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Cayman Islands VASP (Virtual Asset Service Provider) Regulations REVIEWED

Are you looking to do a Crypto token launch?

Would you prefer to domicile your venture in a jurisdiction that offers your investors the comfort and certainty of Regulation?

If so, you might want to take a close look at applying for registration in the Caymans Islands as a Virtual Assets Service Provider.

Overview

In the Cayman Islands, the Virtual Assets (Service Provider) Act defines virtual assets as follows -

“a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies.”

The Cayman Islands VASP Act regulates the following “virtual asset services”.

A “virtual asset service” is defined as - the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a natural or legal person or legal arrangement —

(a) exchange between virtual assets and fiat currencies;

(b) exchange between one or more other forms of convertible virtual assets;

(d) virtual asset custody service; or

(e) participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset (e.g. market making).

(f) operating a virtual asset trading platform

A company issuing virtual assets (other than private sales) or undertaking any of the above services would need to register with the Cayman Islands Monetary Authority (CIMA) (registered person).

If the company operates a virtual asset trading platform or provides custody services, it would eventually be required to obtain a full license (licensing scheme has not commenced yet, currently in consultation period).

Requirements

The VASP law provides for certain general requirements for registered persons, such as the approval of senior officers, trustees, AML officers by CIMA, approval of transfer of equity interests, periodical AML regulatory audits, preparation of financial statements, and independent annual audits to such statements, among others. It also provides specific requirements for each type of virtual asset service activity.

Documents required for the business are as follows -

· Business Plan
· AML/KYC Manual Policies and Procedures
· Cyber Security Program Policy
· Customer Private Key Storage Policy (if applicable)
· Risk Management Policy (if applicable)
· Internal Safeguards and Data Protection Policy
· Auditor Consent Letter

Forms to be Completed are as follows -

· AML/CTF Inherent Risk
· VASP Registration Application

The company must appoint an AMLCO, MLRO and DMLRO that -

· holding university degree in relevant area (e.g. law, finance, business, etc)
· having qualifications such as ACOI, LCOI or ACAMS or equivalent
· 3 to 5 years of experience in compliance departments, preferably experience in similar businesses or same industry

If you would like to drill down into the details you might want to take a look the AML guidance notes from CIMA which expand on the responsibilities of the officers - https://www.cima.ky/upimages/commonfiles/GuidanceNotesonthePreventionandDetectionofMoneyLaundering,TerroristFinancingandProliferationFinancingintheCaymanIslands-5JUNE2020_1591983049.pdf

The company will also need to appoint an auditor prior to submitting the application.

Further documents and requirements may apply depending on the virtual asset service provided.

Government Fees

There is a non-refundable CIMA fee of KYD$1,000 (approx USD 1,220). If the application is approved, an annual fee to CIMA will apply which ranges from KYD1,000 (approx USD 1,220) to KYD 15,000 (approx USD 18,293) depending on a number of factors. You can find the fees on page 12 https://www.cima.ky/upimages/lawsregulations/VirtualAssetServiceProvidersRegulations,2020_1603983073.PDF (note that the fees are in KYD, not in USD).

Generally, foundation companies whose objects are to participate, promote, develop or otherwise operate for the benefit of a DAO do not generally fall under the VASP Act. It is a matter to assess whether any proposed Caymans Foundation will carry out any virtual asset service, as described above.

Other jurisdictions that you could consider applying for a VASP license (ie that have VASP legislation) would be:

The BVI – Check this link for details: https://offshoreincorporate.com/bvi-virtual-asset-service-providers-vasp-act-reviewed/

Mauritius – Check this link for details: https://offshoreincorporate.com/how-to-launch-an-ito-initial-token-offering-in-mauritius/

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.

Samoa International Business Companies

Samoa (formerly Western Samoa) is a group of lush tropical islands in the middle of the South Pacific, located approximately halfway between Hawaii and Sydney Australia, is 2,842 sq. km in size and with a population of circa 215,000. The legal system of Samoa is based on English Common Law and includes a sizeable body of New Zealand statute law, on account of New Zealand having administrative power over Samoa prior to independence. Whilst local Polynesian is the predominant first tongue English is the language of Government and Commerce.

The Samoan International Companies Act passed in 1987 provides for the incorporation of Samoa international companies, the redomiciliation to Samoa of existing companies, and for the incorporation of U.S. style limited life companies. With a solid Corporate Law, a history of political stability since independence and a sophisticated international satellite telecommunication system Samoa is a popular location for incorporation of tax free International Business Companies.

Feature and Benefits of Samoan International Companies Include:

• Nil Corporation or Business Tax is levied

• Chinese character names may be registered.

• Chinese character memorandum and articles of association may be filed.

• An international company is not required to have a share capital (“Creditor Controlled” companies).

• There is no minimum share capital requirement or capital duty on share capital.

• Redemption of shares and reductions of capital can be effected simply and quickly and without the necessity of a court order.

• A company may finance the purchase of its own shares.

• A company may repurchase and cancel its own shares.

• Company registration may be for periods of one, five, ten or twenty years in advance, with discounted fees (annual registration renewals are due on 30 November).

• In the absence of a public offer, shareholders can resolve not to have the accounts audited and not to hold annual general meetings.

• Annual returns do not have to be filed.

• Only one director and one shareholder is required.

• Particulars of directors and secretaries do not have to be filed.

• Accounts do not have to be filed.

• Provision can be made for alteration of the memorandum and articles of association by directors’ resolution.

• Meetings may be held by telephone, closed circuit television or other audio or audio-visual means.

• Annual meetings are not required, but if held, need not be held in Samoa.

• Directors’ and shareholders’ resolutions may be passed by circulating written resolutions (including facsimile copies) for signing.

• An international company need not have directors resident in Samoa.

• The use of a common seal is optional for execution of documents.

• The Companies office is subject to strict confidentiality provisions.

• Companies can be redomiciled into or out of Samoa.

• Companies can be liquidated. There is also a straight forward striking-off procedure.

• Speedy Incorporation – 2 to 3 days max

• Has not signed Tax Information Exchange agreements with either the US or the UK (and only with no EU members save for The Netherlands & Ireland)

Samoa Companies Accounting Records Compliance Requirements

Every company incorporated in Samoa is required to keep and maintain financial records:

(a) to disclose the current financial position of the Company;

(b) to enable the directors to check that any accounts prepared by the Company comply with the laws of Samoa;

(d) to detail the following;

(i) all sums of money received and expended and the matters in respect of

which the receipt and expenditure takes place;

(ii) all sales and purchase and other transactions; and

(iii) the Company’s assets and liabilities, or other arrangements; and

(e) for a period of at least 7 years from the completing of the transactions or

operations to which they relate.

Additionally, the Company must inform its Samoa Registered agent in writing of the location where the accounting records are to be kept.

