Venezuela: First Government To Launch Its Own Cryptocurrency

Caracas, Venezuela: Crisis-ridden Venezuela is launching an oil-backed cryptocurrency on Tuesday that it hopes will help circumvent US financial sanctions and resurrect the country’s moribund economy.

 

The pre-sale of the “petro,” which will represent a barrel of crude from a specific division in the country’s Orinoco oil belt, started on Tuesday morning. Investors were offered US$60 “tokens” at discounted rates that they can exchange for petros during what is being dubbed an “initial coin offering,” or ICO, in March.

 

“The petro is born,” President Nicolas Maduro said in a video he tweeted late Monday. “We’re going with force, and we’ll achieve total success for the benefit of Venezuela and the happiness of our people.”

 

Sceptics have expressed doubts that the currency will thrive, mainly because of lack of trust in a government whose debt is being renegotiated and whose policies have brought skyrocketing inflation. In addition, the country’s once-thriving oil company, Petroleos de Venezuela S.A. (PDVSA), is producing at its lowest levels in decades.

 

Some critics also say the project does not make technical sense because the government will have too much space to manipulate the coin.

But proponents believe buyers may find the currency appealing since it is backed by a commodity and an administration with incentives to see it succeed.

 

Other cryptocurrencies have experienced considerable instability. The value of bitcoin, for instance, soared more than 300 per cent between August and December 2017, then plunged more than 50 per cent to its current level.

 

The first cryptocurrency officially launched by a government, the petro aims to offer a more stable option and may serve as an experiment for countries such as Russia. Moscow also faces US financial sanctions, and Russian officials have recently toyed with the idea of creating a “cryptoruble.”

But many analysts are dubious that the experiment will succeed.

 

“It honestly sounds like they don’t really understand how any of it works,” Alex Van de Sande, a Brazil-based developer for the Ethereum Foundation, said in a phone interview.

 

“Unfortunately, that doesn’t mean it won’t raise money. We’ve seen terrible ideas that don’t make any sense raise a lot of it,” he said. “If I wanted to avoid international sanctions and make money appear out of thin air in my country hiding the origin, I guess this petro would be a useful way.”

Jean Paul Leidenz, an economist at Ecoanalitica, a Venezuelan financial consulting firm, said he sees no chance that the project will inspire enough trust to substitute petros for the crumbling national currency, the bolivar, or even pay impending sovereign and PDVSA debts.

 

In many ways, it is designed to give the government enough space to manoeuver, he said. For instance, it is not clear whether or how buyers will be able to claim rights over the barrels of oil that back the currency, or whether the coins will work as bonds for which holders will be paid once they want to cash their money out.

 

“The government may still get millions of fresh dollars from Russian and Arab investors,” Leidenz said. “But from that to succeeding as a currency? I don’t think so.”

 

Indeed, many issues may erode the petro’s credibility. Venezuela’s opposition-led National Assembly has called the project illegal, arguing that oil assets cannot, by law, be sold, and that the currency is a form of debt that has to be approved by the legislature. Maduro, however, has ignored the institution for years now.

 

The US Treasury Department also recently told Reuters that buying petros could be seen as “an extension of credit to the Venezuelan government,” which could violate sanctions and expose US citizens to “legal risks.”

 

But Mati Greenspan, senior market analyst at social trading network eToro, said in a phone interview that he thinks the petro does have good prospects.

 

“It’s a milestone – an extremely exciting project that has a great chance of working, and is definitely better than continuing with the status quo,” he said.

 

With confidence in the national currency at rock-bottom, the government hopes that backing a currency with a commodity on an open-source platform will engender trust and transparency, Greenspan said. “If Venezuelans adopt it and see it as a force of good, then the crypto community will be there in a flash,” he said.

 

During the initial coin offering in March, the government plans to sell 82.4 million petros to the public at a discount from the official $US60 value. People will then be able to buy petros from those who obtained them during the ICO.

 

Under the plan, Venezuelans would eventually be able to use the petro to make payments to public institutions, including tax payments, according to official documents explaining the initiative. No more than 100 million petros will be created unless the “Superintendency for Cryptocurrency” approves making more after counting holders’ votes, the documents say.

 

The Washington Post

 

How To Use a Tax Free Offshore Company To Invest in an ICO

Investing in an ICO (Initial Coin Offering) is an activity that lends itself well to an Offshore Corporate Structuring Plan.

 

How it works is:

 

(a)    You incorporate a tax free Offshore Company (“OC”)

 

(b)   You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can/will be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide)

 

(c)    Your OC either signs a general investment with the Company doing/launching the ICO or subscribes for shares in the said Company

 

(d)   You advance funds to your OC

 

(e)   The OC then advances funds to the ICO Company

 

(f)     The ICO Company utilizes your money to help develop or market its particular/unique Cryptocoin and in return gives you a Token.

 

(g)    Typically the Token will entitle you to receive a quantity of the ICO Company’s Cryptocoins and/or it will entitle you to a share of the Company’s profits (which are typically paid in Cryptocurrency).

