May | 2018 | Offshore Companies International

Why Use Nominees for Offshore ICOs?

Are you looking to launch an ICO via Incorporation of an Offshore Company?

If so there are at least two reasons why you would want to consider deploying a Nominee Shareholder and or Nominee Director as part of your Corporate Structure:

1. Tax Planning Considerations

Generally speaking an Offshore Company which is seen to be managed and controlled from Onshore can be taxed onshore.

Hence when setting up an Offshore Company, if you want to minimise the chances of the Company being taxed “onshore”, Management and Control of the Company will need to be, and be seen to be, taking place from Offshore. How that can be achieved is by deploying a Nominee Shareholder and or Nominee Director as part of the Corporate structure.

If you are also setting up a Foundation as part of the Corporate structure you will want to have the Foundation founded by a Nominee Founder (which service we provide) which then assign its rights confidentially to you. Again for tax planning purposes you will want the Foundation to be managed day to day by a nil tax jurisdiction resident Nominee Councillor (which service we also provide).

There are a number of features we can and will include to protect your ownership rights (which will prevent the Nominees from running away with your property or money). For more information on that and how the Nominee Services can work for you see our FAQs section and also please click on these links:

https://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

https://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

How it works practically speaking is the company would do the buying and selling, ie it would generate the income. Ideally, you would be appointed as Consultant or as an arms’ length adviser to the Director of the Company with certain areas of responsibility. You might then be paid a commission (e.g. a percentage of business or sales introduced) or a retainer or a combination of the two.

As part of your brief you might also be given signing power on a bank account reporting/answerable to the Director. However that relationship is structured for legal reasons, it would need to be seen to be commercially realistic.

The income you generate from this would be paid to you (or your local ie/eg onshore company which, I imagine, would then pay a dividend to you), which would be assessable income at home for you (although a smart Tax Accountant should be able to find a heap of tax deductions/writeoffs to reduce the amount of tax payable on that income eg rent, home office, car, travel, utilities, electricity, phone, internet, furniture, computers/plant & equipment, stationery, professional library, subscriptions etc etc). The remainder of the profit could be held (and/or reinvested) offshore potentially tax free.

You could alternatively be given a Power of Attorney. For guidance on which option to choose please click on this link: https://offshoreincorporate.com/faq/should-i-select-a-general-power-of-attorney-or-a-consultancy-agreement/

2. Nominees and ICOs

In the case of an ICO there are different and additional reasons why you would set up the Company using at least a Nominee Director.

The main risk for an ICO promoter is regulatory risk. Simply put if you are offering a Token to investors it could be classified under certain countries laws as a Security.

Generally speaking it is illegal to offer a Security to the general public unless (a) it is a registered security and (b) you are a licensed securities dealer.

If your Company comes under the Regulator’s microscope and you are the Director of that Company you could be charged with unlawfully offering a security. In certain countries the penalty for this, if you’re found guilty, can be imprisonment.

If you want to minimise the chances of this happening, you would be wise to deploy a Nominee Director (and ideally also a Nominee Shareholder) as part of your Corporate Structure (even if you have every intention of paying tax at home on the Company’s entire worldwide income)

If you’re concerned about appearance what you could also do (ie where a Nominee Director is deployed) is have yourself appointed by the Company via a Consultancy Agreement and choose your title. Eg In emails or texts or letters etc you could call yourself CEO or Founder or GM or CFO or Client Liaison Manager or whatever sounds best to you (anything but Director)!

Local laws can also have an impact. Hence you should seek local legal financial and tax advice before committing to incorporate an Offshore Company as your ICO Launch vehicle.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Use an Offshore Company To Act As a Commission Agent

Acting as a Commission Agent or Deal Broker is a line of business which lends itself well to an Offshore Corporate Structuring Plan.

In this model structure (ie as set out below) it’s assumed that you will be acting as a middleman between a buyer and seller and if the buyer and seller do business you get paid a commission ie typically a percentage of the sale/deal proceeds.

To summarise how it would work is:

You set up a zero tax Offshore Company eg an International Business Company (“IBC”) with a tax haven based Nominee Director
You are appointed as the IBC’s Authorised Representative
On behalf of the IBC you negotiate terms with the Seller and or Buyer to pay your IBC a Commission if/when the Buyer and Seller do business
The Commission Agent/Broker agreement/contract is signed Offshore by the Nominee Director
The source of the income is the contract.
Because the contract was signed offshore in a nil tax environment there should be no tax payable on income generated by the contract (a) where the Company is incorporated and (b) where you live (assuming you structure and administer the Company in the right way).
When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)
That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home). More sizeable amounts could be accessed by way of loan or a 2nd Offshore Company could be formed to buy your onshore investments
If you don’t want the authorities to know how much money you are earning eg by way of wages you could convert your hard currency into Bitcoin and/ or you could use an anonymous ATM or Debit/VISA card to withdraw $ from an Auto Tele Machine (though technically that receipt would be assessable income for local tax purposes)
The majority of trading profits would be banked and or reinvested Offshore potentially tax free.