OCI SAMOA COMPANY INCORPORATION SERVICES

At OCI we believe in giving you more for your money than would the average IBC formation service. Hence included in the incorporation package for your Samoan Company is the following:

SERVICES:

• Unlimited name availability inquiries

• Advice from an experienced International Lawyer on how to structure your company

• Preparation (overseen by a lawyer) of application to incorporate the company

• Preparation (overseen by a lawyer) of the company’s memorandum of association

• Preparation (overseen by a lawyer) of the company’s articles of association

• Attending to filing incorporation request with the company registry

• Attending to payment of government filing fees

• One year’s Registered Agent service in the country of incorporation

• One year’s Registered Office service in the country of incorporation

• Mailing address in the country of incorporation

• Delivery of Incorp pack by international courier (ie DHL/Fedex/TNT etc)

• Unlimited free legal consultations for 12 months

DOCUMENTS INCLUDED IN YOUR INCORP PACK:

• Certificate of incorporation

• 2 sealed/stamped copies of the company’s Memorandum of Association

• 2 sealed/stamped copies of the company’s Articles of Association

• Resolution appointing first director/s

• Resolution appointing first shareholder/s

• Up to 5 share certificates

• Resolution to open a bank account

• Resolution to rent an office

• Resolution/s to engage a Phone, Internet & Website service provider

• Resolution to hire a staff member/s

• Resolution to appoint a company lawyer

• Resolution to appoint a company accountant

• Resolution appointing you as the company’s authorised business representative

• Resolution issuing a Power of Attorney in your favour

• Agreement authorising you to represent the company in commercial negotiations

• Power of attorney authorising you to sign documents on behalf of the company

• Register of directors

• Register of shareholders

• Expression of wishes (ie an “Offshore” Will)

• Lawyer authored User Guide (“How to Use Your Offshore Company”)

Price (all inclusive): $US 1,500

With tax effective offshore company management (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): + $800

From 2nd year $US $US990 (+ nominees if required)

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

HOW TO SET UP AN ONLINE BASED SERVICES BUSINESS “OFFSHORE”

Do you offer and deliver services online and or to an International Clientele?

Tax Free Offshore Companies are commonly used to own/operate online businesses.

In principle here’s how it can work:

A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
You design/launch a website which is owned by the Offshore Company
The IBC also owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
The website ideally would be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
Your clients find you and/or contact you via the web
The IBC is seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This may be achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
Your standard sale agreement/website terms and conditions should provide (a) that a contract is not formed until the customers offer is accepted by you (ie the Offshore Company) and (b) that the source of the income is the contract. Before the client clicks buy he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email to the buyer, after he/she has paid online; In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply services in consideration of the buyer paying), at law, is formed is the Director’s location ie a nil tax environment…
Hence the income – from which the contract of sale is the source – has been/is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes a contract of sale at law)
The Services that your Company has been contracted to provide are then delivered online.
An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a banking centre that does not tax bank deposits or interest paid by banks on bank deposits
Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
(If you need a regular income) 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 expenses as tax deductions/write offs against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax that would otherwise be payable on this income (Assessable Income less Allowable Deductions = Taxable Income)
Ideally once you start to grow, and to add substance, you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).

As alluded to, in order to minimize the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a (nil tax jurisdiction based) “Nominee” Director as part of the Corporate structure. See these pages for details of how that can work:

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

http://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/

Ideally – so you can swear on oath in the event of a law suit tax investigation, or regulatory inquiry – I am not the beneficial owner of this Company, you will probably want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such regs).

The end result? With such a bespoke legal/admin structure in place (a) Vultures should not be able to get their claws into any assets/income streams owned by the Offshore Company and (b) you should only be liable to declare/pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your Offshore Company’s earnings you should be able to accumulate, and or reinvest, Offshore in a nil tax environment. Tax should only be payable when you sell the business (unless at that time you’re living in a nil tax country) enabling you to grow your capital far quicker during the lifetime of your business thanks to the power of compounding.

Similarly, if a service you provide doesn’t meet a client’s expectations and the client tries to sue you the good news is your personal assets should not be at risk – as the client has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent to potential claimants (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!)

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

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How to use a Foundation as a DAO Legal Wrapper

In the Web3 industry, some DAO founders probably (wrongly) assume that if the DAO Treasury is on-chain and its management is carried out by on-chain voting, the DAO won’t require any legal structure. However, in an unregistered DAO, the community of members can potentially be recognized by Regulators or the Courts as an unregistered General Partnership.

At law the Partners in a Partnership are jointly and severally liable for the debts/liabilities of the Partnership. If a DAO is established/operates as an unregistered General Partnership then each member is exposed – ie unlimited legal liability can attach to each member. Consequently, if regulators, tax authorities, or business partners/suppliers have concerns about the legality of certain activities undertaken by the DAO, and can establish the liability of at least one member of the DAO, liability can extend to DAO assets AND to all the Members property/assets ie all the DAO members may be recognized as responsible for the actions (or inactions) of the DAO as a whole.

There are several legal structures one could potentially deploy as a DAO Legal Wrapper. This Article looks at how a Private Foundation might be so deployed.

Foundations – Background

A Foundation is a legal entity in its own right ie it can sued and be sued. To protect proposed DAO members from unlimited liability, savvy Web3 founders often look to the registration of a Foundation as a “legal shield” for DAO members. In case of regulatory investigation, it will act as a “legal representative” for the community of the DAO members and protect them from the risks of unlimited liability.

A Foundation is a 3 headed creature and (like a Company) is a separate legal entity. Unlike a Company however it doesn’t have the typical top-heavy Director focussed hierarchal management structure.

A Foundation:

Is set up by a Founder/s
Is managed day to by a Councillor or a board of Councillors
Is either set up to fulfil a specific purpose or it has nominated beneficiaries ie persons or a class/es of persons who are designed to benefit financially from the set-up/actions of the Foundation

Whilst the day to day decision making responsibilities of a Foundation lie with a/the Councillor/s in the first instance, the beauty of a Private Foundation is that Councillors rights can be reserved to the Founders (and a Founder can assign rights as reserved to him/her to any third party). Hence the Founders of a Foundation can appoint an independent management board but yet control the board by retaining/exercising reserved voting rights.

Functions of a DAO Foundation

As you may know a DAO legal wrapper typically holds the DAO treasury, protects DAO members from unlimited liability, and permits DAO members to vote. A DAO that has been ‘legally wrapped’ is often more attractive to investors as a DAO with a strong legal framework is less likely to face difficulties with issues of liability, non-compliance with regulation, and ineffective treasury management.

All in all, in a DAO structure, a Foundation typically performs three main functions:

It acts as a liability wrapper to protect the DAO members from unlimited liability for the DAO’s activities;
It works as a governance overseer – every Foundation must create a Constitution (commonly known as a Charter) which documents a set of rules governing the Foundation’s operations; and
It acts as a Compliance manager for the DAO Treasury to implement AML etc measures and to supervise their realization in the process of disposing of the DAO Treasury.

Operational Flexibility

Where a Foundation is deployed as a DAO Legal wrapper each member of the DAO can act/be appointed as a Founder and/or as a Councillor of the Foundation (and be nominated as a beneficiary, see below) – delivering voting rights – with voting carried out online via execution of smart contracts.

Management & Control of a Foundation in the first instance lies in the hands of the Foundation Council (& a Foundation which is seen to be managed/controlled onshore can be taxed onshore). A Foundation can have multiple Councillors or just one councillor. In cases where a/the DAO Foundation is looking to turn a profit – and members wish to preserve tax planning possibilities – a “Nominee” Foundation Councillor (ie resident in a nil tax jurisdiction) could be deployed and the DAO members appointed via contract as the Foundation councillor’s investment advisers. Members would vote on any proposed activity and the result of that vote would be tendered to the Councillor/s – who could be required by the Foundation’s Constitution/Charter to only make financial decisions based on such advices.

More particularly, if the DAO structure is reasonably straight forward (and, again, if the DAO is looking to generate a profit) then you should be able to use a Foundation wherein the governance token holders are nominated as a class of beneficiaries. In this case the members would have to agree to abide by the DAO constitution and operating rules which will in effect “marry” the corporate structure with the DAO operations.

