Where To Incorporate a Crypto Business With No License?

We are often asked, Where can I set up a Crypto business (eg a Crypto currency Exchange) without a license?


As at the date of writing (ie 24 November 2019), the following nil tax jurisdictions do not license such activities currently:


  • Seychelles
  • Belize
  • Nevis
  • Panama
  • Hong Kong
  • Cayman Islands
  • Dominica
  • Hong Kong


To clarify the position last week we wrote to Lawyers we know in 11 different jurisdictions and asked this question: “We have a Japan based client who wants to incorporate a new business namely a Cryptocurrency Exchange business where they buy Cryptocurrencies and sell Cryptocurrency (ie they will exchange one form of Cryptocurrency for another and charge a commission or margin. What special license/s if any will the client need to apply for in your jurisdiction?”


Here are the answers we received, verbatim:




“First, regarding your question: we recommend to order a service for preliminary legal analysis for specific cases for full assurance but from the first view I would say that the company would also need a Crypto license.

The crypto licenses for which we can apply are:

  • · providers of a service of exchanging a virtual currency against a fiat currency
  • · providers of a virtual currency wallet service”


Hong Kong


“Cryptocurrency exchange is not yet officially regulated in Hong Kong but presumably they will need to have their own operating office, staff, compliance officer and follow the Anti-Money Laundering rules as a minimum.  However, they are not likely to open an account in HK for its operation.


Alternatively, the client can consider setting up a company in Malaysia Labuan where they can apply for a money operator license that include Crypto currency in the license like fiat currency.”




“Agreed that it is not a prohibited business and will thus depend on DD issues.”




“Presently there are no regulations or licenses in Panama for Crypto business.”




“In UAE all financial and non financial licenses are regulated in DFIC , FSA and ADGM authorities.

Currently we are working on details clarification with the authorities and we will revert you ASAP. “




“Cryptocurrency exchange is not regulated by the IBC Act 1996 of Dominica, and as amended thereafter. It remains a grey area, just as in the majority of jurisdictions. Thus we confirm that this type of activity for an IBC is not restricted. Legal opinion can be available upon request.”




“At this time we do not have any cryptocurrency legislation.


I suppose the better option is number 1. The entity can be formed and the Articles allows the company to do any legal business. To ensure nil tax in Nevis, it would be better not to operate the business activities in Nevis, in addition to the fact that cryptocurrency activities are not regulated in Nevis (it would be hard to make a claim if monies are lost).”


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Cayman Islands Fund Options

During the course of the past 20 to 30 years the Cayman Islands, an independent former British Protectorate in the norther Caribbean Sea, has risen to become one of the World’s Premier Fund set up destinations.


Whether you’re looking to set up a Hedge Fund, a non-regulated Closed End Fund or a High End Mutual Fund Caymans provides options.


Fund setups are governed in the Caymans Islands by the Caymans Mutual Funds Law


The said legislation defines a mutual fund as being any company, trust or partnership either incorporated or established in the Cayman Islands, or if outside the Cayman Islands, managed from inside the Cayman Islands, which issues equity interest redeemable or re-purchaseable at the option of the investor, the purpose of which is the pooling of investors’ funds with the aim of spreading investment risk and enabling investors to receive profits or gains from investments.


Regulation of Funds & Fund Administrators


The Caymans Mutual Funds law makes the Cayman Islands Monetary Authority (“CIMA”) responsibility for regulating certain categories of funds operating in and from the Cayman Islands (see Categories of Regulated Mutual Funds below) as well as Fund administrators.


Interestingly not all mutual funds fall within the Regulatory ambit. Certain categories of mutual fund ie Funds that meet the criteria set out in section 4(4) of the MFL are exempt from Licensing/Regulation. All other mutual funds are regulated and must be licensed.


The licensing requirement is coved in section 4 of the act which states as follows:


4. (1) Unless a mutual fund is complying with subsection (3) or is exempted under subsection (4), it shall not carry on or attempt to carry on business in or from the Islands unless —

(a) it is the holder of a Mutual Fund Licence, and it has —

     (i) a registered office in the Islands; or

     (ii) if a unit trust, a trust company licensed under the Banks and Trust Companies Law          as its trustee; or


(b) a licensed mutual fund administrator is providing its principal office in the Islands, and, unless an exemption from this requirement has been granted by the Authority, there is filed with the Authority, in respect of the mutual fund, a current offering document that complies with subsection (6).”


