Selecting the Right Jurisdiction for Token Issuance
Table of contents:
Selecting the issuance jurisdiction is a critical step in the tokenization process, as it determines legal compliance, investor accessibility, tax implications, and operational efficiency. While some issuers may choose to tokenize their assets within their domestic jurisdiction, others may find it more advantageous to incorporate a Special Purpose Vehicle (SPV) or Special Purpose Company (SPC) in an alternative jurisdiction.
By carefully evaluating jurisdictional options, issuers can optimize compliance, tax efficiency, investor reach, and operational control, ensuring the long-term success of their Security Token Offering (STO).
Assessing the Suitability of the Domestic Jurisdiction
Issuing Tokens from the Asset’s Country of Domicile
If the country of the underlying asset has a clear and favorable legal framework for tokenization, it may be preferable to issue security tokens within the domestic jurisdiction. This ensures that the SPV or SPC structure aligns with local regulations, facilitating seamless integration between the tokenized asset, regulatory framework, and investor protections.
Key Factors in Domestic Jurisdiction Suitability
Legal Framework for Tokenization – Does the domestic jurisdiction recognize security tokens and provide clear securities laws for tokenized offerings?
Regulatory Approvals & Compliance – Are there specific licensing requirements, securities exemptions, or regulatory barriers in place?
Taxation & Fiscal Policies – How does the jurisdiction handle capital gains, security token transactions, and corporate taxation for SPVs/SPCs?
Foreign Investment & Transferability – Are there restrictions on foreign investors, or does the jurisdiction provide a clear framework for digital securities?
Operational Costs & Administration – Is setting up an SPV/SPC in the domestic jurisdiction cost-effective and operationally feasible?
SPV vs. SPC: Understanding the Difference
Definition
A legal entity created for a single asset or project, typically used in security token offerings.
A corporate structure that allows for multiple segregated portfolios (each acting as an independent SPV).
Use Case
Commonly used for single-asset tokenization, such as real estate, private equity, or debt instruments.
Ideal for multi-asset tokenization, such as investment funds or asset-backed portfolios.
Legal Independence
Each SPV is a standalone entity with its own financial and legal obligations.
Each portfolio in an SPC is legally independent, reducing risk between different projects.
Example Jurisdictions
U.S., Liechtenstein, Switzerland, Singapore
BVI, Cayman Islands, Gibraltar, Marshall Islands
Choosing an SPV is best for individual asset tokenization, ensuring a direct legal structure for a specific project.
Choosing an SPC is ideal for multi-asset portfolios, allowing segregation of risks and flexible structuring.
Example of Domestic Jurisdiction Tokenization
A real estate developer in Switzerland seeks to tokenize a commercial property portfolio. Since FINMA has established a clear security token framework, the issuer chooses to establish a Swiss SPV that directly owns the tokenized real estate. This allows investors to receive dividends from rental income and asset appreciation, with full regulatory compliance under Swiss securities laws.
Alternative Issuance Jurisdictions for SPV/SPC Incorporation
If the domestic jurisdiction is unsuitable for tokenization due to regulatory restrictions, tax inefficiencies, or lack of investor access, issuers may choose to establish an SPV or SPC in a foreign jurisdiction.
Key Reasons for Choosing a Foreign Issuance Jurisdiction
More Favorable Security Token Regulations – Some jurisdictions have clear, established laws for tokenized securities, reducing regulatory uncertainty.
Tax Efficiency – Many offshore jurisdictions offer zero or low capital gains and corporate taxes, benefiting investors and issuers.
Investor Accessibility & Global Reach – Certain jurisdictions allow broader international investor participation, increasing capital-raising potential.
Operational Flexibility – Some countries have simplified compliance requirements, reducing the cost and complexity of managing an SPV/SPC.
Preferred Jurisdictions for Security Token Issuance
United States (Delaware, Wyoming, Puerto Rico)
Strong regulatory framework (SEC), access to U.S. investors, well-established SPV structures.
British Virgin Islands (BVI)
Tax-neutral jurisdiction, strong corporate privacy laws, widely used for tokenized funds and real estate.
Liechtenstein
MiFID II and Blockchain Act-compliant, seamless access to the European financial market.
Marshall Islands
Recognized for maritime and asset tokenization, offers flexibility for international investors.
Gibraltar
Established DLT regulatory framework, ideal for digital asset tokenization.
Cayman Islands
No direct corporate taxation, widely used for investment funds and security token offerings.
Example of Foreign SPV Issuance
A blockchain-based real estate investment firm is tokenizing luxury hotels in France. Due to high regulatory barriers in France, the issuer establishes an SPC in the BVI. The SPC owns multiple segregated portfolios, each representing a tokenized hotel. Investors receive profit-sharing rights, while the structure provides regulatory flexibility and tax efficiency.
Establishing a Legal Link Between the Issuing SPV/SPC and the Asset
If an issuer incorporates an SPV/SPC in a foreign jurisdiction, it must establish a legal connection between the local operating company (asset owner) and the foreign issuing entity.
Key Legal Agreements to Connect the SPV/SPC with the Underlying Asset
Asset Holding Agreement – Defines the ownership rights and obligations between the SPV/SPC and the local asset owner.
Revenue Distribution Agreement – Establishes how rental income, dividends, or profits are distributed to token holders.
Management Agreement – Outlines the day-to-day operational control of the tokenized asset.
Regulatory Compliance Framework – Ensures adherence to domestic and foreign securities laws governing tokenized security.
Example of Linking a Foreign SPV to an Asset
A real estate developer in Germany tokenizes a residential property portfolio through a Liechtenstein SPV. The SPV issues security tokens, while a Revenue Distribution Agreement ensures that rental income is transferred to the SPV for distribution to token holders.
Conclusion: Structuring Token Issuance for Compliance & Efficiency
Selecting the right issuance jurisdiction is a fundamental decision in the tokenization process, affecting compliance, investor access, taxation, and operational control.
Issuers should first assess whether their domestic jurisdiction supports tokenization and whether an SPV or SPC can be established locally.
If the domestic jurisdiction is unsuitable, an alternative jurisdiction (such as the BVI, Cayman Islands, Gibraltar, or Liechtenstein) may provide a more favorable legal framework.
When using a foreign jurisdiction for token issuance, a structured legal framework must be created to connect the asset with the issuing entity, ensuring investor protections and regulatory compliance.
By carefully assessing the issuance jurisdiction, issuers can optimize tax efficiency, expand investor reach, and create a legally sound tokenized asset structure.
Last updated
Was this helpful?