In our experience historically Caymans Foundation Companies have commonly been deployed as DAO Legal wrappers. However, with the advent of restrictive VASP rules in the Caymans lately we are seeing Panama and Seychelles Foundations being commonly deployed to act as DAO Legal wrappers.

For detailed information in regards to Seychelles and Panama Foundations check these Links:

https://offshoreincorporate.com/seychelles-foundations/

https://offshoreincorporate.com/panama-tax-free-foundations/

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

BVI Virtual Asset Service Providers (VASP) Act – REVIEWED

The British Virgin Islands (“BNVI”) has recently revised its laws to provide that any entity wishing to provide virtual asset services in or from within the BVI is now required to be registered by the BVI Financial Services Commission (FSC).

New entities must register with the FSC before commencing any VASP activities. VASPs already operational when the VASP Act came into force will have until 31 July 2023 to submit an application to the FSC, or to cease its VASP related activities. After this date, the VASP Registration Guidance confirms that all VASPs that have not submitted applications for registration will be considered to be conducting unauthorised business and subjected to the full enforcement mechanisms of the FSC.

When the FSC approves a VASP application, it will register the applicant, issue a certificate of registration and impose such conditions (if any) on the registration as it considers appropriate (including a requirement to obtain professional indemnity insurance).

With regard to timing, the VASP Registration Guidance helpfully records that (i) the FSC will endeavour to process an application and provide initial comments within six weeks from the FSC’s receipt of a completed application and (ii) the FSC’s service standard requires that the application process be concluded within six months from the initial submission date. Prospective applicants will therefore be able to take some comfort that they will receive an early indication of the likelihood of success and overall processing within six months.

The VASP Act defines a “VASP” as a virtual asset service provider who provides, as a business, a virtual assets service and is registered to conduct one or more of the following activities or operations for or on behalf of another person:

exchange between virtual assets and fiat currencies;
exchange between one or more forms of virtual assets;
transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
safekeeping or administration of virtual assets or instruments enabling control over virtual assets;
participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset; or
perform such other activity or operation as may be specified in the VASP Act or as may be prescribed by regulations.

A person engaged in any of the following activities or operations, for or on behalf of another person, will be deemed to be carrying on a virtual assets service:

hosting wallets or maintaining custody or control over another person’s virtual asset, wallet or private key;
providing financial services relating to the issuance, offer or sale of a virtual asset;
providing kiosks (such as automatic teller machines, bitcoin teller machines or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or
engaging in any other activity that, under the Guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.

Whether an entity is carrying on a virtual assets service will turn on, inter alia, whether the asset in question constitutes a “virtual asset” (as such term is defined in the VASP Act). For example, crypto based derivative products would require more careful consideration and may be caught by one or both the VASP Act or the Securities and Investment Business Act (“SIBA”).

Decentralised protocols that fall within the definition of virtual asset services above will also likely be subject to the VASP Act although specialist advice is required. In this regard we note that the VASP Registration Guidance makes reference to decentralised finance platforms, the sale of non-fungible tokens and the operation of peer to peer financing platforms as being activities and operations which may fall within the VASP Act where they satisfy the conditions of the VASP Act.

A VASP application for registration must be made in the FSC’s approved form and be accompanied with the following information and documentation:

Details of the proposed directors, senior officers, shareholders, beneficial owners, auditor and authorised representative of the VASP, with the ownership structure to be supported by a register of members and an ownership structure chart which evidences the breakdown of percentages held in the legal structure;
A business plan in relation to the VASP, containing; (a) details of the knowledge, expertise and experience of the applicant, (b) information about the nature, size, scope and complexity of the VASP, (c) information about how the VASP will be marketed and the expected source of business, (d) the anticipated human resource capacity of the VASP, (e) any planned outsourcing arrangements and (f) an indication of the initial financial and capital projections of the VASP covering the first three years of operation (applicants must be able to demonstrate an adequate level of paid-up capitalisation and adequate liquidity reserves for the nature of their operations);
A written risk assessment of the VASP;
A business continuity plan;
A written manual showing how the applicant, if granted registration, intends to comply with the requirements of the VASP Act;
Details of the internal safeguards and data protection (including cyber security) systems intended to be utilised;
Details of the system to be put in place on how the VASP will implement to handle client assets, custodian relationships and complaints; and
Declarations, completed by each of the applicant and the authorised representative, affirming that the information provided to the FSC in relation to the application is true and accurate.

An entity wishing to provide Virtual Assets Custody Services or to operate a Virtual Assets Exchange (as such terms are defined in the VASP Act) need to provide additional information and confirmations to the FSC, which are primarily intended to evidence the VASPs ability to safeguard client assets and to mitigate against the heightened risk of money laundering and terrorist financing.

Subject to certain exceptions, a VASP must have certain functionaries appointed at all times. Directors and Senior Officers, Authorised Representative, Auditor and Compliance Officer along with a BVI legal Practitioner.

The VASP Act sets out a number of on-going obligations for VASPs which include:

Maintaining records that (a) are sufficient to show and explain its transactions, (b) enable its financial position to be determined with reasonable accuracy, (c) enable it to prepare all necessary financial returns and statements, (d) enable its financial statements to be audited, (e) show any complaints made by clients and (f) show the steps it takes to guard against money laundering, terrorist financing and proliferation financing;
Submitting a copy of its auditor’s report to the FSC within 6 months of the end of its financial year;
Ensuring that client assets are identified, or identifiable, and appropriately segregated and accounted for;
Co-operating with the FSC to ensure compliance with the VASP Act, and providing the FSC with any documents or information it may require to discharge its functions; and
Obtaining the FSCs prior written approval to any proposed change of name, disposal of any significant interest in the VASP or changes to its functionaries.

The fees payable to the FSC in respect of a VASP application for registration under the VASP Act are confirmed in the Guidelines and summarised as follows:

US$10,000 for an application to provide Virtual Assets Custody Services
US$10,000 for an application to operate a Virtual Assets Exchange
US$5,000 for any other virtual assets services.

ACTIVITIES NOT CAUGHT BY THE VASP ACT – Out of scope services

The VASP Act is not intended to regulate the technology that underlies virtual assets or VASP activities and helpfully sets out a range of services which are not subject to the VASP Act, namely:

providing ancillary infrastructure to allow another person to offer a service, such as cloud data storage provider or integrity service provider responsible for verifying the accuracy of signatures;
providing service as a software developer or provider of unhosted wallets whose function is only to develop or sell software or hardware;
solely creating or selling a software application or virtual asset platform;
providing ancillary services or products to a virtual asset network, including the provision of services like hardware wallet manufacturer or provider of unhosted wallets, to the extent that such services do not extend to engaging in or actively facilitating as a business any of those services for or on behalf of another person;
solely engaging in the operation of a virtual asset network without engaging or facilitating any of the activities or operations of a VASP on behalf of customers;
providing closed-loop items that are non-transferable, non-exchangeable and which cannot be used for payment or investment purposes; and
accepting virtual assets as payment for good or services (such as the acceptance of virtual assets by a merchant when effecting the purchase of goods).

In addition, it is worth noting that, whilst not expressly excluded, the issuing of virtual assets in or from within the BVI is not an activity regulated by the VASP Act. However, care is needed as financial services related to an issuance may be caught by the VASP Act and if the virtual asset is considered an ‘investment’ under the SIBAct there may be further considerations to address. Indeed, just because the issuance of a virtual asset from a BVI entity may not be regulated under the VASP Act does not mean that other regulatory regimes can be ignored.

