Company- Management | Offshore Companies International

How To Launch an Initial Coin Offering (“ICO”) Offshore Tax Free

With the raging success of Bitcoin and Ethereum new Cryptocurrencies seem to be hitting the market every other day. This Article examines how you might launch an Initial Coin Offering (“ICO”) Offshore and bank the profits free from tax.

There are several ways you could launch an ICO from Offshore. Ideally you would either:

(a) Form a tax free Offshore Company and have that Company enter into an Agreement/Contract with first up investors; or

(b) Set up a tax free Collective Investment Company Offshore (ie a non-licensed Closed End Fund) whereby investors receive shares in the Company in proportion to the amount of money they invest.

The first option is the most commonly used. How it usually works is:

The creators of the new Cryptocurrency form a tax free Offshore Company (“OC”)
This Offshore Company develops the new Coin/Cryptocurrency (or holds the rights, under license from a 2nd tax free Offshore IP Holding Company, to promote/market the new Coin/Cryptocurrency)
The initial Investors and the OC enter into an Agreement whereby the OC, in consideration of a payment made by the investor to the OC, agrees to issue a certain number of Redeemable Tokens to the Investor
Each Token entitles the Token holder to certain rights and can be traded on the open market.
In the perfect investor model, the Token would entitle the Investor to a certain number of the ICO’s Cryptocoins when the Coin goes to the open market and/or to receive a share of the Company’s profits
When the Coin goes to market the profits can be banked and or reinvested Offshore potentially tax free (and away from the prying eyes of Onshore Regulators)

A variation on the above is to set up a Foundation (which owns a/the Coin Issuing Company) and have investors make donations to the Foundation. The Foundation passes on all monies so collected to the Company which develops the coin. In return for a/the donation to the Foundation the Company issues a Token to the investor/donor.

Another similar way for a Start Up Cryptocoin Company/Business to raise venture capital is via Crowd Funding (https://www.fundable.com/learn/resources/guides/crowdfunding-guide/what-is-crowdfunding )

Closed End Fund

In this model a tax free Offshore Company is set up and shares in the Company are issued to the investors in proportion to the amount of monies invested. Usually how it works is:

The Promoters/Creators of the new Cryptocurrency form a tax free Offshore Company (“OC”)
The Company has a specially tailored Articles of Association which enable it to issue 2 classes of shares ie Class A Shares (also known as management shares) and Class B shares (also known as equity shares)
The Promoters/Creators of the new Cryptocurrency decide how much capital they want/need to raise and, how many shares they are prepared to/wish to issue and the price of each such share
The Investors sign off on an Information Memorandum (ie in effect a Prospectus) that stipulates, amongst other things, a/the minimum amount of time the investor has to commit his funds before being able to cash in his shares (eg it could be a month, or 3 months, or 6 months or 12 months or 2 years or etc).
The investor pays his money to the OC and receives shares in the Company in proportion to the amount of money contributed. These shares entitle the investor to a share of the profit that has been realized by the Company as at the end of the agreed investment period but carry no voting rights.
The Promoters/Creators of the new Cryptocurrency receive shares that have both equity rights and voting rights Once the desired amount of Capital is raised the Company goes to market and starts selling the Cryptocurrency to the general market
At the end of the agreed investment period the investor has the right to cash in his shares and walk away or reinvest for a further period.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Avoid Automatic Exchange of Information by Changing Residency

Much has been speculated about the possible impact on financial privacy of the OECD’s MCAA driven Automatic Exchange of Information program (also known as CRS). Smart pundits are beginning to pick up on the fact that MCAA/CRS is unlikely to have anywhere near the impact of what the OECD claims. We stumbled across this article recently in the Tax Justice Network website which highlights but some of the weaknesses of the High Tax Countries Cartel’s latest faux pas:

“The OECD’s Common Reporting Standards (CRS) is the big game in town for curbing cross-border financial transparency. As we’ve often noted, it is a good project, with global reach, but with loopholes.

