How Tax Efficient are Security Tokens?

More businesses have issued new types of tokens which present different tax implications for holders. A security token offering represents a taxable event. Purchasers of security tokens must take into account the regulatory changes taking place not only for conventional cryptocurrencies but also security tokens.

What are Security Tokens?

Security token offerings are the regulated version of an ICO (Initial Coin Offering). An STO involves acquisition of legal rights in a physical or digital asset through the purchase of a token. An increasing number of companies find STOs to be a cheaper method of raising funds than raising funds through an IPO (Initial Public Offering).

Existing laws are clear that capital raised through a security offering is not considered as taxable income. This means that issuers of security tokens are not subject to tax liability from the sale of tokens. Traders are liable for taxes upon the sale of the tokens and capital gains made from the tokens.

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