Categories of Regulated Mutual Funds


The following categories of funds must apply for a License in the Cayman Islands:


A Licensed Mutual Fund 

The MFL (Section 4(1)) specifies that a mutual fund operating in and from the Cayman Islands must have a licence unless: a licensed mutual fund administrator is providing its principal office; it meets the criteria set out in Section 4(3), which allows for funds to be registered, or it is exempt from regulation under Section 4(4).

The provisions relating to licensed mutual funds benefit large, well known and reputable institutions, which do not propose to appoint Cayman Islands service providers.


Administered Mutual Fund 

To be approved as an administered mutual fund, the fund must have a CIMA-licensed mutual fund administrator providing its principal office. The regulatory responsibility for the administered fund, which has more than 15 investors and which is not a licensed or registered mutual fund, is placed largely in the hands of a licensed Mutual Fund Administrator.


Registered Mutual Fund 

A Registered Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or the equity interests must be listed on a stock exchange approved by CIMA.


A Master Fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor in the master fund or the equity interests of the master fund must be listed on a stock exchange approved by CIMA.


Common Fund Vehicles


The Cayman Islands has company, trust, partnership and related laws that allow a high degree of flexibility for establishing mutual funds. The four vehicles commonly used for operating mutual funds are the exempted company, the segregated portfolio company, the unit trust and the exempted limited partnership.


Exempted Company - The exempted company may redeem or purchase its own shares and may therefore operate as an open-ended corporate fund. Closed-ended corporate funds can also be established using the exempted company and it is a relatively straightforward procedure to convert from one to the other.


Segregated Portfolio Company - An exempted company can also be established as a “Segregated Portfolio Company” (“SPC”) with protected cells or portfolios. The SPC makes it possible to provide a means for different groups to protect their assets when carrying on business through a single legal entity.


Unit Trust - The unit trust is usually established under a trust deed with the investors’ interest held as trust units.


Exempted Limited Partnership - The exempted and limited partnership provides a second unincorporated vehicle and it can be formed as easily as the exempted company or the unit trust.


Closed End Fund Exemption


Section 4(4) of the Caymans Mutual Funds Law specifically provides that:

“A mutual fund may carry on or attempt to carry on business in or from the Islands without complying with subsection (1) if —

  • (a) the equity interests are held by not more than fifteen investors, a majority of whom are capable of appointing or removing the operator of the fund; or
  • (b) it is a fund, not incorporated or established in the Islands, which makes an invitation to the public in the Islands to subscribe for its equity interests by or through a person who is the holder of a licence under the Securities Investment Business Law (2019 Revision), for a regulated activity specified by the Authority for the purposes of this subsection and —
  •    (i) those interests are listed on a stock exchange (including an over the-counter-market) specified by the Authority by notice in the Gazette; or
  •   (ii) the fund is regulated in a category, and by an overseas regulatory authority, approved by the Authority for the purposes of this subsection.
  • The ongoing supervision of funds and fund administrators falls under the remit of CIMA’s Investments and Securities Division.


Closed-End/Exempted Funds


A Closed End Fund is an investment fund wherein the investor commits to invest his or her money for a set period of time; The investor cannot redeem his /her shares (ie the investor can’t cash out) until the minimum/fixed investment period has expired.


In the case of a Closed End Fund typically a Limited Company is set up (ie a Company Limited by shares); the investor receives shares entitling him/her to take home a percentage of the profits (ie in proportion to the percentage of the company that the investor owns) based on net asset value at the conclusion of the fixed investment period.


A closed-ended fund is most appropriate for investments which typically require a longer period to mature, eg private equity, venture capital, real estate or infrastructure investments.


Exempted funds are mutual funds that are not required to be regulated by CIMA ie where there are no more than 15 investors, the majority of whom are capable of appointing and removing the directors of the fund. (Provided the fund meets the criteria) Closed-ended funds incorporated in the Cayman Islands are not regulated and are not required to obtain a Fund License in the Cayman Islands.


Closed End Fund Companies are often established via a tailored Articles of Association/Constitution which allows the Company to issue 2 different classes of shares ie Class A shares and Class B shares. Class A shares (often called Management Shares) come with both voting rights and the rights to share in profits. Class B shares (often called Equity

Shares or Investor Shares) ony entitle the shareholder to a share in the profits ie they do NOT come with voting rights.


This model of Closed End Fund is most commonly Incorporated in Seychelles or Belize or Nevis because such funds, if incorporated in these jurisdictions, do not fall within the regulatory ambit of the local Mutual Funds Law.


Why Set Up Your Fund In The Cayman Islands?