One of the biggest of these loopholes, perhaps — after Loophole USA — is the problem of ‘fake residency’, where countries allow wealthy people from elsewhere to “buy” their way into being residents of that jurisdiction, perhaps in exchange for their investing a certain amount there, or paying a flat fee.

How does this enable people to escape the CRS?

Very simply: the CRS collects information about the beneficial owners of assets, then transmits that information to the owner’s place of residence. If the residence is fake, then the CRS system will require relevant agencies to collect and transmit the relevant beneficial ownership information to Dominica, say, and Dominica will ignore it, and not tax it either. End of story. The information trail goes cold. Banks, which are a core part of the CRS project, willingly collude in this monkey business.

For most of these fake residency schemes, there is a requirement to hand over relatively serious cash. Dominica, with only 70,000 residents, charges $100,000 for individual fake residency, and they only need a relatively small number of applicants to receive revenues that are meaningful for its 70,000 odd residents, many of whom are quite poor fisherfolk and so on. (No matter that the scheme may be cheating the citizens of other developing countries out of tens of billions: that’s not their concern.)

All sorts of places are jumping on this bandwagon. Following the recent decision of St Lucia to dive in, there are now five such places in the Caribbean alone, including St. Kitts and Nevis, Antigua and Barbuda, Grenada and Dominica.

Of course, this is a recipe for a race to the bottom. The next jurisdiction will offer residency for $75,000, and then it’ll be 50,000.

Well, in fact, the race already appears to be scraping the bottom. And it’s that fast-growing purveyor of offshore sleaze, Dubai. Take a look at this.

In short, you can obtain residence visas through three main avenues.

First, buy real estate in one of the United Arab Emirates, worth over a million Dirhams.

Second, get an employment contract there.

Third – and this is the super-sleazy one…

Incorporation of your own company in the United Arab Emirates. This is the most convenient and efficient option for obtaining business visas in the UAE. It takes only a few weeks to obtain visa and the expenses incurred are relatively low. Moreover, it is not necessary for a company to perform real activity – its business may be purely formal.
. . .

within a few days you are issued a certificate of incorporation of onshore company. Thereupon you and your family members receive residence permit in the UAE.”

The other thing the Article failed to pick up on is that Information Exchange will only effect passive investment Companies. If your company can be characterized as a Trading Operation there will be no information exchange.

The other obvious things you can do to avoid the risk of Information Exchange are:

(a) Open a bank account for your Company in a country which has not signed the MCAA (We have solutions in that regard); &

(b) Set up a Seychelles Foundation to hold the shares of your Offshore Company (Because section 71 of the Seychelles Foundations Act deems a Seychelles Foundation to be both the legal AND beneficial owner of any asset it holds).

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Can a Second Residence Assist Me To Avoid Tax At Home?

We’re seeing a lot of interest in this field in particular clients looking for a second residency or a 2^nd passport. The UAE is doing a lot of business in this regard as a number of Emirates offer a nil tax Company product that comes with a residency permit.

The key question with a second residency is how it would all work from a taxation perspective ie who has the right to tax you and why and which country’s tax laws would/should apply?

As we see it there are 2 angles:

(a) Application of tax laws in theory

(b) Disclosure and practicalities

Re (a) most countries (particularly big western countries like the USA, EU, Canada, Australia, UK etc) have a very broad definition of “resident for tax purposes”. Regardless of what passport or residency permit you hold if you’re in that country for more than 6 months and or if you have a substantial connection to that country (even if you’re on the ground there for less than 6 months in any tax year) you can be classified as a “resident for tax purposes” making you liable to declare your worldwide income in and pay tax there.

Substantial Connection

So what constitutes “substantial connection”?