Launching an ICO in Malta

The picturesque EU island state of Malta is on the brink of becoming one of the first, if not the first, jurisdiction to offer a clear registration and incorporation scheme for ICO Startups.

Back in the noughties Malta showed a penchant for supporting disruptive technology by becoming one of the first jurisdictions to regulate the growing Internet Gaming industry. As things now stand it has grown to become one of the largest and most respected online gambling regulators in the world.

Of late it has taken an active interest in recent development in the digital world, and in particular as regards the advent of blockchain technology, ICOs and cryptocurrencies and is becoming a target jurisdiction for startups and businesses working within the crypto-sphere.

Most saliently the government of Malta is now making moves to regulate these new industries proposing a legislative framework that will both support the organic growth and development of the sector and protect investors looking to point their hard-earned towards the Cryptospace.

The Malta Financial Services Authority (“MFSA) has also released a feedback statement proposing an upcoming array of regulations for collective investment schemes looking to invest in virtual currencies, designed to protect the interests of investors as well as the integrity of the virtual currency market.

The Three Acts

In February this year, the Maltese Government revealed its intentions to table three draft Acts that would aim to deliver extensive regulation for ICOs, Virtual Currencies (“VCs”), and blockchain technology.

At the core of the program the Maltese government’ has announced its intention to create a new Authority which will be known as the Malta Digital Innovation Authority (MDIA). The MDIA will manage the certification of blockchain platforms and cryptocurrencies, and will oversee the operation of ICOs.

It is proposed that the MDIA:

(a) will function as both a regulator and a watchdog over ICOs and will also operate as a consultative organization in that it will be saddled with promoting government policy and protecting the reputation of the jurisdiction.

(b) will be solely responsible for the registration and certification of Technology Service Providers with respect to the proposed TAS Act

(d) will hire inspectors and have the capacity to hand down administrative penalties

Regulation of Initial Coin Offerings Act

The second Act will cover virtual currencies and will include stringent guidance and regulation guidelines for Initial Coin Offerings and other services related to VCs.

The Act is also likely to effect brokers, Cryptocurrency exchanges, wallet providers, investment advisors, market makers, and asset managers that deal with cryptocurrency/s.

Certain ICOs will be able to come within the ambit of investment services regulations; consequently the MFSA proposes to roll out a proposed Financial Instruments Test which will determine whether the ICO or cryptocurrency could be considered as a financial instrument as covered by the investment services regulations or whether it will fall under the ambit of the VC Bill.

The Financial Instruments Test will apply to persons or companies which are offering ICOs conducted in Malta to determine whether same should fall under the ambit of the relevant Maltese Authority. The test will also impact on individuals who provide services or activities regarding non-classified VCs. It is anticipated that the analysis will provide a badly -needed modicum of legal certainty and clarification regarding the asset in question.

The Act will give rise to the first legal framework of its type (in any international jurisdiction) to govern ICOs and will deliver a regulatory framework applicable to service providers.

ICOs introducing VCs which do not currently qualify as financial instrument will under the proposed new regime be set transparency requirements including a standardized list of disclosures which must be provided in the whitepaper.

Individuals providing such services will be required to meet licensing requirements in addition to complying with ongoing obligations. The MFSA will also have the power to investigate and if necessary, suspend an ICO or the trading of a VC on any exchange or platform.

Technology Service Providers Act

The second proposed Act in the new raft of legislation will be the Technology Service Providers Act (“TAS Act”).

This statute will regulate Technology Service Providers, and will also certify and verify Technology Arrangements provided they feature an administrator which has been registered with the MIDA.

Virtual Currencies Act

In February 2018 the Maltese Government announced that “The MFSA is proposing that, in order to achieve the objectives of financial regulation, certain VCs and activities pertaining to them would be licensed and regulated under a new legislative framework to be drafted by the MFSA and adopted by the Maltese Parliament, the Malta ‘Virtual Currencies Act’.”

Securitized tokens will be regulated under the new regime, and utility tokens will be given more autonomy to conduct business without having to obtain a financial services license from the FMSA. The definitions of both under the proposed Malta law are as follows:

“‘Securitised tokens’ are defined as those embedding either underlying assets (akin to commodities) or rights (e.g. quasi-equity rights) and effectively refer to those tokens that qualify as financial instruments.

‘Utility tokens’ are further defined as those providing either platform/application utility rights or protocol access rights, without any underlying.”

There is no statement as to whether the product must be working prior to the ICO, rather focusing on just the intention of the product itself. This is vitally important, as many ICOs would find it very difficult to create a working prototype without funding.

There is also no mention of a token losing its utility status if the company receives funding before the ICO, which is also a serious plus for VC backed tokens.

Bi Finance Move to Malta

In March 2018 Japanese regulators took issue with giant cryptocurrency exchange Binance for failing to register with their regulators, the FSA. That registration would have caused regulatory scrutiny such as would seriously affect the exchange’s able to offer non-identity verified trading accounts in the international marketplace.

By this time Binance had evolved to become the biggest cryptocurrency exchange by volume handling billions of dollars of daily transactions and holding Cryptocurrency for millions in a business that stakeholders did not wish to change. Its popularity hitherto had been dependent on its ease of doing business, which registration in Japan would have seriously curtailed.

