Monthly Archives: November 2018

There are 2 questions that are often posed to us by Crypto Exchange Entrepreneurs:

 

1. Do I need to apply for a License for my proposed Offshore Crypto Currency Exchange?
2. Should I go down the road of applying for a Special License for my proposed Offshore Cryptocurrency Exchange?

 

The answer to the first question is it depends on where you want to incorporate!

 

Certain “Offshore” (ie nil/low tax and or low regulation) jurisdictions (most notably Malta and Estonia) have passed laws making a Cryptocurrency Exchange a Licensable Activity.

 

Obviously if you want to incorporate your Operating Company in, or place your headquarters in, one of these countries you will have to apply for a Special License or else you run the risk of being prosecuted by the local Industry Regulator (which could, if you’re convicted, result in a large fine or potentially jail time or both).

 

Non-Licensing Road

 

If you’re not willing or able to go down the Licensing road (and or if tax minimisation/ownership privacy is important to you) you might want to incorporate your Company in a Low Regulation Privacy Haven ie somewhere where buying and selling Cryptocurrency is not a prohibited (or licenseable) activity and which does NOT have a public register of directors, shareholders or owners. Most people in that position choose to incorporate in either:

 

• Belize – For detailed information click on this link: http://offshoreincorporate.com/belize-offshore-companies/ ;or
• Seychelles – For detailed information click on this link: http://offshoreincorporate.com/seychelles-offshore-companies ;or
• Nevis – For detailed information click on this link: http://offshoreincorporate.com/st-kitts-and-nevis-offshore-companies/ ;or
• Hong Kong – – For detailed information click on this link: https://offshoreincorporate.com/hong-kong-companies/

 

You may be interested to know that arguably the world’s biggest Crypto Exchange ie Bitmex is incorporated in Seychelles.

 

Pros and Cons

 

Probably, like most OCI clients (we set up at least 1 new Crypto Exchange Offshore every week) you are wondering should I set up/apply for a License (eg Estonia, Malta etc) or should I take the easier road and just incorporate somewhere where such an activity is not regulated nor prohibited by law?

 

The question of where to incorporate your Exchange is a commercial decision for you and you alone to decide.

 

That said the main difference between places like Seychelles/Belize/Nevis etc and Malta/Estonia etc is that such a business in Seychelles etc is not a licenseable activity nor a prohibited activity. As such it will be a lot quicker, a lot easier and a LOT cheaper to set up there (You could potentially be incorporated and doing business within 24 hours of engaging a Company Formation Provider and for as little as $US900).

 

In places like Malta, Estonia etc such a business is a Licenseable activity. As such if you want to incorporate such a business in Malta/Estonia etc you MUST apply for a license. To do this will take anywhere between 6 weeks and 6 months and cost anywhere from $13,000 to as much as $US30,000.

 

Whether to go down the licensing road or not, again, is a commercial decision for you and alone to decide.

 

The advantages of having a license are business certainty, you will probably attract a better quality of customer and you will have a wider choice of banking partners.

 

The downside is the time it takes to establish, the cost to establish and red tape ongoing (eg if you incorporate in an unregulated jurisdiction you won’t need to collect DD/KYC etc re each customer making a lot easier to onboard new customers).

 

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

 

Are you worried about CRS or about your name appearing in an Offshore Company’s statutory records (ie the “register of beneficial owners”) as a/the beneficial owner of a Company?

 

There are 3 issues here you will need to consider:

 

1. Compliance requirements
2. Legal position
3. Exchange of information

 

Let’s address each issue in turn:

 

Compliance requirements

 

Regarding 1, these days, in almost every “Offshore” jurisdiction when you form a Tax Free Offshore Company your International Corporate Service Provider has to keep, in the Company’s registered Office, a register of beneficial owners.

 

Most country’s compliance requirements in this regard state that a natural person’s name must appear in the register… Which, frankly is a joke because it ignores the legal integrity of the structure particularly where the shareholder of the Company is a Seychelles Foundation (see below). The dilemma your ICSP ie International Corporate Service Provider (such as OCI) faces is, regardless of the legal structrure of the shareholder entity, if the ICSP doesn’t write in the beneficial owners register the name of a natural person your ICSP could be fined and or lose its Corporate Service Provider License/Sublicense in that jurisdiction.