The Cayman Islands is presently the dominant “Offshore” Fund Jurisdiction. It, reportedly, is home to 75%+ of all new offshore fund formations including nearly half of the World Mutual Funds Industry’s estimated US$1.1 trillion of assets under management.


Why do so many funds choose to call Cayman Islands home? Because the Caymans offers:


  • Political and economic stability
  • No exchange control restrictions
  • Reputable quality professional service providers
  • A huge amount of expertise in the investment fund space
  • World class banks
  • Flexible, modern, quality legislation
  • Commerciality – Cayman regulators are very approachable, flexible, innovative and efficient
  • Affordability – Cayman’s investment fund fee structure is globally competitive, which benefits the manager and the investor with respect to the launch and ongoing operation/ maintenance of the fund.
  • Reputability – The Caymans is on the OECD “White List” and has signed tax information exchange agreements (TIEA) with 19 countries
  • Tax effective outcomes for both Funds and Fund Managers


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How To Use a Tax Free Offshore Company to Invest in a Forex Trading Venture

Investing in a Forex Trading JV is an activity that lends itself well to an “Offshore” Corporate Structuring Plan.


Usually the deal provides that the investor contributes capital and the Forex Trader provides the knowhow, (ie does all the Trading) and profits are split between the Trader and the Investor (ie you) eg 50/50 or 60/40 or 70/30 ie whatever you manage to negotiate.


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 provide)


(c)   Your OC signs a general investment agreement/contract with the Forex Trading Company. This agreement sets out what each party will do and how profits will be shared (and when)


(d)  You advance funds to your OC


(e)  The OC then advances funds to the Forex Trading Company


(f)    The Forex Trading Company invests/trades your money


(g)  The Forex Trading Company pays a return periodically to your OC (eg monthly or quarterly or 6 monthly or yearly).


(h)  Returns paid to your OC will be banked and or reinvested Offshore potentially free from tax


(i)   To minimize the chances of local Controlled Foreign Company laws being applied to your Offshore Company (and or if your local tax man has the power/wherewithall to tax an Offshore Company if you are the “beneficial owner” thereof), ideally, you would not want to be seen to be the beneficial owner of the Company. This can be achieved by deploying a Private Foundation to act as the shareholder of your nil tax Offshore Company.


Note if you need to draw on or utilize these returns at home there are several ways to discreetly go about this (including options potentially with zero tax implications).


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How To Set up a Staff Recruitment Business Tax Free Offshore

With the rise of the digital/global economy – and the greater job choices now on offer as a result of that rise – many businesses are finding it increasingly difficult to find and retain good staff, particularly in specialist or highly skilled fields. Consequently, more and more savvy business owners (in particular internationally focused enterprises) are turning to Specialist Staff Recruitment Agents to help locate & hire key staff.


Such a business model, particularly in the International field, lends itself well to an Offshore Corporate Structuring Plan. Often you’ll see a specialist Staff Recruitment Agency engaged where you have a business located in Company A which needs high skill, or unusual, work done in Country B by a person whose skills transcend and are recognized in (or transferable across) multiple jurisdictions (eg Engineers, CFOs, Lawyers, Geologists, etc) ie the target staff member could potentially come from any country.


Typically, such businesses operate Online. That is The Staff Recruitment Agent has a website, prospective clients and suppliers find the Agent online and contact/communicate with the Agent via email or via the website.


Usually, the Agent is paid a sign on fee once the employee is hired + a percentage of the employee’s earnings during the lifetime of the contract.


To summarize how such a business usually works from “Offshore” is:


  • You (ie The Recruitment Agent) set up a zero tax Offshore Company eg an International Business Company (“IBC”) with a nil tax jurisdiction based “Nominee” Director
  • Ideally your website will be hosted in a nil tax jurisdiction
  • You are appointed as the IBC’s Authorised Representative/CEO/GM (ie as a senior staff member)
  • On behalf of the IBC you negotiate terms with each client to pay your IBC a lump sum fee and or a Commission or Commissions if/when the Client/Employer and Employee sign a contract
  • The Agency agreement/contract is signed Offshore by the Nominee Director (ie the “situs” of the contract is a nil tax jurisdiction)
  • The source of the income is the contract
  • Because the contract was signed offshore, ie 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 a certain way).
  • When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of sales made)
  • 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 potentially 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
  • To minimize the chances of local Controlled Foreign Company laws being applied to your Offshore Company, ideally, you would not want to be seen to be the beneficial owner of the Company. This can be achieved by deploying a Private Foundation to act as the shareholder of your nil tax Offshore Company.


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