Any entity carrying on virtual asset services without being registered under the VASP Act is liable on conviction to a fine of up to US$100,000 and/or 5 years imprisonment (for any director, partner or senior officer who knowingly authorised, permitted or acquiesced in the commission of the offence).

OCI’s Service Fees re VASP applications:–

Providing an Authorised Representive in the BVI – $US2,600annually
Company Formation: From $1,350
Professional fee for an application to provide Virtual Assets Custody Services: US$6,750
Professional fee for an application to operate a Virtual Assets Exchange: US$6,750
Professional fee for any other virtual assets services. US$3,300

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

DAO Legal Wrappers – The Wyoming DAO LLC

In previous articles (see below) we have examined in detail the merits of deploying a Caymans Foundation Company and a Marshall Islands DAO LLC as a Legal Wrapper for any new DAO (Decentralized Autonomous Organization). The purpose of this article if to shine a light on a third option ie the Wyoming DAO LLC.

As previously discussed most legal systems would consider a DAO to be a Partnership with the DAO members being considered as defacto Partners. Whilst a Partnership acts as a flow through entity (ie a Partnership doesn’t pay tax – it passes on nett profits to members who then report income/pay tax on their share of Partnership profits as/if applicable) the downside of a Partnership is if ever sued the Partners would be jointly AND severally liable for any judgment debt as may arise.

Hence if you want to add legal certainty to your DAO (which would be attractive to certain kinds of investors/suppliers) and if you want to minimize the chances of members being forced to pay the DAOs debts it would be wise to create a Legal Wrapper for your DAO.

The Wyoming DAO LLC – Overview

Since decentralized autonomous organizations (DAOs) were given the same rights as limited liability companies (LLCs) in Wyoming, the blockchain and cryptocurrency industries are seeing this as a game changer in business formation and business ownership.

People forming DAO LLCs will now get the best of both worlds. The LLC model offers benefits like limited liability for its owners while having the democratized voting structure of a DAO where all members have a voice.

Most Companies issue shares have shareholders. An LLC is a form of Company which (rather than having shares) issues Membership Units that deliver certain rights, not unlike shares. Moreover an LLC is considered to be a Partnership (ia a flow through entity, see above) and not liable for Company tax.

Since DAOs in Wyoming have been given the rights of LLCs, these organizations will have the same benefits and will be established in a similar manner. You’ll enjoy these benefits if you create a Wyoming DAO LLC:

1. Protect Your Assets

LLCs, on their own, are very popular since they offer limited liability to its owners. With a DAO LLC, you get the same benefit, which can be even more appealing since the organization is only run by its members rather than owners/partners.

Limited liability is a great thing to have since any legal troubles the organization runs into won’t affect your personal assets. For example, if the organization gets sued, the members’ personal assets can’t be used to pay off debts.

2. Easy Document Drafting

Setting up a DAO LLC from scratch can be relatively easy. With a regular DAO, you’d typically start the process by creating a mission statement where the organization’s structure and its features are detailed. Things will play out differently, and maybe even easier, for a DAO LLC.

We hate to sound like a broken record, but it bears repeating that DAO LLCs will follow a typical LLC business model for the most part. And your document drafting process will start with creating Articles of Organization, which we’ll go into detail a little later.

3. Avoid Double Taxation

Like the Articles of Organization, a DAO LLC’s taxes will be handled similarly as a regular LLC.

LLCs avoid double taxation, meaning the company and the owners aren’t taxed separately. This is great since it can save you money, time, and paperwork. Since DAOs in Wyoming will follow the LLC structure, their taxes work the same way.

This is a huge plus since regular DAOs are presently (as of March 2022) in a grey area when it comes to how they pay taxes. Not so with DAO LLCs.

The organization’s profits will be taxed only once through each member’s individual income tax return. And, as a cherry on top, the organization’s members may qualify for a 20% deduction of their business income thanks to the Tax Cuts and Jobs Act of 2017.

4. Simple to Establish

The great thing about starting a DAO in Wyoming is that it will follow the LLC structure. LLCs are very popular with business owners since they offer some benefits like limited liability, appealing tax features, and an easy startup process.

In Wyoming, the process of starting a DAO LLC will be the same as starting a regular LLC. This includes mostly the same fees and steps needed to establish one as you would an LLC.

There will be a few minor differences, though, like choosing the “Decentralized Autonomous Organization” option as the additional designation for your LLC.

The Wyoming Secretary of State’s website has a complete list of FAQs for setting up a DAO LLC.

5. All Members Have a Voice

A DAO LLC’s structure can be identified as democratized. This means that each member of the organization can vote for changes to be made in how it operates, how it does business, or other functions.

In a corporation, for example, only the board of directors handles these decisions by voting on them. With a DAO LLC, things work in the opposite direction.

No one single person or group of persons do this, and it’s left up to the members of the DAO LLC. This gives everyone a voice through a vote.

6. Full Transparency

Unlike a regular LLC where the business’s inner workings are typically left for the owners to know, a DAO LLC’s members are always kept in the light about the organization’s functions.

This is a huge plus if you’re going into business with people you need to trust. Since DAOs involve people working together through the internet, 100% transparency is needed. The basic DAO model offers this, and it’s the same with a DAO LLC.

The organization’s code (that we’ll talk about later) is fully trustworthy, transparent, and verifiable to all members at all times. The only way the code can be changed is by a vote, meaning all members will be aware that a change is being considered.

7. Opportunity to Become an Industry Trailblazer

DAOs and DAO LLCs are new compared to other business types. Today’s internet users and younger generations consider DAOs to be the future of business. Wyoming is already on the forefront for making them legal entities, and DAOs appear to be picking up steam across the country. Starting one now may be the innovative move that’s right for you.

DAO LLC CONSIDERATIONS

Articles of Organization

With a DAO LLC, you’d be drafting Articles of Organization, which can be much easier since most of these documents follow the same drafting process across all 50 states. This includes adding information like the DAO LLC’s name, identifying its owners, etc. OCI can/will assist you to draft these Articles. Note that the Articles of Organization should state that the LLC is a DAO. You’ll also need to file these articles with the Wyoming Secretary of State.

Meeting Necessary Requirements

Also remember that since your DAO will use the LLC legal entity status, it will need to meet certain requirements as stated in the Wyoming DAO law. For example, it must have a registered agent (a service OCI Can provide as we hold a Wyoming Corporate Service Provider Sublicense)

Wyoming DAO LLC History

Wyoming officially recognized DAOs, specifically DAO LLCs, as a legal business entity on July 1, 2021. This business type is the first of its kind, paving the way for future business owners to see just how beneficial the structure is.

If you’re familiar with LLCs, then you might be wondering what the point of merging one with a DAO model is. Both have their upsides, and combining them can be something that could bring a handful of benefits like the ones we went over above.

The Wyoming DAO LLC as a DAO Legal Wrapper

Most online guides on the Wyoming LLC for DAO incorporation provide only the information on registering the company as a Wyoming LLC for DAO purposes. It’s hard to use this information to make an informed decision on whether to choose this option for your DAO or whether they may be more suitable options offered by alternative jurisdictions.

We’ve created this guide to help you decided whether a Wyoming LLC could work for you as a DAO Legal Wrapper and also to help you better understand how it works for a DAO from a legal standpoint.

