ICO in Estonia 

The legal essence of cryptocurrency and ICO (Initial coin offering) as a whole remains insufficiently regulated both in Europe and throughout the world community. At the same time, some states, for example, the USA, Estonia, the UAE, contribute to the development of blockchain technology in their territory. This is one of the proofs that new ways of raising capital occur. And one of such optimal methods is the initial offering of tokens, the main advantage of which is reaching a wide audience.

On 13th of November, 2017 The European Securities and Markets Authority (ESMA) followed U.S. Securities and Exchange Commission with initial coin offering (ICO) risk warnings and issued two statements on ICOs.

In the first one: “ICOs are very risky and highly speculative investments and are also vulnerable to the risk of fraud or money laundering”.

In the second statement, ESMA made it clear that it is likely that firms involved in ICOs conduct regulated investment activities, where ICOs qualify as financial instruments. As such, firms conducting such an activity will need to comply with the relevant legislation.

While many countries remain divided on whether or when to develop legal frameworks that would enable securely manage tradable crypto assets, Estonia has passed on November 27th, 2017 a piece of legislation that aims to regulate cryptocurrency trading. Estonia turned into one of the first countries to impose into the legislation the possibility to operate in the field of cryptocurrencies and till nowadays is moving in the same direction.

In this article you will find an answer to the question “Why should I issue tokens and conduct an ICO in Estonia?”.

At first you need to identify whether tokens are securities or not, as further qualification of a token provides an opportunity to find out which requirements will be applied. Correct assessment will assist to avoid the fines and other types of liability to the token owner. 

How to determine whether a token is a security in Estonia?

 The publication on the site of Estonian Financial Supervision Authority (EFSA), “Information for entities engaging with virtual currencies and ICOs”, shows which laws would apply to ICOs and other types of activity with crypto-assets, depending on their nature. Below you can find the table. For example, if token provides voting or decision making rights in the issuer or gives the investor a certain return expectation regarding their investment, it will be security. And in such cases operations with a token will be regulated under Estonian Securities Market Act. The consequences of classifying the token as securities will be described below.


It should be noted that none of its provisions clearly explain how the issuer should assess whether tokens constitute securities. According to Article 2 of the Estonian Securities Market Act, tokens might qualify as securities if they give investors certain rights in the issuer company or whose value is tied to the future profits or success of a business.  Such rights in the issuer company are determined in the Estonian Commercial Code (148 (5); 226) and might be the following:

  • the right to participate in the management of the company and in the distribution of profit and of remaining assets on dissolution of the company;
  • or the right to participate in the general meeting of shareholders, and
  • other similar rights prescribed by law or other articles of association.

Thus if tokens give investors the above-mentioned rights in the issuer company or exist other above-mentioned circumstances, tokens will be determined as securities.

Why is it important to know whether a token is a security?

Security is an investment product that is bought or sold with the expectation of making a profit but involves some degree of financial risk. If an investment product is classified as a security, the issuer mostly is required to register the offering with the EFSA, follow extensive reporting, disclosure requirements, moreover, for selling such tokens you may need to obtain crypto license  and fulfil other conditions.  In case the tokens are not security in Estonia such tokens do not give rise to any claims on their issuer, moreover ICOs are not subject to VAT or income taxes, and the procedure for launching an ICO is not complicated.

How to launch ICO in Estonia?

In order to launch an ICO in Estonia, the following steps are required

  • Register a legal entity, choose the necessary legal form, conduct all paper work;
  • Prepare the necessary documentation for the subsequent sale of the token taking into consideration peculiarities of a particular token
  • Prepare contracts for the sale of tokens, as well as terms of use and services;
  • Obtain permission from the EFSA.

To summarize, it should be noted that every token issuance is unique and should be assessed on its own characteristics. Even though new technologies are involved, and what is being created and sold is referred to as a token instead of a share or equity, a token may still qualify as a security under the Estonian legislation. Therefore, businesses should complete an analysis on whether a security is involved and determine which license needed for their activity. Moreover even EFSA emphasizes that professional advice may be useful in making this determination.


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