadler Völkel Rechtsanwälte. "Not every coin or token comprises a virtual currency. When applicable, this can also lead to varying regulatory obligations!" As previously mentioned, the use of a blockchain can also comprise an adequate form of corporate financing at favourable terms and conditions. Frequently they may also contain elements of crowdfunding or the issuance of securities on the capital market. "The so-called security token combines the features of conventional securities or investments with the blockchain technology to achieve the highest possible automated implementation of the necessary processes", states Dr. Oliver Völkel, LL.M., who is also a founding partner of the law firm Stadler Völkel Rechtsanwälte. "The securities or investments are securitised in tokens, in other words, they are 'tokenised' and held without a bank deposit."
 
In this way, startups can potentially enjoy the advantages of capital market financing while maintaining the greatest possible flexibility, whereas interest on the level of investors in Austria is subject to the 27.5 percent capital gains tax (KEST) in the case of a public offering. Moreover, a flexible design of payment modalities can lead to a shift in corporate risks.

Outlook

Austria is an extremely interesting location for technology companies. In the future, it will take further steps to lure startups and strengthen the business location. The positive attitude towards cryptocurrencies and blockchain technology will also open up profitable opportunities in the future. Up until now, business people have faced difficulties with virtual currencies when it comes to opening up bank accounts, especially as traditional and internationally operating financial institutions have been rather sceptical. Implementation of the EU's 5th Anti-Money Laundering Directive in Austria and the increased FMA registration of service providers in connection with virtual currencies will increasingly defuse this problem. In the meantime, there are quite a few banks which explicitly welcome the opportunity to cooperate with crypto startups. In other words, Austria is very well equipped to remain an attractive business location for crypto and blockchain companies.
 
Stadler & Völkel Attorneys at Law

Dr. Oliver Völkel & Dr. Arthur Stadler

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