In considering whether you still have a “substantial connection” to your mother country a number of factors are looked at including:

Do you retain a residency/home in your mother country?
Do you own any personalty in your mother country (eg a car, furniture/home contents/boat/leisure toys etc etc)
Do you have a bank account in your mother country?
Do you have investments or business interests in your mother country?
Do you retain a professional or trade license (eg Lawyer/Plumber/Doctor/Teacher/Nurse/Engineer/Architect/Builder/Dentist etc) license in your mother country?
Do you keep current a golf/tennis/leisure club membership in your mother country?
Do you regularly renew a driver’s license in your mother country?
Do you have children at school in your mother country?
Do you have a spouse/partner living full time in your mother country?
Etc etc etc

Chances are, as a minimum, what you will need to do in order to become non-tax resident in your mother country is:

(a) Sell your home/residence in your mother country (or cancel any lease you might have over residential premises there)

(b) Sell any business you own on the ground in the mother country

(d) Hand in (and not renew) any professional/trade license you may have in your mother country

(e) Close down any bank/investment accounts you might have in your mother country

(f) Write to your local IRS/Tax Office and advise that you have departed the country permanently and filed your last tax return.

Disclosure & Practicalities

Re (b) the question here is will a 2^nd residence enable you to incorporate an Offshore Company and or open a bank account for your Company wherein your name won’t be recorded as being a resident of your home/birth country. Generally speaking in these instances you’d need to produce photographic proof of ID AND proof of residential address. If you can produce evidence of ID/Residential address from/as being in your country of 2nd residence, in the event of information exchange, your details won’t be given to the tax authorities of your home/birth country.

The ideal end game there would be that your mother country’s tax authorities would (hopefully) never find out about the existence of your Offshore Company or your connection to it giving them no chance to apply a potentially extensive tax residency law/definition in their favor.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

SEYCHELLES IBCs – ACCOUNTING REQUIREMENTS

We are often asked by Seychelles IBC owners “what are my Accounting obligations”?

Seychelles Companies are not required to keep audited accounts. In theory a Seychelles IBCs is supposed to keep books of account but that requirement is not enforced (ie nobody ever actually checks or asks “Are you keeping Books of Account? If so please show me copies”.

The only requirement is you will have to tell your Corporate Service Provider where the Company’s “Accounting Records” are being kept.

To summarize by Accounting Records I mean the raw data from which a set of books of account could be created/drawn (By raw data I mean bank statements, receipts, invoices, vouchers, contracts, etc, see below).

Whether to keep accounts in effect is up to you; That said in our view every small business should keep books of account. Which is easy to do yourself these days. There so many DIY (Do It Yourself) Accounting packages on the market presently (eg MYOB, Quickbooks, MS Books etc), for anyone who can use a computer, it’s child’s play.

Here’s a synopsis of the relevant provisions of the new Seychelles IBC Act in so far as Accounting Requirements are concerned:

Section 2 of the Act: “Accounting records”, in relation to a company, means documents relating to: (i) the company’s assets and liabilities; (ii) all receipts and expenditure of the company; and (iii) all sales, purchases and other transactions to which the company is a party (e.g., bank statements, receipts, title documents, agreements, vouchers, etc).

Companies are not required by the Act to prepare or file annual accounts or to appoint an auditor. However, under section 174(1) of the Act a company is required to keep reliable accounting records that: (i) are sufficient to show and explain the company’s transactions; (ii) enable the financial position of the company to be determined with reasonable accuracy at any time; and (iii) allow for accounts of the company to be prepared (notwithstanding that a company is not required under the Act to prepare accounts). For such purposes, accounting records shall be deemed not to be kept if they do not give a true and fair view of the company’s financial position and explain its transactions.

A company shall preserve its accounting records for at least 7 years from the date of completion of the transactions or operations to which they each relate.

A company that contravenes the requirements to keep accounting records in accordance with section 174(1) of the Act is liable to a penalty fee of US$100 and an additional penalty fee of US$25 for each day or part thereof during which the contravention continues. A director who knowingly permits a contravention of the requirements to keep accounting records in accordance with section 174(1) of the Act is liable to a penalty fee of US$100 and an additional penalty fee of US$25 for each day or part thereof during which the contravention continues.

