Belarusian Crypto Valley

The establishment of the High Technologies Park (HTP) in 2005 has played an important role in stimulating growth of the IT sector in Belarus. The HTP regime had laid the groundwork for successful development of the park and attracted foreign investments.

Such projects as World of Tanks, MSQRD, Viber, Maps.me, Prisma, Apalon Apps and others started at HTP. Belarus has set a course for creating a prototype of the Silicon Valley in the republic and has been following that course persistently.

Unlike the majority of Europe and Asia-based Silicon Valleys, Belarus' HTP is a virtual park: resident companies are located throughout Belarus in Minsk, Mogilev, Gomel, Grodno, etc. The HTP applies the exterritorial principle of registration of resident companies. It means that the legal framework of the HTP extends to the entire territory of the Republic of Belarus. Such approach allows more efficient utilization of capabilities of resident companies and stimulates the nation’s potential for growth in the areas of education, science, research and professional services.

At the end of 2017, HTP had close to 200 resident companies, half of which were foreign companies or joint ventures with foreign shareholders. The HTP residents have customers in over 60 countries worldwide, with over 90 percent of sales attributed to foreign consumers:mainly from Europe (49%), US (43%), Russia and CIS (5%).

On 21 December 2017, Belarus President Alexander Lukashenko signed a Decree No. 8 "On the Development of Digital Economy," also known as HTP Decree 2.0 (the Decree). The primary objective of the Decree was to legitimize the key concepts of the crypto industry and to set the rules of the game in the cyber economy environment within the HTP.

The development of the Decree was initiated in spring 2017 with the order of Alexander Lukashenko. Over 100 representatives of the IT industry and the expert community were involved in the drafting and negotiation of the draft decree. The process was coordinated by Vsevolod Yanchevsky, director of HTP. The first draft was published in July 2017, and at the beginning of December the draft decree was approved by the competent authorities without any critical remarks and submitted to the president. The Decree will come into force in March 2018.

The Decree includes the following notable features:

Extension of the special legal framework: A special legal framework for resident companies (that was introduced back in 2005 when the HTP was established) has been extended until end of 2048 (i.e. by 28 years from the expected termination in 2020) - companies engaged in development of innovative technologies seem to be able to enjoy the most favorable regime
Extension of eligible types of activities: Annex 3 to the Decree contains an extended list of business activities allowing a company to become an HBT resident. The list comprises thirty-eight types of business operations including development of biotechnologies, medical, aviation and space technologies, cybersport, and blockchain. The list is not exhaustive and other types of businesses might be also admitted by the decision of the HTP supervisory counsel. As far as blockchain is concerned, the list contains such operations as (i) launch of token generation events, including its promotion and other ancillary services; (ii) set-up and operation of cryptocurrency exchanges; (iii) cryptocurrency exchange operations; (iv) mining; (v) other operations involving tokens, including operations that can be treated as professional or exchange operations involving securities, investment fund operations, securitization, and token generation and placement operations
Introduction of definitions: Annex 1 to the Decree contains legal definitions of such terms as "cryptocurrency," "token," "smart contract," "blockchain," "cryptocurrency exchange operator," "cryptoplatform operator," "virtual wallet," and "mining."
Application of securities laws: according to the Decree, operations involving tokens are not subject to securities and securitization laws and do not require acquisition of professional or exchange operation licenses. It means that the preparation of offering prospectuses shall not be required in case of ICOs
Liability of token issuers to investors: the Decree provides for the liability of an issuer "for satisfaction of a token holder's demands vested in a token holder upon creation and placement of tokens." A refusal to satisfy such demands with reference to the non-existence or invalidity of the relevant obligations is prohibited, which, to a certain extent, protects the investors' interests
Waiver of regulatory requirements: mining, the activities of a crypto-platform operator or a cryptocurrency exchange operator, and other operations involving tokens are not regarded to be banking activities and do not require either registration, a license, or anything else other than an obligation to guarantee the availability of funds for bank accounts opened at banks within the Republic of Belarus: 1 mln Belarusian Roubles in the case of crypto-platforms and 200k Belarusian Roubles in the case of cryptocurrency exchange offices
Tax privileges: until 1 January 2023, HTP residents are exempt from VAT and corporate profit tax (or individual income tax) in relation to turnover and profits (proceeds) from mining, creation, acquisition, and disposal of tokens, while individuals are exempt from individual income tax from mining, acquisition (including as a gift), and disposal of tokens in exchange for Belarusian Roubles, foreign currency, e-money and/or other tokens. For accounting purposes, tokens created (or mined) or otherwise acquired are regarded as assets
Cutting of red-tape for HTP residents: (i) the requirements to obtain regulatory approvals to open accounts with non-resident banks are waived; (ii) the process of settlements involving e-money is simplified; (iii) FX operations relating to capital flow are allowed subject to the notification of the relevant authorities; (iv) no special permits or licenses are required in connection with the technical and/or cryptographic protection of data, whether it be by individuals – in connection with the storing, acquisition, or disposal of tokens – or by legal entities – in connection with mining, storing, acquisition, disposal, and other transactions (operations) involving tokens, etc.
Introduction of English law concepts: convertible loan agreement; option agreements; indemnities, non-compete (non-solicitation) agreements with employees (subject to payment of average salary to employees for a period during which they may not join competing entities), investment partnership agreements, irrevocable POAs, etc.; foreign individuals employed by the HTP are also provided with certain visa and migration privileges.

