Salto X platform
With Salto X, startups create their token incentive program (TIP), mint their tokens, and issue token incentive program participants' certificates (NFTs).
Salto X platform functionality covers
Country-specific legal templates to adopt and incorporate TIPs. Sign and store them in your company account;
Onboarding different contributor types (employees, contractors, freelancers) as TIP participants;
Minting and distributing token pool with cliff and vesting properties, managed by a smart contract;
Issuing NFTs to participants as proof of token grants.
As part of our roadmap, we plan to add:
Legal & Tax compliance for various jurisdictions;
KYC/ AML automation;
Fast token valuation services;
Secondary trading possibilities (internal trading between white-listed TIP participants).
Token properties
Through Salto X’s platform and services, the company grants the participants options to acquire unique company-based tokens issued by the company under the authorisation of the company’s shareholders.
The tokens mimic the economic benefits of ordinary shares in the form of tokens: with no governance and decision-making rights. These tokens certifies a participants conditional rights to receive redemption payment from the shareholders or the company, as the case may be, in the case of an exit event when existing shareholders sell all or part of their shares to third parties. The company undertake to redeem tokens pro-rata for the shares the shareholders sell. In case of exit event the token value pegs to the value of ordinary shares in a pre-set ratio, however until then tokens are deemed worthless. E.g. exit proceeds are divided among outstanding shares and tokens.
The tokens do not give the participant a right to vote, a right to an actual share, or a right to receive dividends in the company. The participants have no control over shares or actions with the shares and are entirely dependent on the decisions of the shareholders to sell or not to sell the shares.
By default Participants are granted tokens at no cost to the Participants. At the exit event, the participants redeem the tokens to the company and receive payment in return, paying taxes based on their tax residency.
Token holder rights
No voting rights and legal ownership of the company;
TIP participant is not a shareholder of the company;
No liquidation quota;
No right to dividends;
There is a vesting period to earn tokens;
The cliff period is used to start earning tokens;
The number of tokens per participant is determined by the company;
Participant has the right to transfer ownership of pre-qualification NFT and tokens only if the company allows it to white-listed third parties or other participants of the TIP of the company;
Participant has a right to receive a future distribution from possible exit event of shareholders.
Incentive Token Plan adoption
The setup has three stakeholders - shareholders, company and participants.
Shareholders - the legal owners of the company.
The company is a registered legal entity ready to share its future success with participants.
Participants are the contributors such as employees, service providers and freelancers with whom the company wants to share pieces of the company’s future success and are added to TIP.
Shareholders take an obligation to give a part of their exit value away to the participants. Therefore shareholders need to sign the agreement or resolution to act accordingly. In case of exit, partial or full, shareholders provide the Company with proportional proceeds to fulfil the TIP and redeem tokens from the Participants.
Legal documentation provided via Salto X Platform
Shareholders resolution with needed legal undertakings and approval of the adoption of the Incentive Token Plan which should be signed by all current shareholders of the company.
Token Incentive Plan (TIP) which provides terms and conditions of how tokens are granted, and exit events. The TIP includes Grant Agreement signed between the company and the participants with specifics of its granted tokens.
TIP is divided into sections that cover:
The company mints a token pool with a predefined amount of tokens for further distribution among the participants;
The company adds the participant to the pool and reserves an exact amount of tokens and distribution parameters (cliff period, vesting date and intervals);
The participant then gets a Non-Fungible Token (NFT) representing their rights to acquire tokens;
Participants can claim their tokens after the cliff period ends according to vesting period;
General Establishment and purpose of the Incentive Token Plan - the token plan is meant to be supporting the long-term growth of the Company;
Definitions of terms like Conversion rate or Redemption notice;
Details on Token pool - the company and shareholders agree how many tokens will be minted and the % of Financial Cap it corresponds to.
Legal CAP = All legal and current number of Shares of the Shareholders of the Company
Tokens CAP = All currently distributed and claimed number of Tokens to be issued for the Participants multiplied by the Conversion Rate
Total Financial CAP = Legal CAP + Tokens CAP
Token Pool % = Tokens CAP / Total Financial CAP
Administration of the token pool - company takes the obligation to add the participants and has a right to decide on the amount of tokens granted to the participants.
Granting and vesting of the tokens - general expectations on who has the right to receive the grant of tokens and that vesting periods will be used. Specifics on cliff period before the vesting possible terminations.
Participant benefits are calculated based on the equation
Legal CAP = All legal and current Shares (number of shares) of the Shareholders of the Company
Tokens CAP = All currently distributed and claimed Tokens (number of tokens) of the Participants multiplied by the Conversion Rate
Shares Price = total amount in specified currency due to be received for the Shares in transaction of the Compensation Event by the Shareholders
Financial CAP = Legal CAP + Tokens CAP
Redemption payment per 1 Token = Shares Price / Financial Cap
Tax liabilities and cost compensation. Company takes care of covering the costs for Salto X platform and the participants bear the tax liabilities or any other costs triggered by their residency jurisdiction.
Grant Agreements are made between company and participants and establish adhering to the TIP of each participant, and shows customised rules on the number of tokens, cliff and vesting rules for each participant.
Taxation principles
The token is considered a passive asset. Tokens shall be considered to be issued in the country of the tax residency of the company.
Possible tax events:
Issuance of a token should not be a taxable event for the company, shareholders or the participants in the EU Member States. NFT certificates hold no value and serve as a certificate indicating eligible token amount and inclusion in the Token Incentive Plan.
Holding a token in the EU Member States should not be considered a taxable event; however, some jurisdictions may be exceptions. Token holds no value during holding.
Redemption of a token. According to double tax treaties (outside EU tax conventions should be reviewed), income from capital gain disposing tokens for legal and natural persons are taxable in the country of residence of the seller (participant) with income (capital gain) tax. And the obligation shall lie on the participant to make a respective tax payment if any.
We don't consider shareholders' residency since redemption payments will always go through the company. Either the company will tag along with the sale of shares as representative of the participants, or the shareholders shall provide respective funds to the company to cover redemption payments for tokens for further distribution to participants of redemption all or part of the tokens pro-rata to the shares sold.
However, taxes are subject to details and it is advised in each case to confirm tax liabilities with your tax and legal consultants.
Tax risks
There might be a risk that tax authorities view the issuance and redemption of tokens as benefit. Therefore income tax on capital gain is not applied to the final redemption event. Still, some other taxes, like full employment and social taxes, might be applied, making Incentive Token Plan less attractive to the participants as the final financial gain loses value due to high taxation.
There might be a risk when tax authorities question the legal grounds of the company to redeem the tokens, which may lead to full employment and social taxes on such redemption payment for the participants.
There might be countries where VAT tax is added on services the company provides to the shareholders to manage Incentive Token Plan as an authorised representative; where the price for the services between related parties has to be set at an arm's length price.
There might be a risk when tax authorities see tokens having value already at the time of issuance, which may lead to seeing it as benefit and triggering fringe benefit tax.
Regulation requirements
Salto X platform may fall under regulation in some countries as an entity requiring a licence for its operation. Thus, not all countries immediately support Incentive Token Plans. However, as we have investigated all 27 EU states, we can operate in them and cater our solution to HQ-ed companies.
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