Section 175(1) of the Act: A company’s accounting records shall be kept at its registered office or such other place as the directors think fit. Where a company’s accounting records are kept at a place other than its registered office, the company shall inform its registered agent in writing of the physical address of that place (section 175(2) of the Act). It is sufficient if the company provides the Registered Agent with an emailed scanned copy of the completed, signed and dated Notice.

Where the place at which a company’s accounting records are kept is changed, the company is required to inform its Registered Agent in writing of the physical address of the new location of the accounting records within 14 days of the change of location (section 175(3) of the Act). It is sufficient if the company provides the Registered Agent with an emailed scanned copy of the completed, signed and dated Notice.

A company that contravenes section 175 of the Act (location of accounting records requirements) commits an offence and is liable on conviction to a fine not exceeding US$2,500.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Tax Free Offshore Companies For Expat Workers

In a previous article we looked at how Contractors can potentially minimize tax through Offshore Incorporation.

This article revisits the specific situation of expat workers ie persons working abroad, away from their home country, temporarily on a contract basis.

A compelling reason of itself to incorporate Offshore as an overseas contractor is to avoid being called on by your home Authorities to pay tax at home. You see, as an expat worker unless you’ve taken certain legal steps to become non-resident for tax purposes in your home country almost certainly you would still be liable to declare your contracting income in, and pay tax on that income in, your country of origin (see below which explains in details what resident for tax purposes means/is) .

In fact, if you are living in a country which does NOT have a Double Taxation Avoidance Treaty with your home country you could even be liable for double tax ie liable to pay tax on your income where you work and liable to pay tax again on that income in your country of origin. All such scenarios can potentially be avoided if you set up a tax-free IBC to act as your contracting entity.

The last thing you want to see happen when you return home is to be presented with a letter from your home tax authorities asking you to pay tax on the money that you earned whilst abroad. Such a scenario can be avoided with advance planning.

What is “Resident for Tax Purposes”?

We are often asked by individuals where (ie in what country/s) am I liable to pay tax?

The starting point is this: If you are regarded at law to be tax resident (ie resident for tax purposes) in a particular country you are liable to pay tax there on your (usually, worldwide) income.

The concept of tax residency however (ie what it takes to be classified as non-tax resident) varies from country to country. Depending on where you originate from you may pass the non-tax resident test of one country but fail the same test had you originated from the country next door.

Let me explain….

The most well-known tax residency test is in fact the oldest ie the days spent at home test. Historically, in most countries (USA excepted – see below), you would be considered non-tax resident for a particular tax year if you have spent less than half of that the year inside your “home” or mother country.

Over the years, and particularly with the proliferation of “fly in-fly out” jobs (seen most prevalently in the oil/mining industries) a number of countries (in particular the more developed countries) have brought into play a multifaceted tax residency test. In other words notwithstanding that you might spend less than half the year on the ground in your mother country if you have a “substantial connection” with your mother country you may still be classified as tax resident of/in that country.

So what constitutes “substantial connection”?

In considering whether you still have a “substantial connection” to your mother country a number of factors are looked at including:

Do you retain a residency/home in your mother country?
Do you own any personalty in your mother country (eg a car/furniture/home contents/boat/leisure toys etc etc)?
Do you have a bank account in your mother country?
Do you have investments or business interests in your mother country?
Do you retain a professional or trade license (eg Lawyer/Plumber/Doctor/Teacher/Nurse/Engineer/Architect/Builder/Dentist license etc) in your mother country?
Do you keep current a golf/tennis/leisure club membership in your mother country?
Do you regularly renew a driver’s license in your mother country?
Do you have children at school in your mother country?
Do you have a spouse/partner living full time in your mother country?
Etc etc etc

Chances are, as a minimum, what you will need to do in order to become non-tax resident in your mother country is:

(a) Sell your home/residence in your mother country (or cancel any lease you might have over residential premises there)

(b) Sell any business you own on the ground in the mother country

(d) Hand in (and do not renew) any professional/trade license you may have in your mother country

(e) Close down any bank/investment accounts you might have in your mother country

(f) Write to your local IRS/Tax Office and advise that you have departed the country permanently and filed your last tax return.

