Estonian Cryptocurrency Exchange & Wallet Service Provider Licenses

Estonia has a favorable tax and legal environment for cryptocurrency exchange companies. It also offers registration for businesses looking to offer Cryptocurrency Wallets.


This small European Union country of just 1.3m people is regarded as one of the world’s most advanced digital nations and is fast becoming a viable alternative to the behemoth Financial Services Jurisdictions such as Singapore and Switzerland – its competitive advantage being it offers less red tape and lower establishment/operating costs.


Companies aiming to do business in the Cryptosphere can apply for 2 different activity licenses in Estonia:

(a)   A Cryptocurrency Exchange License

(b)   A Virtual Currency Wallet Service License


Both of these licenses are issued by the Estonian Financial Intelligence Unit (FIU) and can be applied for separately or together (in fact it’s cheaper to apply for both at the same time). The full procedure to set up the company and obtain the licenses can be carried out remotely with no visit required (at the time of writing, on average, it takes 30 days from receiving all necessary documentation).




The operating license are issued by the Estonian Financial Intelligence Unit (FIU) which is a government body that operates as an independent cell of the Estonian Police and Board Guard Dpt. (Check this link for details: )


The licenses can be applied for at the same time (albeit via separate applications) and at the conclusion of the application process 2 separate Licenses are issued; one enabling you to offer a Cryptocurrency Exchange Services, the other enabling you to offer a Cryptowallet service. For details of the main Acts regulating the activity check this link:


The Company is classified as a Financial Institution but has no special reporting requirements (other than those which normally apply to an Estonian Company)


Estonian Company Requirement


To successfully apply for a cryptocurrency exchange and/or wallet service license you will firstly need to incorporate an Estonian Company.


This process can be carried out remotely with no visit required and it usually takes about 5 business days for the full procedure. The key features of the Estonian Model of Company are as follows:


•          A minimum of 1 shareholder only is required

•          The shareholder/s can be a natural person or a legal entity

•          There is no local shareholder requirement (ie the shareholder/s can come from any country)

•          A minimum of 1 Director only is required

•          There is no local Director requirement (ie the Director/s can come from any country).

•          No secretary is required

•          No stand-alone office is required (only a local registered office and registered agent which service OCI will provide).

•          Beneficial owners’ details must be disclosed to the authorities starting from September 1st 2018 though a Seychelles Foundation can be deployed to act as the beneficial owner/shareholder (Contact us for details of how/why that will work)


Tax on Cryptos


Estonia also offers a competitive tax environment for such businesses. Features include:

•          Virtual currencies are not subject to VAT

•          Corporate profits are not taxed unless or until dividends are paid

•          Income tax of 20% is charged on gross dividends (calculated as 20/80 of the net dividend).

•          Special conditions apply enabling a Company to apply for a 14% rate beginning September 1st 2018.


Set Up Procedure and Documentation


Our Legal Team can/will attend to all that needs to be done in order to comply with Estonia’s Anti Money Laundering (“AML”) Regulations including:


Internal Security Measures

•          assessment and management of the risk of terrorist financing and money laundering;

•          collection and maintenance of statutory records;

•          performance of the notification obligations;

•          notification of the management as/when required;

•          internal control rules for checking adherence thereto.


Rules of Procedure

•          identify low risk transactions and establish the appropriate requirements/procedures to enable the execution of such transactions;

•          identify higher risk transactions, (including risks arising from means of communication, computer systems and other technological developments) and establish the appropriate requirements and procedure for the execution and monitoring of such transactions;

•          establish the rules that ensure that Due Diligence/KYC requirements are met;

•          set out the requirements and procedures for keeping the necessary documents and records;

•          set out the requirements and procedures for an application including instructions to staff etc for how to effectively identify whether or not a person is:


(a) a politically exposed person;

(b) a person whose place of residence or seat is in a country where insufficient measures

for prevention of money laundering and terrorist financing have been laid out;

(c) a person with regard to whose activities there is previous suspicion that the person may

be involved in money laundering or terrorist financing;

(d) a person against whom international sanctions have been imposed;

(e) a person with whom a transaction is carried out using telecommunications.