 

(h)   At a certain point in time you will probably want to cash in your Coins (or your share of the ICO’s profits) and exchange same for for hard currency (eg USD/Euro etc). This money would be paid to your OC and banked free of tax

 

(i)      For all intents and purposes the OCs profits are generated in a nil tax environment tax free/offshore (ie provided the OC is structured properly)

 

(j)     If you structure the tax free Offshore Company correctly you should only be liable for tax at home once you draw down money from the OC.

 

(k)    This should enable you, via the power of compounding, to grow your nest egg MUCH faster than you would otherwise had your company been liable to account for Corporate/etc tax each year (eg up to 40%, depending on where you live).

 

Note if you need to draw on these returns at home (or send hard currency to your IBC) there are several ways to go about this discreetly.

 

Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an Offshore Company for such purposes.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

ICOs – What is a Token?

Token is a relatively new term in the business world but a key part of the vocabulary of those actively involved in the Cryptosphere particularly those involved in Cryptocurrency Coin Startups known as ICOs (Initial Coin Offerings).

 

In simple terms a Token can be described as a unit of value issued by a private company/entity.

 

Typically a Token is something that an organization creates to (a) self-govern its business model, and (b) empower its users to interact with its products. A Token also typically facilitates the distribution and sharing of rewards and benefits to all of the organization’s stakeholders.

 

A Token is an intrinsic component in a next-generation cryptocurrency 2.0 application. Like Bitcoin, it isn’t something that you can physically hold. Instead it is an electronic record – a kind of digital poker chip – stored on your computer, or mobile device. It securely records that you’ve made an entry level investment entitling you to certain rights once the business matures – Tokens are designed to let you participate in the project once it comes to market. Depending on what service the project offers, the Token will serve as a kind of access ticket to that service.

 

If the project is a software application for example that lets you find ride sharing partners without the use of a central website, then you might use tokens to pay for your rides.

 

From a Lawyer’s perspective a Token can be used in whichever way the person or organization designing and developing it decides. Ideally, from an investor’s viewpoint, a Token should entitle the investor to part of the Company’s revenue. Moreover a Token can admit several layers of value inside it, so it is the Token’s designer who decides what a specific Token will have inside.

 

Whilst Tokens bear many similarities to Bitcoins (eg they have a value attached to them which is accepted by a community and are blockchain-based), they typically serve a much wider purpose; Tokens are more than a currency because they can be used in a broader range of applications. Also, virtually all tokens rely on Ethereum’s blockchain protocol, which, is viewed by some Industry insiders as being more complete than Bitcoin’s blockchain.

 

From a Computing/IT Perspective Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies!

 

From a Developer’s perspective the process to create a Token is a much easier than creating a Cryptocoin as you do not have to modify the codes from a particular protocol or create a blockchain from scratch; All you have to do is follow a standard template on the blockchain – such as on the Ethereum or Waves platform – that allows you to create your own Tokens. This functionality of creating your own Tokens is made possible through the use of smart contracts; programmable computer codes that are self-executing and do not need any third-parties to operate.

 

Tokens and ICOs

 

In the case of an ICO instead of a traditional fund-raising round, or even an IPO, companies offer Tokens – not shares – to the market, and investors typically use digital currencies like Bitcoin to pay for these Tokens. (Everything through blockchain.)

 

Unlike an IPO (Initial Public Offering), where investors receive shares in the Start Up Company, in an Initial Coin Offering, the Tokens are usually new digital currency units. These can be traded for other currencies or for the purchase and use of certain products developed by the start-up or licenses to run the software developed. In some cases, some ICOs issue their Tokens on existing digital currencies, where the Tokens represent voting powers in the invested project.

 

During an ICO, the investors buy Tokens at a previously established price which may vary depending on the stage the ICO has reached. Typically Token prices increase progressively as different investment thresholds are achieved, encouraging and rewarding early investors (ie ICO participants).

 

In a professionally run ICO model that raises funds by issuing Tokens, the Developers should:

 

  • Incorporate a Company
  • Publish its/their ICO rules
  • Present the Investor (ie a would be Token Purchaser) with a purchase agreement (and/or terms and conditions presented on the ICO website) drafted by a competent Lawyer which:

(a)    Clearly explains what the Investor is getting for his money ie what the Token can be used for (and/or how it can be used) and (b)

(b)   Makes it clear in the purchase agreement that the Token is not a security

(c)    Contains disclaimers warning the investor that the value of the Token could rise or fall depending on market and legal/regulatory conditions

 

If the ICO is incorporated Offshore (ie in a zero tax jurisdiction), profits realized by the ICO Founders/Promoters could potentially be banked and or reinvested tax free. (Check our Blog Article 5 articles down from this which explains, in detail, how).

 

Likewise anyone investing in an ICO can potentially bank his/her investment income/return and capital gains tax free by setting up a tax free Offshore Company as his/her investment holding vehicle.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

Netherlands To Expand Its DTA Network

The Netherlands will seek to resume discussions towards establishing Double Taxation Avoidance Treaties (“DTATs”) with several countries in 2018, including the United States, the Netherlands Government has announced.