For USA citizens however a unique situation applies. Generally speaking if you are a US citizen you are required to declare worldwide income in and pay tax in America regardless of (a) whether you spend less than half the year there and (b) whether you have any substantial connection with the USA. (For Americans the only way to be classified as “non tax-resident” of the US is to hand in your passport and denounce your citizenship then do all the above things and leave the country indefinitely).

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Invest in a Start Up Using a Tax Free Offshore Company

Investing in a Start Up is an activity that lends itself well to an Offshore Corporate Structuring plan.

How it works is:

(a) You incorporate a tax free Offshore Company (“OC”)

(b) You structure the Company in such a way as to ensure that the Company is seen to be managed and controlled from Offshore; This can usually be achieved by via deployment of a tax haven based Nominee Director (which is a service that OCI can/will provide)

(d) You advance funds to your OC

(e) The OC then advances funds to the Start Up Company

(f) The Fund Company utilizes your money to help it launch or expand

(g) The Fund Company pays a return (eg dividends ie a share of the profits) periodically to your OC (eg monthly or quarterly or 6 monthly or yearly).

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

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Bring Home Cryptocurrency Trading Profits

Do you trade Cryptocurrencies?

If so, are you experiencing difficulties in transferring funds, being your Cryptocurrency Trading profits, (ie cryptocurrencies converted, via an Exchange, into hard currency) back to your home country?

The solution is to:

Incorporate an Offshore (eg tax free) Company. Ideally this Company would be characterized as an IT or etc Services Company (eg you could call it International Coding Services Ltd)
Open up a Bitcoin/Cryptocurrency wallet in the name of the Company
Open up a Cryptocurrency Exchange Account in the name of the Company
Transfer all Cryptocurrencies you hold in your name presently to the Company’s Bitcoin/Cryptocurrency wallet
All future trades moving forward should be placed by and in the name of the Company
Open up a Corporate Account for the Company Offshore
As you generate Trading profits take the Company’s Cryptocurrency to an Exchange and have it converted into hard currency
Transfer hard currency held at the Exchange from your Company’s Exchange account to the Company’s Corporate Bank Account
You should be appointed as Consultant of/to the Offshore Company
Periodically (eg monthly or quarterly or yearly, whenever you feel is appropriate) you would invoice the Company (and your invoice would be stated as being payable in hard currency eg $USD)
The Company would transfer hard currency to your personal account at home upon receipt of the invoice

The end result? Money is banked at home without your home country bankers knowing that the source of the money is in fact Cryptocurrency Trading/Speculation.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

How To Set Up a Cryptocurrency Exchange Offshore

With the boom in growth and value of Cryptocurrencies around the world doubtless demand for Cryptocurrency exchanges is going to increase.

For the uninitiated a Bitcoin or Cryptocurrency Exchange is an Online market place where you can buy and sell cryptocurrencies and even pay for one type of Cryptocurrency using another form of Cryptocurrency.

Such a business lends itself well to an “Offshore” Corporate Structuring Plan. In principle here’s how it can/will work:

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

Management, Control & Beneficial Ownership

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

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/

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

Decentralized or a Centralized Exchange?

In crypto, a Centralized Exchange (“CEX”) is an online trading platform that allows people connected to the internet to buy, sell, and swap crypto assets. It acts as an intermediary ie like a Bank in that it accepts and holds Client Funds (typically in either Fiat or Crytocurrency format) pre exchange. Unlike a Decentralized Exchange (“DEX”) a CEX ie actually takes custody of a buyer and or sellers funds pre exchange (and then charges a commission for moving currency form the buyer to the seller or vice versa.