Legal Framework & Requirements


The legal framework for Crypto Companies in Estonia is governed by the Money Laundering and Terrorist Financing Prevention Act which passed into law in November 2017.


We can/will prepare all policy documents and manage the process as regards the FIU acting under a Power of Attorney (PoA). For a remote setup we will require the following documentation:

•          Valid copy of passport *

•          Certificate of non-criminal record from the registry of convictions (not older than 3 months) for shareholder(s), board member(s), ultimate beneficial owner(s) and authorized person/s *

•          Power of Attorney *

•          Brief description of planned business model and CV’s of all participants


* Notarized and confirmed with an apostille, in English (or notarized English translation)


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


Company Formation in Estonia

Estonia is a Nordic country of 1.3 million people nestled on the shores of the Baltic Sea in Northern Europe.


Since regaining its independence with the collapse of the Soviet Union in 1991, Estonia has become one of the most economically successful of the European Union’s newer eastern European members.


Estonia has a highly educated population (English speaking proficiency is amongst the world’s highest) low corruption and sits at the forefront at the development and delivery of both private and, in particular public, services by digital means. Of late it has stolen a jump on rival jurisdictions by offering a specific licensing regime for Cryptocurrency related businesses (see below for details).


Limited Liability Companies in Estonia


The Estonian private limited liability company (Osaühing or ) is the most common form of business as its shareholders have no personal proprietary liability for the company’s obligations.


Key benefits of incorporation in Estonia include:

Tax Efficiency: Zero tax is payable in Estonia if profits are reinvested

Clean Name: Estonia isn’t known as a tax haven yet can deliver the same results

Stability: Estonia is very stable economically and ranks as highly as the US for non-corruption

Easy 2 set up: To set up you just need 1 Director/shareholder + a legal address/rep in Estonia

Speedy set up available: You can own an Estonian Company within as little as 24 hours

Easy to administer: Estonian Companies only require 1 Director and 1 Shareholder

Access to Europe: A Euro VAT number can be obtained enabling you to trade on the Continent

VAT Free: No VAT is payable on transactions within Europe (outside Estonia)

Cryptofriendly: Cryptocurrency related businesses are welcome to incorporate in Estonia

Bank Friendly: Incorporating in an EU country gives you wide access to EU/1st World banks

Language Friendly: (Per its Nordic kin) Estonia ranks VERY highly 4 English Language proficiency

E-Residency available: Estonia offers a Digital ID enabling one to securely access government services in and sign docs/do business in Estonia remotely. 98% of government services can be accessed electronically in Estonia. Check here for details:


Estonia is also one of the most (probably THE most) Efriendly/developed countries in Europe:

  • Tax filing, tax payment, banking and business registration can all be done electronically
  • Public services inc Voting, Government services and Ministries are all accessable electronically
  • Law Courts and Police Services can all be accessed electronically
  • Estonia has deployed Blockchain technology to secure Health Care Data including as regards health records and medicine prescriptions


For more details click on this Article:


Other Features Include:

  • Low Minimum Share Capital Requirement (just 2,500 Euros)
  • Payment of the share capital can be delayed indefinitely (if the Share Cap is under E25K)
  • Low Cost: Incorporation, Legal, Accounting, Banking and other support services are very competitively priced by comparison with the global norms
  • No withholding tax is levied on profit distribution
  • Pre-incorporated shelf Companies are available (including some with current VAT registration
  • You can take up ownership of a new Estonian Company vie the net without needing to leave home


Taxation in Estonia


Estonia has one of the most progressive tax regimes in the world in that:

  • The tax rate on reinvested profit is 0%
  • Income tax is charged only at a rate of 20% on gross dividends.
  • The general VAT rate is 20%.