Why might Wyoming work for your DAO?

Like the Marshall Islands, Wyoming has drafted a special regulation for DAO, under which a DAO can be established in Wyoming in the form of an LLC, with certain characteristics. From our point of view, the advantages of this US jurisdiction include:

The flexible legal system of the U.S. common law;
Easy and relatively inexpensive establishment process;
Quick setup—a company can be registered in as little as 2 weeks;
Your project will be structured in the U.S., which is considered an investment Mecca;
Wyoming offers one of the first working legal regulations for a DAO wrapper;
Limitation of personal liability: the DAO LLC members are not personally liable for the LLC’s debts or legal liabilities;
No Corporate tax: LLCs have a “pass-through” taxation system: the DAO LLCs receive “pass-through” treatment allowing allocated profits to be taxed only once on each member’s individual income tax return; and
Less bureaucracy and paperwork as the registration process is very simple with minimal documentation required.

However, establishing a DAO LLC in Wyoming for the purpose of creating an investment DAO is not considered a great option due to the strict securities regulations in the U.S. There is a risk that your token (if publicly issued) will be deemed as a Security by the U.S. Securities and Exchange Commission. Instead, the Wyoming DAO LLC is usually recommended as a pure governance DAO for your project, due to the transparent and specifically designed regulation.

How does a Wyoming DAO LLC work?

The main concern with a DAO is that your DAO, if you have no proper legal wrapper, could be recognized as a general partnership, exposing its members to personal liability for any of the DAO’s actions and obligations. At the same time, an LLC is a recognized legal/business structure in the U.S. (and throughout the world) that protects its owners from personal responsibility for the company’s debts or liabilities.

Management of the DAO LLC must be vested in its members (similar to the classical model of LLCs) if it’s member-managed, or in the smart contract if it’s algorithmically managed (similar to the classical DAO model, where decision-making is encoded in the protocol).

No member of the DAO LLC shall have any fiduciary duty to the organization or any member with the exception that members shall be subject to the implied contractual covenant of good faith and fair dealing or unless otherwise specified in the articles of organization or operating agreement. Fiduciary duty requires that a particular person works in another person’s best financial interest in certain circumstances. For example, directors of corporations (or managers of LLCs) are charged with certain fiduciary duties in fulfilling their managerial responsibilities. The primary duties are the duty of care and the duty of loyalty. In the case of a DAO LLC, the members have no such duties to the DAO LLC and, therefore, have more freedom for their business activity.

How does decentralized governance work in a Wyoming DAO LLC?

Articles of organization and smart contracts take the role of the operating agreement in the DAO LLC in terms of what they govern. But, to the extent the articles of organization or smart contract do not otherwise provide for, an operating agreement may supplement the operation of the DAO LLC. Under the applicable law, an algorithmically managed DAO LLC may only form if the underlying smart contracts can be updated, modified or otherwise upgraded.

The articles of organization and the operating agreement of the DAO LLC are effective as statements of authority. Where the articles of organization and operating agreement conflict, the articles of organization shall take precedence over any conflicting provisions. But where the articles of organization and smart contract conflict, the smart contract shall take precedence over any contradictory provisions of the articles.

Taking this into account, it is wise to very clearly and very consistently “build” the governance and management provisions in all the constitutional instruments of your DAO LLC: smart contract, articles of organization, and operating agreement.

Each article of organization of the DAO LLC must contain certain statements about DAO, the wording of which you may find in the special regulations for DAOs. It must also include information on:

the rights and voting rights of members;
transferability of membership interests;
relations among the members and between the members and the DAO LLC; and
activities of the DAO LLC and the conduct of those activities, etc.

Registering a Wyoming LLC for DAO

First of all, a DAO LLC may be formed by either establishing a new legal entity or converting an existing LLC to a DAO LLC by amending its articles of organization to include the statement provided for in the relevant regulation.

Any person may form the DAO LLC (which must have at least one member) by signing and delivering one original and one exact duplicate or verified copy of the articles of organization to the secretary of state for filing. The person forming the DAO LLC should not be a member of the DAO LLC. You can deliver these documents either online or by mailing the paper form. Each DAO LLC must also have a registered agent.

Getting started with your DAO Legal Wrapper

If you need a Legal Wrapper for your DAO and are planning, among other things, to accumulate profits or distribute them among DAO members, you may want to consider Wyoming as an option. The main benefits of this jurisdiction are investment attractiveness, simplicity, speed, and flexibility.

You might also like to check out the Wyoming Secretary of State FAQs re DAO LLCs: https://sos.wyo.gov/Business/Docs/DAOs_FAQs.pdf

Cost Estimator:

Set up: $US1,400

From 2^nd year $990

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

LEGAL WRAPPERS FOR DAOs

There has been considerable conjecture in the legal academic world over the course of past year or two about how a DAO would be treated in the event of one ever being sued. Given a DAO is in effect an unincorporated association (and notwithstanding that members aren’t always in plain view) the core weakness of a traditional DAO is that, if it were to be successfully sued, all the members of the DAO would be jointly and severally liable for the judgment debt arising.

If you are looking to form/set up a DAO you will want to give considered thought to setting up a legal structure (a “Legal Wrapper”) to protect the DAO’s members from legal liability.

This article examines the options currently available in the International Market place for such Legal Wrappers.

How does a DAO work?

A DAO is a Blockchain structure (like a secure database), that any member can leverage to self-govern through participation; A DAO sets rules – baked into code – and permits voting through digital tokens (a form of cryptocurrency) — all while leveraging smart contracts. Only that DAO’s Token holders have the power to vote.

In essence, a DAO allows groups of participants to create organizational forms beyond the hierarchical, top-down corporate firm (which must be responsive to the needs of a board and shareholders). DAOs essentially eliminate or minimize the roles of executives and managers in the organization, relying instead on transparent rules that apply to all members and participants.

The primary aim behind the creation of a DAO is to create a virtual entity to replace the central management of previous forms of organization. A decentralized autonomous organization (DAO), is an organization, particularized by rules encoded as a computer program, that is transparent, and controlled by the organization members. In terms of decision making a DAO is, in effect, unable to be influenced by any outside party including any central government.

DAOs are particularly prevalent in the Ethereum blockchain ecosystem, combining ideas about organizational forms, coordination, network effects, blockchain, and smart contract technology. A DAO allows a group to organize around a mission or goal and to coordinate the mission via smart contracts, enforced immutably and autonomously on the blockchain. DAOs represent an evolution in how people coordinate with one another, as the organization itself is autonomous from any third party intermediary’s influence and goals.

The main reason a DAO is formed is to decentralize and automate the governance of an organization. The rules by which a DAO operates are encoded as a computer program that is accessible via the blockchain, and controlled by all of the organizing members, rather than by a central governing board. Since the blockchain is essentially a public record, the DAO seeks to provide total transparency, requiring that all of its financial transaction records be recorded by a public facing blockchain. There is no top-down hierarchal structure to a DAO; A DAO depends almost entirely on the operation of autonomous smart contracts to enliven the rules and carry out the decisions made by/within the organization.