These days most CEXs require new clients to provide Know-your-Customer/Anti-Money Laundering (KYC/AML) docs (ie Proof of ID and address) before agreeing to open an account for a potential customer/trader.

How it works is aCEX matches buyers and sellers by collecting their orders in an “order book.” The exchange acts as a trusted intermediary between the buyers and sellers. Users rely on the exchange for the entire transaction process, trusting that the exchange won’t use their privileged place of knowledge to its advantage. The exchange also acts as a custodian for any cash or crypto held in user accounts, hopefully providing a safe place for users to store their funds. This has unfortunately not been true for many exchanges in the past

What’s the difference between a CEX and a DEX?

CEXs and DEXs are both platforms that help buyers and sellers trade. While a CEX is operated by a single entity, a DEX is run permissionlessly through smart contracts on a blockchain. An entity or project may help set up and maintain a DEX, but it can run itself as long as people provide liquidity. Unlike CEXs, to use a DEX only requires a crypto wallet and some cryptoassets. Due to its decentralized nature, there’s typically minimal onboarding requirements.

CEXs can offer customer support and a more user-friendly experience; however, they are susceptible to attack, take higher transaction fees from users and their solvency is often opaque which leads to the last and most important weakness, they require users to relinquish custody of their funds. If the Exchange goes bust (as can happen with a run on a Bank) the clients/depositors can lose their money (as happened with one of the world’s top 5 Centralized Exchanges ie FTX in 2022)

Given the Custodial character of a CEX in 99% of jurisdictions you’ll need to apply for some form of special License when incorporating your Offshore Company.

There are a number of Licenses you could potentially apply for “Offshore” that would enable you to run a Licensed Cryptocurrency Exchange including:

A Gibraltar DLT License
An Estonian Cryptocurrency Exchange (and/or Crypto Wallet Provider) License
A Malta Crypto business license
A Mauritius VASP License
An Isle of Man ICO License
A Swiss ICO license
A Lithuanian Cryptocurrency Exchange/Wallet Provider License
A Caymans VASP License
A BVI VASP License
A UAE Crypto business license
A Vanuatu Financial License (Class D)

The cost to incorporate and apply for a License for businesses of the kind described above typically ranges from $U15,000 00 to circa $50,00 depending largely on which jurisdiction you choose.

The question of where to set up a Licensed Exchange can be quite a difficult one to answer. OCI can guide you in your choice of Jurisdiction/License. We have a widely experienced Lawyer in house who (for the past 7 years) specializes in assisting Blockchain related startups. If you’d like a free introductory consultation with our In House Lawyer please Contact us:

info@offshorecompaniesinternationalcompanies.com

ocil@protonmail.com

DEX Legal structures – Overview

Unlike a Centralized Cryptocurrency Exchange (“CEX”) a Decentralized Cryptocurrency Exchange (“DEX”) typically does not provide any custodial facility, ie it simply provides a platform where people can meet and trade, sell or swap Cryptocurrency peer to peer. Given the DEX model of exchange never holds customer funds this makes it difficult for law makers to overlay traditional regulatory oversight. Generally speaking where an entity is holding 3^rd party funds in a custodial relationship or assisting 3^rd parties to move or invest funds this is a Licenseable Activity.

That said a lot of the jurisdictions whereat we used to incorporate DEXs have decided that such an enterprise is either a prohibited activity or they require the enterprise to apply for some form of License.

Who Controls a DEX?