Corporate profits are not taxed ie (tax rate 0%) unless or until the profits are distributed as dividends; In short, all undistributed corporate profits are tax-exempt. This 100% exemption covers both active income (e.g. trading) and passive income (e.g. dividends, interest, royalties etc) as well as capital gains from sales of all types of assets, including shares, securities, and immovable property.


Estonia levies a corporate withholding tax only on profits that are distributed as dividends, share buybacks, capital reductions, liquidation proceeds or deemed profit distributions. Income tax at a rate of 20% is charged on gross dividends (calculated as 20/80 of the net dividend).


The standard VAT rate (in Estonian käibemaks, KM) is 20% and applies to all supplies of goods and services inside Estonia. The 9% reduced rate applies to accommodation, books, listed pharmaceutical products and medical devices. The VAT rate on the export of goods, intra-Community supply of goods and certain services is 0% (i.e. exemption with credit). If the annual taxable turnover exceeds 40 000 EUR you will need to register with the Tax and Customs Board as a VAT payer.


Employers registered in Estonia (including permanent establishments of foreign entities) must pay social tax on all payments made to employees. The rate of social tax is 33% (20% for social security and 13% for health insurance). Minimum wage in Estonia is 500 EUR/month as of 2018.


Crypto Business Licenses in Estonia


Estonia has a favorable tax and legal environment for cryptocurrency exchange companies. This small European Union country of just 1.3m people is regarded as one of the world’s most advanced digital nations and is fast becoming a viable alternative to the behemoth Financial Services Jurisdictions such as Singapore and Switzerland – its competitive advantage being it offers less red tape and lower establishment/operating costs.


Companies aiming to do business in the Cryptosphere can apply for 2 different activity licenses in Estonia:

(a)   A Cryptocurrency Exchange License

(b)   A Virtual Currency Wallet Service License


Both of these licenses are issued by the Estonian Financial Intelligence Unit (FIU) and can be applied for separately or together (in fact it’s cheaper to apply for both at the same time). The full procedure to set up the company and obtain the licenses is straight forward and can be carried out remotely with no visit required (at the time of writing, on average, it takes 30 days from receiving all necessary documentation).


Eligibility for such a license is liberally applied (you don’t need be ex Merril Lynch or hold any form of Fund Manager License to be eligible to apply for such a license) and the cost is very reasonable especially compared with the cost of applying for comparable special licenses elsewhere (eg Fund Licenses, Broker’s Licenses etc).


Corporate Services in Estonia


We provide a full range of corporate services in Estonia including, as required:

  • Company Formation & Administration
  • Legal and tax advisory
  • Virtual office
  • Accounting
  • Bank account opening support
  • Company Secretary
  • Nominee Director
  • Nominee Shareholder
  • Registered Office/Agent
  • E-Residency
  • Applying for Cryptolicenses


Prices start from as little as 1,000 Euros.


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


Why Set Up An Initial Coin Offering (“ICO”) Offshore

In an earlier Article we talked about how you might go about launching an ICO Offshore.


To recap your options are:


(a)    Incorporate a nil tax International Business Company (“IBC”) which enters into an agreement with investors whereby, in consideration of the investor paying some money to the Company, the IBC agrees to issue the Investor with a Redeemable (Digital) Token

(b)   Incorporate a nil tax Private Fund Company (ie a non-licensed Closed End Fund) whereby investors agree to invest for a minimum/fixed period in return for which they receive shares in the Company in proportion to the amount of money they invest. These shares would entitle the investor to share in the profits made when the Cryptocurrency hits the open market and to cash out or reinvest at the end of the agreed minimum investment period.

(c)    Register a Private Foundation (which owns a/the Company issuing the Cryptocurrency) Investors pay donations to the Foundation in fiat currency. The Foundation uses that money to fund a/the tax free Offshore Company which develops/owns the Cryptocurrency. In consideration of the donation made to the Foundation the Company issues a Redeemable Digital Token to the donor/investor.