How to Form a DAO

There are typically a number of steps involved in the formation of a DAO. You’ll need to

Define the structure of the project eg What do you expect your DAO will achieve? What are your goals?
Decide on the type of DAO you want to create (eg a Grant DAO? Or an Investment DAO? Or a Social DAO? Or a Collector DAO? Or a Media DAO? Or an Entertainment DAO? Or a Philanthropy DAO?)
Decide what features are to be included in the Tokens that you issue to persons wanting to be part of your DAO (eg Voting rights, Incentives/rewards, Executive participation opportunities etc)
Create your DAO (there are several DAO startup templates one can access on the Blockchain + tools are also available in the market to help you. They can help in ascertaining the legal infrastructure of the DAO, DAO coin minting, Building teams, Finding members etc)
Encode your rules: Get your DAU rules encoded in a smart contract (which renders the rule immutable/unable to be changed). Rules can be encoded using easy to purchase DAO tools or by simply hiring a blockchain developer to do it for you
Create your DAO Treasury (After you’ve completed your DAO token’s ICO supply and allocation, it’s essential to guarantee that you can secure the collected funds. There are now numerous popular east to access DAO Treasury Tools including Gnosis Safe- Platforms, Juicebox- Juicebox, Llama, Parcel, Utopia etc
You’ll need to decide on what Governance tools you want/need (eg you’ll need to implement systems for holding discussions, conducting voting, and managing funds and for depositing/managing/lending governance tokens etc).
You’ll need to create a community (a trustworthy, independent community is the strongest pillar of a DAO ecosystem. An interactive, engaged, and strong community can help in the constant expansion of the DAO project. Moreover the success of a DAO project largely depends on how freely the community is able to participate in the decision-making and management of the DAO project).

There are a ton of resources out there that can help you sort out the above and more. Here are some examples:

https://blog.liquid.com/create-dao

https://www.blockchain-council.org/dao/how-to-create-run-a-dao-a-comprehensive-guide/

https://academy.binance.com/en/articles/how-to-create-a-dao

https://sensoriumxr.com/articles/how-to-create-a-dao

I’m guessing you’ve already made the above-referred decisions which means the next thing you need to decide is what kind of legal form do you want your DAO to take?

Legal Structures for DAOs?

We have assisted to create/incorporate legal structures for some of the world’s leading DAOs including Mantra DAO: https://www.mantradao.com/ and Defactor DAO: https://defactor.com/stake/

From a legal standpoint DAOs traditionally have been treated as unincorporated partnerships. In a partnership, each individual has unlimited liability. Therefore, if the DAO is hacked or declares bankruptcy, each member is exposed to liability for the entire amount of funds. If a lawsuit follows and the plaintiff is unable to recover completely from the “DAO partnership,” the plaintiff will turn next to the personal assets of each DAO member until their claim is satisfied. To address this weakness, ideally your proposed DAO would have to register and be recognized as a legal entity with limited liability (most clients incorporate their DAOs as a Company).

Offshore Foundations

The Foreign Foundation entity structure is the most common structure currently in use by network and protocol DAOs (most commonly structured as a Cayman Islands HoldCo, with the inclusion of a B.V.I. OpCo – depending on activity and VASP reporting requirements). These structures were first utilized as non-profit vehicles to oversee the future development of blockchain networks (e.g., the Ethereum Foundation), but are now more commonly used to provide an “ownerless” legal entity structure for DAOs in which the fiduciary obligation of the entity is to the purpose specified in the formation documents rather than to shareholders.

The Foreign Foundation solves the three biggest challenges facing Entityless DAOs: (i) lack of legal existence (inability to contract or own property); (ii) inability to pay taxes; and (iii) potential unlimited liability. The full “wrapper” use case enables the vehicle to provide all DAO members with limited liability with respect to any DAO actions, but the structure can also be narrowly tailored to wrap specific DAO activities (e.g., treasury management).

In addition, the structure can provide an extremely flexible framework and, to the extent DAOs are able to navigate complexities relating to (i) international ownership and control; and (ii) risks of foreign sourced income, the structure provides DAOs with optimized taxation strategies regarding payments and reporting requirements.

Additional benefits of the structure include that it does not restrict DAO membership from being denoted by token ownership, thereby enabling efficient transferability, and does not require DAO members to disclose their identity. Finally, the structure permits the generation of profits and, subject to applicable securities laws, distribution of such profits.

All that said in the current business/regulatory climate if I were looking to create a legal wrapper for a DAO there are 3 Jurisdictions/structuring options I’d be looking at most closely ie:

A Cayman Islands Foundation Company
A Marshall Islands DAO LLC
A Wyoming DAO LLC

Cayman Foundations Companies – Overview

In 2017 the Cayman Islands Government passed a new Law introducing a unique form of legal entity known as a Foundation Company (“FC”). The Caymans FC is a remarkably flexible vehicle that operates like an incorporated trust, allowing it to function like a civil-law foundation or common-law trust while retaining the separate legal personality and limited liability of a company.

The timing of the enactment of the Law was also fortuitous as it coincided with the popularisation of decentralised autonomous organisations (“DAOs”), most of which utilise blockchain technology. As DAOs are launched with the ultimate goal of becoming fully decentralised and governed by the DAO’s community, the foundation company vehicle helps the Developers of DAOs to achieve their goals.

Like a typical company, the foundation company has legal personality to enter into contracts and undertake actions with third parties. It is also managed by directors who carry on the business of the DAO. However, unlike a company, the foundation company can be structured without shareholders. In essence, it can be ownerless – just like the DAO it represents. In place of shareholders, the foundation company can be supervised by a supervisor (or even multiple supervisors if desired). A supervisor has no ownership or economic entitlement in the foundation company but simply acts as a steward, ensuring that the directors of the foundation company observe their obligations to the DAO pursuant to the foundation company’s governing documents. Therefore, with no shareholders, all of the officers of a foundation company simply have the objectives of the DAO as their priority – similar to trustees and enforcers carrying out the objectives of a trust.

Other popular Foundation/Jurisdiction options include:

Seychelles
Panama
Belize
Bahamas
Nevis

Marshall Islands DAO LLCs – Overview

Having forged a reputation as a leading IOFC (International Offshore Financial Centre) The Republic of the Marshall Islands (RMI) – thanks to some new cutting edge legislation – is rapidly becoming one of the world’s leading jurisdictions for the registration/incorporation of Decentralized Autonomous Organizations (DAOs).

The RMI offers a for-profit and not-for-profit DAO LLC (Limited Liability Company), legal entities based on the traditional Marshall Islands LLC but customized to meet the unique needs of DAOs.

Key features & Benefits Include:

Limited liability for DAO members
Corporate personality for owning property, signing contracts, opening bank accounts, etc.
No trustees, directors, officers, or managers with extra liability or responsibility
All documents and records can be kept on the blockchain
Most members can remain anonymous (only members with 25%+ governance rights in DAO LLCs must complete KYC, providing their real name, address, and passport).
Governance via smart contract is specifically permitted by law
For profit and Not for profit set up options are available
Minimal tax (maximum 3%)
Laws based on US models (Delaware in particular)
Low regulation – Currently, there are no digital asset, token, or protocol-related laws or regulations in the RMI, (except for companies that engage in the custody of digital assets on behalf of others).
Solid jurisdictional reputation – The RMI is not part of any blacklists or tax evasion lists
Limited reporting – DAO LLCs report annually by sharing their updated company agreement and having beneficial members do KYC. For-profits must report their revenue for tax collection purposes.