Next up you might want to check out a key Organogram entitled “Typical Crypto Exchange Legal Structures DIAGRAM Current” (which can be accessed via this Link: https://www.dropbox.com/scl/fi/v1b7sdfr9oa36p2ungmsm/Typical-Crypto-Exchange-Legal-Structure-DIAGRAM-Current.jpg?rlkey=10yzn0kir068hb6cxaow794gx&st=513xwak8&dl=0 )

In the case of a DEX, the Exchange company Platform provider can’t access the platform user’s assets. Nor can the owners. The token swap protocols of the DEX are, in most cases, ownerless and non-custodial. As such the DEX platform provider (general negligence principles aside) owes no Fiduciary duty to the Users. This is why the typical regulations encapsulating CEXs aren’t applied to DEXs.

That said, as an owner of a DEX, it’s important that you give considered thought to how you are going to structure the enterprise from a legal/entity perspective. In short, you’ll need to strike a balance as between potentially competing interests viz a viz the various stakeholders. At its core the legal/ownership structure should take into account and cater/provide for:

Limiting the Founders’ liability in the event of a law suit against the DEX +
Investor sensibilities +
Ensuring that the relationships as between the DEX owners are carefully documented/governed +
Tax Planning considerations +
Insurance against potential allegations of non compliance with “onshore” Managed Investments Laws and/or Securities Industry Regulations

Behind the DEX protocols, we often see a Decentralized Autonomous Organisation (DAO) (like Uniswap DAO and Sushi DAO), the members of which vote for the protocol’s strategy (the principles of its work, commission sizes, etc.) and manage the Treasury (e.g., issue grants/tokens) in a decentralized way. (For more details of what a DAO is and how a DAO works, see attached “What is a DAO”).

Given at its core the typical/pure DAO is an unincorporated association (like a Club meaning all the members could be made jointly and severally liable if the DAO were to be sued) these days most such DAOs are usually incorporated/registered as ownerless legal entities (eg Private Foundations) or as Limited Liability Companies (eg DAO LLCs). Generically we refer to this as applying or setting up a DAO Legal Wrapper. These legal wrappers aim to protect DAO members from unlimited liability and implement the decentralized governance of the DAO.

The Ideal DEX Legal Structure

There are various ways to Legally structure a DEX but the most common approach we see to the legal structuring of a DEX is to create a collective of legal entities including:

A DAO Foundation +
A Developer Company +
The (Consumer facing) Exchange Company
A Token Distribution/Issuance Company (Token Co) ie the Exchange intends to sell it owns native Token
A Management Company

In terms of roles the DAO Foundation can potentially do several things ie it can/would/could:

Engage/pay the Developer Co
Act as an Incubator fund for collecting seed Capital (eg privately introduced/early stage investors and/or DAO members could make donations to the Foundation and in return receive tokens or a SAFT ie a Simple Agreement for Future Tokens)
Own the Tokens as developed and or it could own/provide working capital to the Exchange Company (ie act as a/the Treasury)
It could be used to incentivize sweat equity (ie it can be used to gift and/or air drop tokens to high performing team members or to benefactors)

The Developer Company would be engaged to do the IT/Tech work and would typically be owned by the Tech Members of/Coders for the Collective. This enables the software developers to be remunerated on a commercial basis for the work they do.

The Exchange Company would own and operate the business, in effect, ie, it is the Entity that would engage/contract with the DEX Platform users and receive the fees/commissions generated by their Cryptocurrency sales/swaps.

If you plan to develop/sell your own Coin or Token (ie a Token that could be publicly traded) then ideally (eg to minimise liability exposure to the rest of the Group) this function should be carried out by a stand alone Company. This Company could be owned by the Exchange Co or it could be owned by the DAO Foundation and or by stage 2 Investors.

To ensure that the Founders get paid fairly for running the business ideally the Founders should form their own Management Company. This Company would be engaged via contract by the Exchange Co (and the Token Issuing Co) to manage the day to day affairs of the business.

Sometimes we see the DAO Foundation form an IP Company so that the technology/IP can be sold separately later and/or protected from law suits. Where an IP Company is deployed typically it is owned by the DAO Foundation and it hires/engages the Developer Company.