Twin Company Structure


The greatest concern you would have launching such a business is the risk of local regulators deciding you’re running an illegal Fund or offering an unregistered/unlicensed Financial Product and then (a) freezing the Investment Company’s Bank/etc Accounts and/or (b) prosecuting you for breaches of local Managed Investments Legislation or Corporations Law.


Worst case scenario is the investment doesn’t live up to expectations and the investor complains to local Managed Investment or etc Authorities. The Authorities would trace the money and see it left wherever and landed in the account of The Fund/Token Company. Depending on where that country is the Authorities could take legal action to freeze funds held in that bank account etc.


But imagine if, once funds hit the Fund/Token Company’s account, they are transferred to the Offshore account of a 2nd Company (let’s call it “Offshore Company B”)? Local Authorities would not be able to see where those funds went making it practically impossible to freeze those funds.


Company A could either invest with Company B via a general investment agreement or Company A could hold shares in Company B or Company B could be appointed as Company A’s Fund Manager.


Company A would in effect be the Investors Company. Company B could/would in effect be your Company.


The situation would be analogous to a Non Licensed Close End Fund save that the investors don’t get shares in the Company they instead receive a Token.


Hence ideally you’d want to place moneys received from investors into a separate/2nd vessel.


Where To Incorporate


Certainly you would not want to incorporate such a venture where you live. Ideally the Fund Company (+ Company B should you decide to go down the twin Company structure road) should be incorporated Offshore in a low regulation jurisdiction ie somewhere which hasn’t passed legislation making the manufacture and or marketing of Cryptocurrency or Tokens a Prohibited or Licenseable Activity. Ideally that jurisdiction should be somewhere where it is extremely difficult (ideally impossible) for local Regulators to find out who’s behind the Fund/ICO Company.


If you want to minimize the chance of regulatory interference/prosecution there are in essence 3 boxes you will want/need to tick ie:


1.         You will want to ensure that the Offshore Company/s (“OC”) is/are incorporated in a country which does NOT have a Tax Information Exchange Agreement with your home country. This will eliminate the risk of local authorities using the façade of a tax investigation to try and find out who actually set up (or is behind) the Company.

2.         You will want to ensure that management and control of the company/s is seen to be taking place from “Offshore”. This will entail deploying a (tax haven based) Nominee Director to act as Director of the Offshore Company/s.

3.         If you live in a country which has a Controlled Foreign Corporation law, and/or so that in the case of an investigation you can swear under oath I am not the director or owner or beneficial owner of the Company, you will want to set up a Private Foundation to own your shares in/of Company B ultimately (because a Private Foundation is presumed to be both the legal and beneficial owner of any asset it holds)


This strategy can also deliver tax deferral opportunities.


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


How to Open an Anonymous Offshore Forex Broker Account

If you’re wanting to open a Brokerage Account (eg to trade Forex) for your Offshore Company and you don’t want your name to appear anywhere in the Broker’s Records that can be facilitated. Here’s how:


  1. You should incorporate a tax free Offshore Company (IBC) with a (tax haven based) Nominee Director (which is a service that OCI Provides). Ideally that Company (IBC) should be incorporated in a country which does NOT have a Tax Information Exchange Agreement with your home country
  2. You should set up a Seychelles Foundation to hold the shares of your Company (because Seychelles law uniquely provides that that the legal AND beneficial owner of any Asset/Company owned by a Seychelles Foundation is the Foundation itself).
  3. You will be appointed in writing (via a Consultancy Agreement which we will provide) as the Company’s Authorised Trader or Trading Manager
  4. The Brokerage Account application will be signed by the Company Director and submitted to the Broker by your Offshore Corporate Service Provider (ie in the name of the Nominee Director) noting the shareholder of the Company (ie a/the Seychelles Foundation) as the beneficial owner of the Company
  5. The Director will be nominated as the authorised signatory/trader on the Company’s Brokerage Account
  6. Immediately the Brokerage Account is opened the Nominee Director will email you the log in codes enabling you to place the trades and authorise withdrawal of money.


