Justin Cole: Barbados an Attractive Market for Crypto Investors

This year has seen the emergence of Barbados as a hot spot for crypto investors to consider. Case in point, in February, the Barbados Stock Exchange partnered with Toronto’s Blockstation to develop a platform to list crypto assets and security tokens, offering a new jurisdiction and method for investors and firms to raise money.

As alternatives for issuing a security token or coin vary from jurisdiction to jurisdiction, many companies can face roadblocks or infractions as a result of improper listings. For example, in June, the US Securities and Exchange Commission (SEC) fined Kik Interactive for conducting an ineligible US$100 million initial coin offering (ICO) in 2017. Kik Interactive sold one trillion Kin tokens without adequately registering the offer and sale of the assets. 

Tax laws also have an effect on ICO offerings. In Japan, for example, companies that list ICOs are subject to over 50 percent in taxes. The number of jurisdictions that issue ICOs are few in number. As of late 2018, there were at least 10 jurisdictions where ICOs were permitted: Switzerland, Gibraltar, Singapore, the US, Thailand, Israel, France, Malta, Russia and Estonia/Lithuania.  

At the Blockchain Futurist Conference in Toronto, Justin Cole, vice-president of management services at DGM Services, spoke to the Investing News Network (INN) about the regulatory environment for security token and coin listings in countries such as Barbados. Cole spoke to INN about why the small country is attractive to investors, discussing the low sales tax rates coupled with a digital financing route. 

The interview has been edited for clarity and brevity. Read on to find out what Cole had to say.

INN: Can you tell me more about your work with DGM and distributed ledger technology (DLT)? 

JC: We got involved in this technology and this space because we had clients looking for jurisdictions where they can set up, launch and sell tokens. 

I think there were two main drivers of this, to be honest. These companies are operating worldwide, so what they were looking for is a tax-neutral jurisdiction.

The other one that people were then asking about was the regulatory side of the business. A lot of people were looking for regulatory clarity and guidance also. In Barbados, we kind of took that on and the regulators were engaged, they were interested, as well as the Barbados Stock Exchange. It helped a lot, and out of that Barbados ended up with a working group that involved both the private sector, the Barbados Stock Exchange, as well as the regulator. 

We’re also very conscious of Barbados’ reputation and the risks involved. So we wanted them to come but we didn’t want to be the Wild West either, (so) people are coming to Barbados because of lack of regulation. The private sector were the ones that actually initiated and said to the regulators, “Look, guys, these companies are coming. We need to keep an eye out for this because we can’t let them just come and maybe they say, do anything that they want.” So it’s actually the private sector that told the regulator what was going on and said, “We need to get ahead of this.”

INN: Interesting.

JC: Yeah. And out of that came the engagement; the regulators are very open. We were able to come up with a couple of solutions. The Barbados Stock Exchange dropped in rules and regulations, which have now been approved by our financial services commission to list and trade digital assets. What is special about that is they’ve taken a conservative approach. 

We’ve seen the guidance out of Canada, the US, the UK… We know that those regulators in those countries are treating this as securities due to the Howey test. 

People have issued all these various tokens that we know as utility tokens. Those tokens grant user’s access to use the network. 

There’s a company in Barbados called Bitt, which actually raised investment from Overstock.com (NASDAQ:OSTK). What (it has) created is a Barbados digital dollar. And it’s on an app, you can use it in the store. So it’s a stablecoin. It’s one-to-one with the Barbados dollar and the price stays the same, and they went within regular banking legislation. 

INN: What potential does distributed ledger technology have in the financing for enterprises?

JC: One of the ones that I have actually talked about was quick travel insurance for their small items. You can put it on a blockchain (and) can do it at any cost because you’re removing humans, and you’re using smart contracts. 

The administrative costs comes down so low — and the items are low value items — that it doesn’t make sense for anybody to have any paperwork for things like that. 

So you can now do micro-transactions, micro-insurance, and that to me is a cool one that is applicable and that can be rolled out. 

I suppose from that end in terms of  efficiency, the way that I view the stock exchange is that ICOs are a big part of the attraction of them as a low cost way to raise finance. The Barbados Stock Exchange is going to be able to replicate that in some way. Their fees on their end are also quite affordable. 

INN: Can you tell me more about the current tax landscape for crypto assets?

JC: Definitely it varies widely. Barbados is a low tax jurisdiction. So if you’re issuing tokens and they’re not the ownership of your company, it’s not equity in your company, that is revenue. In Canada, with something like that, you’re gonna have to pay your corporation tax on those profits. 

Now in Barbados, when you’re selling there’s not going to be any sales tax on them, because you’re assigned internationally and there’s no sales tax on that. So it’s a bit different. Our corporate tax rate is 5.5 percent down to one percent. So that’s another reason that people would look to somewhere like Barbados because it just helps reduce that tax burden. Obviously tax is not as simple as just saying, “I’m gonna set-up in Barbados and I’m gonna get these tax benefits.” You may setup in Barbados but you may not be eligible for those tax benefits. That, in terms of tax planning, is a very complex issue. You need to get specialist advice or anything to do that, but that is one of the attractions of Barbados.

INN: And the climate. 

JC: Yes of course, the climate. I suppose that the other attraction … is it’s quite easy if you decide to found a company. Come to Barbados to get a work permit to run that company. 

So out of that, we’re also looking for the transfer of skills and have local workers gain and learn from these founders, the guys that are leading in the industry. We’re trying to encourage that migration into the country in terms of the tax sector in this space and I find that, in this place in particular, it’s very community driven. 

INN: What would you say are the key pillars to blockchain technology’s growth and mass adoption?

JC: I think use case success stories.I go back to the stock exchange, having real-life use cases where these things are happening. They’re being used by industry. Even on the regulated side of things, I think it helps a lot. They’re just putting them on a blockchain. You’re just changing the software behind it. And once people start to get those success stories, they get wider adoption, it just builds and I think it goes from there. 

We have to remember blockchain itself is in the infant stages. And that’s when people look at these things and think maybe they’re too hard to use or they don’t see how it’s applicable. They’re not remembering where we are. Even if you think about the internet, Netflix (NASDAQ:NFLX) was mailing DVDs out to people in the early days, and it was talking about how it was going to stream all the movies live over the internet. Back then with the internet speeds, you’re thinking … how would they stream in anything over the internet? It’s way too slow.

INN: I imagine that’s what Blockbuster could have said to Netflix.

JC: Yeah. Even when you think about dial-up at the beginning, when we were trying to download a five megabyte song, it would probably take an hour per song. That’s not user friendly. That’s not usability. These things take time, and 20 years from now, I think the world will look different but we just have to remember where we are. I think maybe (with) the money involved, the stories of bitcoin price have attracted a lot of people to the area. Maybe a lot earlier than it would have been with the early internet. 

I mean, it’s coming. You see the banks now have departments, all the big audit firms have advisory and consulting services for blockchain. IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT), they’re all getting into space. I think things are coming, for sure.

Don’t forget to follow us @INN_Technology for real-time news updates!

With files from Georgia Williams. 

Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.