Wyoming DAO LLCs

Like the Marshall Islands, Wyoming has drafted a special regulation for DAO s, under which a DAO can be established in Wyoming in the form of an LLC, with certain characteristics. From our point of view, the advantages of this US jurisdiction include:

The flexible legal system of the U.S. common law;
Easy and relatively inexpensive establishment process;
Quick setup—a company can be registered in as little as 2 weeks;
Your project will be structured in the U.S., which is considered an investment Mecca;
Wyoming offers one of the first working legal regulations for a DAO wrapper;
Limitation of personal liability: the DAO LLC members are not personally liable for the LLC’s debts or legal liabilities;
No Corporate tax: LLCs have a “pass-through” taxation system: the DAO LLCs receive “pass-through” treatment allowing allocated profits to be taxed only once on each member’s individual income tax return; and
Less bureaucracy and paperwork as the registration process is very simple with minimal documentation required.

Other legal wrapper options for DAOs include:

A Swiss Foundation
A Singapore Company
A Vermont Blockchain-Based LLCA Tennessee Decentralized Organisation LLC
A Colorado Uniform Limited Cooperative Association

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Stripe & Paypal Friendly Tax-Free Offshore Company Options

We are often asked by Ecommerce clients “Can I get a Merchant Account for my Offshore Company with Stripe or Paypal”?

Recently we approached Stripe and Paypal and asked them what Offshore Company Jurisdictions they would and wouldn’t accept.

Here are the responses precisely as received from Stripe and Paypal:

Stripe:

I have taken a look within our system and official documents and could confirm that Stripe (for payments processing) is not currently available locally in either British Virgin Islands (BVI), Seychelles or Belize.

- You can check this information in the link below: https://stripe.com/global
However, you could use Stripe Atlas to form a company in Delaware and obtain a U.S. tax ID. The one-time fee to join Stripe Atlas is $500.
From the countries you have listed above, Hong Kong and Singapore is supported

Paypal:

Hi! Thank you for contacting PayPal my name is John. You can create a PayPal account under British Virgin Islands, Seychelles, and Belize. In terms of receiving payment you would need to contact PayPal support for each country as we do have different supports handling each Country.
https://www.paypal.com/us/webapps/mpp/country-worldwide

How to Setup an Ecommerce Business using a Tax-Free Offshore Company

The Corona Virus has seen a stampede of entrepreneurs rushing to get set up online. If that’s you (ie if you’re looking to launch an Ecommerce Store Online) you’ll be pleased to hear/read that such a business lends itself (really) well to an “Offshore” Corporate Structuring Plan. Here’s how it usually works:

A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
You design/launch a website which is owned by the Offshore Company
The IBC owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
The website ideally should be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
The clients find you and/or contact you via the web
The IBC is seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
Your standard sale agreement/website terms and conditions should provide (a) that a contract is not formed until the customers offer is accepted by you (ie the Offshore Company) and (b) that the source of the income is the contract. Before the client clicks buy he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email to the buyer, after he/she has paid online; In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply goods in consideration of the buyer paying), at law, is formed is the director’s location ie a nil tax environment…
Hence the income – from which the contract of sale is the source – has been/is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes as contract of sale at law)
An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre
Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
(If you need a regular income) 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 expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income
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 to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).

As alluded to, in order to minimise the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a Nominee Director as part of the Corporate structure.

Ideally – so you can swear on oath in the event of a tax investigation, law suit or regulatory inquiry – I am not the beneficial owner of this Company, (which should enable your lawyers to be able to argue, in the event of an investigation, sorry this is tax deferral not tax evasion) you will probably want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such regs).

With a bespoke legal/admin structure in place you should only be liable to declare and pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your ECommerce store earnings you should be able to accumulate, and or reinvest, Offshore in a nil tax environment. Tax should only be payable when you sell the business (unless at that time you’re living in a nil tax country) enabling you to grow your capital far quicker during the lifetime of your business thanks to the power of compounding.

Similarly, if a product that you sell doesn’t perform and a customer tries to sue you the good news is your personal assets should not be at risk as the customer has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!)

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

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

The Cayman Islands Foundation as a DAO Legal Wrapper

If you want to start a DAO, it’s essential to think about its legal structure from the outset. Having a (well thought through) legal structure/strategy determined pre launch should enable you, post launch, to avoid any liability being pinned upon DAO members’. Additionally a well considered DAO Legal structure also protects the DAO treasury, AND it can assist to implement DAO governance – in an automated fashion. Most Lawyers refer to this developed legal system as a DAO Legal Wrapper.

Benefits of incorporating a DAO in the Cayman Islands

The Cayman Islands is one of the most popular jurisdictions to create a Legal Wrapper for DAO. Here’s why:

The country adopted special regulations for Virtual Assets Service Providers: this means that there are specific rules for working with virtual assets, and companies know what they need to prepare for;
The flexibility of the common law system: The Caymans corporate legislation is largely based on American and English law, which makes it highly universal in its application and operation around the world;
Low cost: it is at least two times cheaper to set up a DAO foundation in the Cayman Islands, compared to European domiciled Foundations (eg Switzerland, Liechtenstein); also, there are no mandatory minimum contributions that can affect the cost;
Speed: it usually takes as little as 2-4 weeks to create a Caymans foundation.
Reputation: the Cayman Islands is a well regulated jurisdiction and is highly regarded internationally by Banks, Brokers, investors and more.

Foundation as a legal form for DAOs

One of the common legal forms of DAO wrappers are Trusts and a Foundation is essentially a Corporatized Trust. Trusts – and Foundations in particular–are a good option for wrapping a DAO because the concept of DAO implies that there are no centralized owners (shareholders) and all-important decisions in DAO must be made by the community. The Cayman Islands have developed legislation on Trusts, and its Foundations law was adopted in 2017, which makes Cayman Islands a popular destination to register a foundation for a DAO.

How does the foundation work as a DAO Legal Wrapper?

A Foundation is a type of Trust that was created so that Trustees could manage certain people’s assets for the benefit of others but with the protection of legal/corporate personality. This is highly complimentary to the concept of DAO, which includes:

DAO Founders (Foundation Founders) who launch a smart contract and organize the initial issuance of tokens;
DAO Members (ie Foundation Beneficiaries) who are the tokenholders and deposit their own virtual assets in the foundation treasury to participate in the development of the DAO;
DAO Managers (Board of Directors/Foundation Council) who are elected by the Founders and make decisions in the interests of the DAO members;
A DAO guardian (Foundation Supervisor) ie a Trustee who ensures that the DAO’s managers do not act against the will of DAO members in the decision-making process.

How is decentralized governance organized in a foundation?

One of the goals of a DAO is to organize decentralized governance. This means that founders and investors and the team, protocol validators, product users, and other tokenholders play important roles in the DAO. They can influence the decisions about changes in the rules of operation of the smart contract, the management of treasury assets, the blockchain product, or protocol development strategy.

The procedure for voting of DAO members, counting of votes, implementation of decisions by DAO Managers – as well as the participation of a DAO Guardian in this process – are reflected in the DAO constitution and must be properly implemented in the bylaws of the Foundation so that these rules become legally binding for all DAO Members.

How to implement DAO members’ engagement in a foundation

Usually, tokenholders who have received the right to vote in the DAO are considered DAO Members. Each DAO independently determines the procedure for granting voting rights to tokenholders:

In some DAOs, tokenholders must stake their own tokens in DeFi.
Other DAOs provide the issuance of a separate type of governance token.
In the third type of DAOs, only DAO protocol validators can be DAO members.

Each DAO maintains a register of its members, which must be synchronized with the register of Foundation Beneficiaries. In the case of a Cayman Islands Foundation, the register is maintained privately, which provides flexibility and scalability for the DAO itself.