 

Thus far Compliance Officials on the ground in the country of Incorporation usually require, where the shareholder of the Company is a Foundation, that the name/s of the Foundation beneficiary/s appear in the Company beneficial owner’s register. That doesn’t mean as a matter of law (which is what really counts eg if there were ever to be a tax investigation or law suit) that you are in fact/law the beneficial owner of the Company. Which brings us to the 2^nd issue above… ie Legal Position:

 

Legal Position

 

What the smart person does these days typically is he/she sets up a Seychelles Foundation to hold the shares of his/her Tax Free Offshore Company.

 

Let’s assume that the shareholder of your current or proposed Offshore Company is a Seychelles Foundation.

 

The Foundaton is in essence Europe’s version of a trust. It begain in Liechtenstein in the 1600s, was picked up by Holland etc and then made its way offshore where in Panama it became a legal sensation. Other nil tax jurisdictions (most notably Belize and Seychelles) have picked up on the utility and market attractivess of the Foundation and created their own version thereof with improvements on the Panama model.

 

The key differnce between a Foundation and a Trust is that a Foundaton is a separate legal entity ie it can sue and be sued and it can own property as both legal owner and beneficial owner. Contrast that with a Trust – at law if a Trust buys real estate, on the Title Deed -  in the space where the owner’s name appears -  it will say John Smith Trustees Ltd as Trustee for the XYZ Trust > The Trustee is the legal owner of the Property but the beneficial owner/s of the propery, at law, is the Trust beneficiary/s.

 

In short under European and etc common Law a Foundation is presumed at law to be both the legal and beneficial owner of any asset it holds. One jurisiction ie Seychelles has actually codified that position:- Section 71 of the Seychelles Foundations Act provides that a Seychelles Foundation is both the legal AND beneficial owner of any asset that it holds. (To view the legislation click on this link: https://seylii.org/sc/legislation/act/2009/32 )

 

Given the wording of the legislation any qualified Lawyer would tell you it’s inarguable… that as a matter of law (and regardless of what may appear in the beneficial owner’s register) the beneficial owner of any asset held by the XXXX Foundation Registered in Seychelles is the Foundation itself…

 

Exchange of Information

 

The final thing you’ll need to consider is Exchange of Information.

 

Generally speaking local authorites can only find out, as of right, who’s behind a Company or Foundation if the country in which the entity is registered has a TIEA (“Tax Information Exchange Agreement”)  with your home country.

 

Moreover typically there will be no requirement under the laws of youur Offshore Company’s Jurisdiction forcing the jurisdiction to share with your home country (or any other country) the name of the “beneficial owner” of the Company.

 

Hence if you set things up carefully the only way that information could potentially be exchanged is pursuant to the MCAA (“Multi Competent Authority Agreement”). The MCAA is a multi-party treaty that gives effect to CRS (Common Reporting Standards) also known as AEOI (“Automatic Exchange of Information”). In short each of the MCAA Treaty Member countries (around half the world’s countries have signed) have agreed to, once each year, automatically share with all the other treaty member countries details of Corporate bank accounts where the beneficial owner of the Company is a non resident.

 

If your Offshore Company(“OC”)’s Bank Account is located in a country which has signed the MCAA the Company’s Bankers might potentially advise of (ie to the home country of  the Company’s beneficial owners) the existence of the OC’s bank account.

 

The first thing to note here is that the Exchange (of Information) can/will only take place where the primary purpose of the bank account is to receive passive income (It doesn’t apply if your Company owns/operates a business or mercantile operation or trading operation). Additionally to limit the possibility of the existence of the OC’s bank Account coming to the attention of your 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 OC (see above).

 

In any event there is a catch all fool proof way to avoid AEOI + the risk of your name appearing in your Offshore Company’s records as “beneficial owner” thereof; that is, by deploying a Charity or Nominee to act as the sole beneficiary of the Foundation at the time that the beneficial owner’s register is created/ noted and or when the Company’s bank account is opened.

 

Most ICSPs can/will supply a Nominee beneficiary for a fee.

 

Local laws can have an impact. Hence it would be wise to seek local legal/tax/financial advice before committing to set up an Offshore Company Trust or Foundation.

 

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