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



A Freight Forwarding (ie International Goods Transportation) Business lends itself well to an Offshore Corporate Structuring Plan.


Here’s how it can/will work:


  1. You set up a nil tax/tax free Offshore Company (“IBC”)
  2. The customers place orders online and they contract with/pay the tax-free IBC to forward freight/transport goods for them
  3. Payments from customers would be banked and held offshore free from tax
  4. The IBC should be seen to be managed and controlled from Offshore (ie a nil tax jurisdiction) and owned by a tax haven resident party/shareholder
  5. The tax-free IBC would subcontract the actual job of forwarding/transporting the freight to an onshore operation (which could be your local/current business)
  6. The difference between what you receive from the customer and what you pay the actual transporter (ie your gross profit) is earned/held by a tax free Offshore Company and (if you structure/administer things correctly – see below) should not be taxable onshore ie where you live


For such a plan to work there are in essence 4 boxes you will want/need to tick ie:


1.        You will want to ensure that the Offshore Company (“IBC”) is incorporated in a country which does NOT have a Tax Information Exchange Agreement (TIEA) with your home country.

2.        You will want to ensure that management and control of the IBC is seen to be taking place from “Offshore”. This will entail having a (tax haven based) Nominee Director to act as Director of the IBC (which is a service that OCI provides) plus you will need to ensure that all key decision making and document signing actually takes place Offshore.

3.        If you live in a country which has a Controlled Foreign Corporation (“CFC”) law you will want to set up a Private Foundation to own the Company ultimately

4.        To prevent the existence of the IBC’s Bank Account coming to the attention of local authorities (a) you will want to open the company’s bank account in a country which is NOT a signatory to the MCAA  and/or (b) you will want to set up a Seychelles Foundation to hold the shares of the IBC (because Seychelles Law uniquely provides that the legal AND beneficial owner of any asset held by a Seychelles Foundation is the Foundation itself).


Local laws can have an impact. Hence you should seek local legal and financial advice before committing to set up a Corporate Structure such as that described above.


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


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:


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:


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.


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How To Set Up a Tax Free Bitcoin Exchange Offshore

A Bitcoin/Cryptocurrency Exchange Business (ie an Enterprise that offers to buy Cryptocurrencies paying for same in either hard currency or some other form of Cryptocurrency in return for a Commission) lends itself well to an “Offshore” Corporate Structuring Plan.


In principle here’s how it can/will work:


  1. A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
  2. A website is created and tailor made software developed – the IBC will be the owner of this website and the software and all the hardware required to run it
  3. The IBC owns/operates the business (eg ownership of the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
  4. An Offshore account (which received payments via a merchant account) is set up in a nil tax banking centre
  5. Ideally the server is located in a country which does not tax business on the basis of server location (eg Singapore)
  6. Customers contracts with and agreed to pay the IBC a commission on all sales concluded as a consequence of buyer/seller introductions enabled by the site.
  7. All such monies are banked free of tax in the first instance
  8. You or your local company would be contracted by the IBC to manage sales or provide accounting services or do website maintenance/whatever.
  9. You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.
  10. Often there is some kind of intellectual property (“IP”) created or behind such a business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2nd IBC which fees wold be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream
  11. Ideally once you start to grow you and to add substance you would be wise to set up your MD/Board and or a sales team onshore to take orders and receive income in a low tax onshore environment (eh Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model)


To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:


Additionally if you live in a country which has CFC laws (see below which explains what CFC laws are) and/or if you don’t want your local tax authorities to become aware of your Offshore Company’s Bank Account (and, incidentally, your position as “beneficial owner” of the Company) you’d be wise to include a Foundation as part of the Corporate structure. See below “Why set up a Foundation” which explains how/why.


What is a Controlled Foreign Corporation Law?