Summary

A Cayman Islands Foundation is a popular form of Legal Wrapper for a DAO due to the flexibility of the Caymans legislation, the definite rules for working with virtual assets in the Caymans, and the speed of its creation and optimal budgets.

Costs & Set Up

Each DAO will need to seek advice on certain aspects to ensure compliance with Cayman law and we can advise on this prior to setting up a legal wrapper as there might be registration requirements in Cayman.

Our fees to set up a Caymans Foundation DAO Company are as follows:

Incorporation/registration of Cayman foundation company: US$2,250 (includes express registration fee)
Annual Registered Office: US$1,650
Annual Secretary Fee: US$2,990

Total: US$6,890

Fees due yearly as and from January 2024:

Annual Government Fee: US$854
Registered Office fee: US$1,650
Annual Secretary Fee: US$2,990
Economic Substance filing fee: US$200
UBO filing fee: US$330
Annual Return Filing: Waived

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Marshall Islands DAO LLCs

Legal Entities

The RMI offers a for-profit and not-for-profit DAO LLC (Limited Liability Company), legal entities based on the traditional Marshall Islands LLC but customized to meet the unique needs of DAOs.

Benefits of Legal Entities

● Limited liability for DAO members

● Corporate personality for owning property, signing contracts, opening bank accounts, etc.

● Tax entity

Benefits of RMI DAO LLC

● No trustees, directors, officers, or managers with extra liability or responsibility

● All documents and records can be kept on the blockchain

● Most members can remain anonymous

● Governance via smart contract is specifically permitted by law

Non-profit DAO LLC

Non-profit DAO LLCs in the RMI have no economic owners and cannot distribute their earnings to their members. Instead of beneficial owners, non-profits have beneficial

members. There are no taxes on non-profits, and there should be no pass-through taxes on any members.

For-profit DAO LLC

For-profit DAO LLCs are subject to a 3% Gross Revenue Tax (GRT), which applies to all earned income and interest but does not apply to capital gains and dividends.

Relationship with the United States

The RMI is a sovereign nation not under US jurisdiction. Many of its laws, such as its corporate laws, are based on the laws of Delaware. RMI courts will even look to case law in

Delaware if no statute or case law exists on a matter in the RMI.

Digital Asset Regulations

Currently, there are no digital asset, token, or protocol-related laws or regulations in the RMI, except for companies that engage in the custody of digital assets on behalf of others. The plan is to introduce innovative, tech-forward legislation and regulation over time that applies to digital assets, tokens, and protocols.

Why the Marshall Islands?

The Republic of the Marshall Islands (RMI) has been a global leader in shipping company jurisdictions for over five decades. Over 40 public companies traded on NASDAQ and the NYSE and companies representing over 20% of the world’s shipping capacity were incorporated in the RMI. Now, the RMI is applying what it has learned in shipping to become the leading global jurisdiction for DAOs.

Compliance

The RMI is dedicated to following international standards regarding topics such as beneficial ownership.
DAO members with 25%+ governance rights in DAO LLCs must complete KYC, providing their real name, address, and passport.
Additionally, on-chain activity will be monitored for Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT).
The RMI is proud not to be part of any blacklists or tax evasion lists

Annual Reporting

DAO LLCs report annually by sharing their updated company agreement and having beneficial members do KYC. For-profits must report their revenue for tax collection purposes.

Banking for DAOs

RMI DAO LLCs have successfully opened bank accounts with Signature Bank, Western Alliance Bank, and others.

Other RMI Corporate Entities

RMI DAO LLCs are considered domestic companies. There are foreign corporations and foreign LLCs available from the RMI that are not subject to the DAO Act of 2022

and therefore do not get the benefit of that statutes provisions.

RMI Law Firms

OCI maintains a list of RMI lawyers based in the RMI and the United States and can make

introductions on your behalf.

DAO Legal & Governance Advice and Consulting

OCI is not a law firm and does not provide legal advice. MIDAO has partners who can provide legal and other advice. Contact us for more details or introductions.

Common Questions Answered:

What prices/terms can OCI offer in terms of setup of (and annual maintenance of) such Companies?

To set up a Marshall Islands DAO LLC with OCI costs $US6,000.

What docs/info will OCI need with each DAO LLC set up order placed with us?

You need to complete a basic Company Order Form + confirm payment +the Founders of the proposed LLC need to supply KYC (ie proof of Identity and proof of residential address) as per TMI requirements. OCI then creates/delivers the Incorporation documents (including Certificate of Formation & The Company Constitution/Articles of Association & the Operating agreement ) + we supply the templates for your , Operating Agreement ) + we will supply you with a template Foreign Investment Business License (FIBL) application. DAO members with Governance rights of 25% must also supply KYC (everyone else in the DAO may remain anonymous]

What docs/services are included in the set up price?

We provide the Operating Agreement Templates (you may customize), Certificate of Formation, we assist you to manage/meet the Company’s Compliance requirements for the first year FIBL, maintain the required Registers/Statutory Books and we also supply a Marshall Islands Registered Agent + Registered Office service for year one. One year’s legal consulting is also included (ie you can consult with our In House Lawyer at any time for no extra cost). OCI’s annual fee is $US5,500. KYC is run annually in January.

What docs/services are included in the annual fee from 2^nd year?

OCI’s annual fee is $US5,500. KYC is run annually in January. We also assist you to manage/meet the Company’s Compliance requirements for the first year FIBL, maintain the required Registers/Statutory Books and we also supply a Marshall Islands Registered Agent + Registered Office service for year one. One year’s legal consulting is also included (ie you can consult with our In House Lawyer at any time for no extra cost).

What are the annual compliance requirements for a MI DAO LLC (eg do we have to have/show economic substance/must accounts or an annual return be filed?)

DAO members with Governance rights of 25% or more must pass compliance annually. Everyone else in the DAO may remain anonymous, no compliance requirements. Please see also the above InfoSheet

What are the tax rates applicable to such Companies in MI if any?

For-Profit DAO’s will be subject to 3% Gross Revenue Tax (GRT) on their earned Revenue. This includes interest payments but does not include capital gains and dividends. MIDAO DAO LLC Not-For-Profit DAOs have no economic owners and cannot distribute their earnings to their members. Instead of Beneficial Owners, Not-For-Profit DAOs have Beneficial Members. There are no taxes on Non-Profits and there should be no pass-through taxes on any members]

Press

● Cointelegraph: https://cointelegraph.com/news/marshall-islands-legally-recognizes-daos-as-domestic-limited-liability-companies

● The Block: https://www.theblock.co/post/197435/marshall-islands-dao-law

● Blockworks: https://blockworks.co/news/the-marshall-islands-wants-money-making-daos-to-call-it-home

● Coindesk: https://www.coindesk.com/video/marshall-islands-looks-to-become-global-hub-for-dao-incorporations/

Relevant Statues

● DAO Act of 2022: https://docsend.com/view/ramkt3e6af428rkv

● LLC Act: https://rmiparliament.org/cms/images/LEGISLATION/PRINCIPAL/19/1990-93/LimitedLiabilityCompanyAct1990_2.pdf

● Business Corporations Act: https://rmiparliament.org/cms/images/LEGISLATION/PRINCIPAL/1990/1990-0091/BusinessCorporationsAct1990_8.pdf

● Non-Profit Entities Act: https://rmiparliament.org/cms/images/LEGISLATION/PRINCIPAL/2021/2021-0029/Non-ProfitEntitiesAct2020_1.pdf

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

www.offshoreincorporate.com