As a result, Belarus has established something like a sandbox-in-sandbox with milder and more comprehensive and straightforward regulatory framework in comparison with other jurisdictions that introduced regulatory sandboxes earlier (United Kingdom, Abu Dhabi, Singapore, etc.). For example, in Singapore the sandbox projects mostly (a) have just 6 months to achieve the set goals, on the expiry of which the regulator (MAS) would determine, whether the project can operate outside of the sandbox or should be discontinued, (b) are subject to certain minimum capital requirements that would guarantee the protection of the client’s interests in case of the project’s failure, and (c) are provided with tax benefits only on a case by case basis. Similar regulations apply to the sandbox projects in UK.

However, the benefits and impact of the Belarusian Decree might be overestimated by the media. For instance:

At this stage, no fundamental changes have been made to the applicable laws to test-drive the novelties. So far, it looks like "let's allow everything and see how things turn out". If anything goes wrong, the limitations may be quickly introduced by an identical decree
Tax privileges for HTP residents create a kind of "offshore jurisdiction". However, issuing a degree is hardly enough to establish an attractive tax haven jurisdiction for international businesses. This might be particularly challenging with the Belarus reputation as "the last dictatorship in Europe" (quoting the former UK ambassador to Belarus Brian Bennett and various media reports), high criminal criminal charges for economic offences and the police nature of the state in general
It is not likely that mining will become popular in Belarus since electric power is expensive enough there
The Decree introduces English law concepts which is instrumental in the structuring of deals and business in general, however, does not remove the risks related to enforceability of respective arrangements (due to the lack of practice or consistency in application of such concepts by courts and government authorities). The Decree also does not identify or establish a specialised court which would consider claims from investor if he believes that his rights have been infringed (for example, in the ICO process)
The Decree has a rather declarative nature. Its force is based on the course set by the President, but it does not provide firm and institutionalised instruments of implementation and enforcement. Of course, it is more than good enough in Belarus and would definitely have an effect, although primarily for internal use.

There will definitely be an emergence of token exchanges, crypto-platforms and other blockchain solutions in this "heavenly" sandbox. Moreover, foreign companies will probably have some interest in some infrastructure projects. However, in our opinion it is unlikely that this will lead to a major influx of foreign investments in view of the existing political climate in Belarus. The biggest inflow can probably be expected from investors from CIS countries that might not have access to a better alternative.

Nonetheless, for the CIS countries, the Decree is a good demonstration of a starting point in the area of the regulation of innovative technologies. Hopefully, these developments in Belarus will also give additional support to the initiatives of creation of the regulatory sandboxes in Russia that are becoming increasingly popular.