The integration of digitalisation in our lives has been exponentially increasing. This process is changing the way we deal with professional and personal matters, and it is revolutionising the way of investing.
Blockchain and digital assets have proven to be powerful technological tools with countless uses and benefits bringing new opportunities to all of us. Although technology evolves faster than regulation, this has not prevented the market from anticipating the important role of digital assets and therefore integrating these as part of portfolio of investments.
Already recognised as the main European hub for investment funds, Luxembourg is becoming a leader in the digital assets’ development within the financial market. The law in Luxembourg now allows sponsors and initiators to raise funds from investors by the issuance of securities directly in the blockchain (so called native tokens). This is a revolutionary change in the financial sector as it gives tokens all the protections provided by law to transferable securities. This is a clear indicator that makes us believe that the presence of digital assets in investment portfolios is likely to increase significantly in the coming years.
In this context, the ‘digital assets’ concept is broad and encompasses different categories. Not every category is in the same level of progress when it comes to regulation. Whereas security tokens have been the core of recent legislative changes, other digital assets like utility tokens, crypto-currencies or NFTs (non-fungible tokens) are a still lagging behind. However, this should be remedied soon considering substantial progress made by the EU with, among others, the well-known proposal for the ‘Markets in Crypto-Assets Regulation’ or ‘MICAR’.
From a tax perspective, the Luxembourg tax authorities had already clarified the tax treatment of virtual currencies, but other categories of digital assets were not specifically addressed. In an EU context, there is already certain tax harmonisation, as in a recently proposed EU tax directive targeting shell entities, which is the first one to refer specifically to ‘crypto-assets’ as defined in MICAR.
It is expected that further tax coordination at both the EU and OECD level is promoted once specific measures on exchange of information on certain digital assets enter into application.
All these developments and novelties are key for the evolution of the digital assets market. Hence, investment managers, promoters and investors should continue to monitor them.