The Isle of Man, referred to as the “World’s Most Attractive Base for Crypto Companies,” has very cryptocurrency-friendly laws for both retail investors and crypto companies.

The island is known for its low taxes and cryptocurrency-friendly establishments.

The Isle of Man was an early adopter of legislation to regulate cryptocurrencies within its jurisdiction. The government amended the Proceeds of Crime Act in 2015 to include virtual currency businesses within its regulated sector as a “designated business,” specifically those that are in “the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including cryptocurrencies or similar concepts where the concept is accepted by persons as a means of payment for goods.”

This resulted in certain crypto businesses being subject to “anti-money laundering laws, requiring the use of know-your-customer practices, such as collecting identifying information, knowing the beneficial owner of any currency, and record-keeping and reporting requirements for certain transactions.”

The Isle of Man distinguishes between four different types of online currencies:

– Digital currency refers to any electronic representation of a fiat currency, and this can include representations of virtual currency.

– Virtual currency is a narrower asset and is a digital representation of value which can be traded digitally. The nature of a virtual currency means that it does not need to be centrally controlled or administered. Virtual currency can be either convertible or non-convertible.

– Convertible virtual currency, which includes cryptocurrency, can be converted into a fiat currency, either directly, or through an exchange. For a currency to be convertible, there does not need to be set rate or an established benchmark, but that merely a market exists, and the ownership rights can be transferred from one person to another, whether for consideration or not.

– Non-convertible virtual currency, once purchased, cannot be transferred to another person and cannot be redeemed for fiat currency, either directly or through an exchange. (Note that the Schedule 4 to POCA [Proceeds of Crime Act] definition does not extend to non-convertible currency businesses).

The Designated Business Registration and Oversight Act 2015 provides that virtual currency businesses are designated businesses, requiring such businesses to register with, and be overseen by, the Isle of Man Financial Services Authority. Virtual currency businesses are defined in the Act as those that are in “the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity.”

Further, the island’s Financial Services Authority (FSA) recently released guidance that specific cryptocurrencies will not be considered securities, such as Bitcoin and Ether, and will therefore fall outside of regulatory oversight. This means that “companies operating with such assets must register with the FSA as ‘Designated Businesses’ and comply with anti-money laundering and countering the financing of terrorism requirements,” but these entities will not require a financial services license. To determine if a cryptocurrency is a security, the FSA will look at “substance rather than form,” and it will “regulate entities undertaking activity with crypto assets and tokens that have the characteristics of securities or electronic money to the same extent as if they were issued in other forms.”