This led Binance to decide to abandon Japan and relocate…. to Malta! With some pundits predicting that they will employ as many as 200 people in Malta, the news of their planned move was welcomed by none other than the Maltese Prime Minister who publicly welcomed Bifnance to Malta via Twitter.

Latest News Out of Malta

In a consultation paper published on 13 April (which you can read here: file:///C:/Users/Pat/Downloads/20180413_FITest.pdf ) the Malta Financial Services Authority (FSA) has laid out a proposal for a so-called Financial Instrument Test, which will ultimately become part of the proposed Virtual Financial Asset Act (VFAA).

The FSA says the methodology of the test has been arrived at based on feedback from its previous discussion paper, released in November 2017, which for the first time announced the concept.

Per the latest release, the test will comprise a three-stage process that will first verify whether a distributed ledger technology (DLT) asset falls under the category of “virtual tokens” – (ie Utility Tokens).The paper states:

“Virtual token is a DLT asset which has no utility, value or application outside of the DLT platform on which it was issued and that cannot be exchanged for funds on such platform or with the issuer of such DLT asset.”

Tokens falling within this definition will be exempted from the VFAA, according to the FSA.

Assets capable of being traded in a secondary market will fall within the scrutiny of the second phase of the test, where various securities definitions set by European financial regulators will be applied, including transferable securities, money market instruments or financial derivatives.

Should a token sit within the definition of any of those assets, it would then fall within the reach of the regulatory oversight of the existing Markets in Financial Instruments Directive (MiFID) that is enforced within the European Union financial markets.

That said, a negative result in stage two will lead to the third stage of the test, which would see ICO tokens regulated under the proposed VFAA. The FSA said this method will embrace a hybrid framework that adopts both existing EU regulations, as well as a Maltese regs.

The Future?

The proposed legislative Crypto framework in Malta arrives at a time when the island’s government is looking to embrace blockchain innovation with a well-established legal environment aimed to attract blockchain businesses to the country.

The vision is starting to bear fruit:

• Several notable cryptocurrency exchanges – including now OKEx as well as Binance – have already set up business operations in the country; &

• Malta’s first digital asset hedge fund has grown into a multi-million dollar exchange; &

• ICOs are starting to consult with Maltese law firms, and the largest cryptocurrency exchange with the aim of total decentralization has been welcomed with open arms.

Moreover the process to license and launch an ICO via Malta is anticipated to be months quicker than it would be if you were trying to launch out of a larger, more bureaucratic jurisdiction (eg Switzerland).

Hopefully the legislation will be enacted before years end. Watch this space for developments.

Why Incorporate in Malta?

In addition to its looking to embrace Crypto related business Malta is also a very attractive jurisdiction in which to incorporate. Key features include:

• Low corporate tax (maximum of 5% or lower effective tax rate for trading companies)

• A highly educated, reasonably-priced English-speaking workforce (88% per cent of the population speaks English), particularly in the legal, accounting, insurance, banking and maritime professions

• A strong stable economy

• A high (and ever improving) standard of living

• Political stability

• Certainty of the rule of Law (much of Malta’s laws were derived from its former ruler Great Britain)

• Reliable telecommunication systems

• Access to European markets (Malta is an EU member)

• An extensive double-taxation treaty network (with over 50 countries)

• Low operating costs relative to the rest of Europe

• Strategic location at the crossroads of three continents, serving also as Europe’s Middle Eastern outpost

• Liberal foreign direct investment regime

Taxation Benefits

Malta has a full-imputation system of corporate taxation and hence any income tax that is paid by a Maltese company is fully imputed or credited to the shareholder who receives dividends from the company, enabling the same to benefit from the full relief of economic double taxation of corporate profits.

Although the standard rate of taxation in Malta is 35% of the chargeable income of the company, a shareholder of such company is entitled to a refund of any tax paid by the company of 5/7ths, 6/7ths or 7/7ths depending on the source of income of the company. This typically results in an effective net tax rate of approximately 10%, 5% or 0% respectively

Low Incorporation and Maintenance Costs

A company can be set up in Malta with a minimum share capital of Euro 1,165, 20% of which should be paid up. This means that the minimum amount that you need to commit by way of Capital to incorporate a company in Malta is only 245 Euros. The minimum Registry fee required to be paid is Euro 240 with minimum annual payments of Euro 100!

Exemption from Duty on Documents

Malta companies carrying out international activities are exempt from stamp duty on documents meaning that the transfer of shares in and increases of share capital of a Maltese company are exempt from duty.

Double Taxation Treaties Signed

Malta has signed over fifty double taxation treaties, with the latest being the Malta – Russian Double Taxation Treaty which should come into force at the beginning of next year.

Capital Gains Tax

Capital gains realised by non-residents on transfers of shares and increases of share capital are not subject to tax in Malta if the assets of the company do not include immovable property situated in Malta.

Other Benefits of Incorporating a Company in Malta:

• No withholding tax on the payment of dividends, interest or royalties;

• No controlled foreign company legislation or transfer of pricing rules;

• No thin capitalization rules;