 

The Dutch Government will attempt to begin tax treaty talks with at least seven countries this year, including Australia, Colombia, Costa Rica, Ecuador, Morocco, Austria, and Portugal, according to an update on the Dutch tax treaty negotiation program, issued by the Ministry of Finance on January 26.

 

In addition, the Netherlands has announced it will continue discussions for new or updated treaties with several other jurisdictions, including, among others, Andorra, Belgium, Brazil, Chile, France, Liechtenstein, Mozambique, Uganda, Pakistan, Senegal, Sri Lanka, and possibly the United States.

 

Recently, the Netherlands has concentrated on agreeing new or updated treaties with developing countries. Treaties have been negotiated or renegotiated with 23 developing countries, the ministry said.

 

However, the tax treaty negotiations with Uganda, Sri Lanka, and Pakistan will mark an end to this developing country strategy, the Ministry added.

 

What is a DTAT?

 

A DTA (Double Taxation Avoidance Treaty) is a bilateral treaty (ie a legal agreement signed by two countries) which is designed to avoid persons being taxed twice ie in 2 countries on the same income. DTA’s usually also set out the taxing rights of each country where there would otherwise be a dispute about who has the taxing rights over certain income/gains.

 

DTAs tend to reduce taxes of one treaty country for residents of the other treaty country in order to reduce double taxation of the same income and to attract inward investment from the country receiving WHT discounts. The provisions and goals vary highly; very few tax treaties are alike. Most treaties:

 

  • define which taxes are covered and who is a resident and eligible for benefits,
  • reduce the amounts of tax withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country,
  • limit tax of one country on business income of a resident of the other country to that income from a permanent establishment in the first country,
  • define circumstances in which income of individuals resident in one country will be taxed in the other country, including salary, self-employment, pension, and other income,
  • provide for exemption of certain types of organizations or individuals, and
  • provide procedural frameworks for enforcement and dispute resolution.

 

What is a Holding Company and How Are Holding Companies Used?

 

The term holding company is usually used to describe a company which is set up (not to own/operate a business but to) passively hold an asset eg the shares of another company or a piece of real property.

 

Usually all a holding company does is receive passive income eg dividends if it owns shares in other companies or rent eg if it owns real property. The advantage of setting up a Holding Company “Offshore” is if you incorporate it in the right place and structure it properly (a) you might minimize withholding taxes when dividends etc are paid to the Holding Company (see below) and (b) you can potentially receive (and reinvest) your passive income free from tax.

 

The other advantage of setting up a Holding Company “Offshore” is privacy. If you don’t want certain persons to know that you own a particular asset or assets you might choose to set up your holding company in a privacy haven ie somewhere which does not have a public register of directors or shareholders or beneficial owners.

 

A Holding Company is often placed between a Trading company and the Ultimate Holding Entity (which might be a Company or Trust or a Foundation) as a means by which to access a favorable DTAT (ie Double Taxation Avoidance Treaty) such as would enable you to reduce the withholding tax (“WHT”, see below which explains in detail what WHT is) that would otherwise apply on dividends, interest or royalties paid by a Trading Company to your Ultimate Holding Entity.

 

Commonly when dividends, interest or royalties are paid by an onshore company to an offshore shareholder Withholding Tax (WHT) of around 20% is payable in the country from where the payments are being made.

 

However deals are often brokered between countries and written in to a DTAT which afford WHT discounts if the shareholder is a resident of, or incorporated in, a particular country.

 

For example Mauritius Companies are commonly used to hold shares in Indian Companies as Mauritius has a favorable DTAT with India that affords WHT discounts to Mauritius persons or companies.

 

Likewise Seychelles Holding Companies (CSLs) are commonly used to hold shares in Chinese Companies as China has a favorable DTAT with Seychelles that affords WHT discounts to Seychelles persons or companies.

 

The Netherlands is another popular place for the incorporation of Holding Companies as it has an extremely wide (and ever growing, as the above header article shows) network of WHT friendly DTATs.

 

Other popular low tax Holding Company Jurisdictions include Ireland, Malta and Cyprus.

 

The question of where to incorporate your Holding Company depends entirely on where the payments are coming from. Once you’ve decided on that we can advise on choice of Holding Company Jurisdiction.

 

What is Withholding Tax (WHT)?

 

Withholding tax (“WHT”) is tax levied:

 

(a)  When a company incorporated in one country pays dividends to a shareholder of that Company who is resident in a 2nd country

(b)  When interest is paid by a company incorporated in one country to a lender resident in a 2nd country

(c)   When a royalty is paid by a company incorporated in one country to a party resident in a 2nd country

 

The applicable rate of WHT is usually somewhere between 15 and 25%.

 

The rate of WHT applicable may be reduced if the person (or entity) receiving the interest/dividend/royalty payment is tax resident in a country which has a favorable Double Taxation Avoidance Treaty (ie one allowing for a reduced WHT percentage) with the country from which the payment is coming.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com