A Controlled Foreign Corporation (or CFC) Law is one which purports to tax onshore income or capital gains made by Companies incorporated Offshore but which are controlled from onshore. Most western countries have them (see below which lists ALL countries with CFC laws presently).


Essentially how a CFC law works is if an individual owns or has the capacity to own the overriding majority of shares in an Offshore Company (the percentage of which varies from country to country) the that person is required to declare in his local tax return profits made by the Offshore Company.


How CFC laws came about was around 30 years ago the big western countries began to realise that certain of their citizens were using nil tax Offshore companies to avoid having to pay tax at home on their non-local sourced (ie international) income. In particular the CFC laws target the use of Nominee Shareholders and Directors. If you live in a country which has CFC laws (regardless of whether you are the director/shareholder of the Company or not) if you have the capacity to own and control the company by reference to shareholdings then you would be required to declare and pay tax at home on your Offshore Company’s earnings.


There are several ways to get around CFC laws. Historically clients used commonly to deploy an Offshore (Discretionary) Trust to own the shares of the Offshore Company. However with more and more “Onshore” tax systems claiming tax from any Trust with an onshore resident beneficiary discerning clients these days choose to establish Private Foundations (in particular Seychelles Foundations) as the ultimate holding entity as such entities should not caught by CFC laws or by CFT (Controlled Foreign Trust) Laws. For more detail click on these links:


Why Set Up a Foundation?


If an IBC alone is used to own/operate your Bitcoin/Cryptocurrency Exchange Business you will still be liable to declare and pay tax at home on your IBC’s earnings if/when you live in a country which has a Controlled Foreign Corporation (“CFC) law. Failure to do so would most likely constitute tax evasion.


What you might do then is set up a Private Interest Foundation to own the shares of the Offshore Company.


We used to use Offshore Trusts for such purposes back in the noughties but the problem there is that you have someone (ie a Trustee) holding property for the benefit of 3rd parties who are inarguably beneficial owners of that property and probably/potentially entitled to the income/capital of the Trust (which can have tax consequences onshore).


A Foundation is very similar to a Trust in that it’s set up by a Founder (like a Settlor in the case of a Trust) and managed day to day by a Councillor (like a Trustee in the case of a Trust) who manages the Foundation property for the benefit of the beneficiaries of the Foundation. A key advantage of a Foundation is that it’s a separate legal entity in its own right (ie the Foundation actually owns the assets held by the Foundation – unlike a Trustee who holds property for someone else ie the beneficiaries) and generally speaking the beneficiaries are not entitled to the income or capital of the Foundation until it’s actually received.


What this means as a beneficiary is that you should be able to defer paying tax at home on the income of investments held by the Foundation enabling you to reinvest 100% of that income not just the after tax component. (One jurisdiction ie Seychelles has even taken this a step further by specifically stating in their law that the legal and beneficial owner of any asset held by the Foundation is the Foundation itself).


Seychelles Foundations


If you are a resident or citizen of a country which has the ability to track Offshore Bank account beneficiary details and you would like to keep private details of your Offshore earnings (or if you plan to set up a very sensitive business eg one that might illegal if owned/operated from where you live) again a Seychelles Foundation can help:


How so?


It all comes back to the legal structure/operation of the Seychelles Private Interest Foundation.


Bottom line is notwithstanding that individuals (or a class of beneficiary) may be named as beneficiaries in the Regulations:


  1. The beneficiaries have no legal or beneficial interest in property owned by the Foundation (unless or until such time as that property is transferred to them – see section 71 of the Seychelles Foundations Act attached).
  2. The Foundation is a legal entity in its own right not a mere Trustee (See section 23)
  3. The Councillor of the Foundation owes no Fiduciary duty to the beneficiaries (see section 63)


As such there is no “beneficial owner” of the Foundation. The beneficial owner of any property/asset owned or held by the Foundation is the Foundation itself. Hence when we open a bank account for your Company, if the shareholder of the Company is a Seychelles Foundation, your name shouldn’t be written into the bank’s records as “beneficial owner” of the Company.


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