Occasionally we see a Holding Company deployed to own the Exchange Co and or the Token Issuing Co. Typically post launch Commercial Investors (eg if/when you need to do a 2^nd capital raise to fund expansion) would hold shares in this Company as would the Founders of the Enterprise.

There’s no one perfect way to structure a DEX> Every business is different. Moreover you don’t necessarily need to kick off with a menage of Companies – some can be “bolted on” later as the business grows. That said I/OCI can provide detailed guidance in this regard ie we can assist you to tailor a Legal structure designed to meet your particular goals/needs having regard to your budget, potential for legal exposure, location, growth aspirations and time frames.

Decentralized Autonomous Organizations (DAOs)

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. In terms of where you might incorporate a DAO in a low or nil tax environment:

You could set up a Marshall Islands DAO LLC (Check this link for details: https://offshoreincorporate.com/marshall-islands-dao-llcs/ )
You could set up a Wyoming DAO LLC (Check this link for details): https://offshoreincorporate.com/products-services/offshore-companies/wyoming-dao-llcs/
You could set up a Panama Foundation DAO (Check this link for details: https://offshoreincorporate.com/panama-foundation-daos/ )

You could also potentially set up a Caymans Foundation Company to act as a DAO (Check this link for details: https://offshoreincorporate.com/dao-structures-the-caymans-foundation-company-option/ ). However, you’d need to be able to satisfy the Compliance people in the Caymans that what you’re proposing is a not a licenseable under the Caymans VASP Legislation.

Where to Incorporate a Licenseless DEX?

There are several jurisdictions where you could incorporate an Exchange Company (DEX) without needing to apply for an Exchange License or some other form of Special License.

The first such option to consider would be to incorporate as an IBC or as an LLC Company in St Vincent & the Grenadines (“SVG”), a small but well regarded Caribbean Island Tax/Privacy Haven Jurisdiction.

Notwithstanding that SVG has passed VASP (Virtual Asset Service Provider) Licensing Legislation it is possible to set up a Company in SVG presently and conduct cryptocurrency activity without having to apply for a VASP License as the SVG Government is yet to pass regulations governing the License application process.

That said, once the SVG Government passes the Regulations you will need to either redomicile the Company to another jurisdiction (that does not require a license eg Panama or Samoa, see below) or you’ll need to shut the Company down, or you’ll need to apply for a VASP license in SVG.

To set up such a Company in SVG would cost around $US1,500.

For detailed information in regards to St Vincent check this Link: https://offshoreincorporate.com/saint-vincent-and-the-grenadines-svg-companies/

Samoa

If you’re wanting to incorporate a Crypt Token issuing business without having to apply for a special License the second option would be to incorporate as an IBC in Samoa.

Samoa is a small self-governed (former British colony) island nation in the South Pacific region. It has offered a nil tax IBC Company regime since around 1994 and, whilst not a wealthy country, it does have a history of political stability + the comfort of a British style legal system.

Samoa has not passed VASP Legislation and has not yet publicly expressed any intention to do so.

To set up such a Company in Samoa would cost around $1,500. For detailed information in regards to Samoa check this Link: https://offshoreincorporate.com/samoa-international-business-companies/

Panama

The third option to consider if you want to avoid having to apply for a VASP style license would be the Central American Economic powerhouse of Panama.

Panama is an interesting case study …

You see, the Panama authorities favored the implementation of VASP regulation and the Legislature passed the required Bill.

BUT the Panamanian President (as is/was his right) challenged the validity of the proposed legislation by issuing a legal challenge in the Panama Supreme Court.

To many observers surprise, the Court found in the President’s favour ie the proposed Panama VASP was found to be unconstitutional by the Panama Supreme Court and hence struck down ie it never made it past the Bill stage. Hence there is very little (if any) risk, if you incorporate in Panama, of a law being passed subsequent to your incorporation requiring you to either migrate/redomicile out of the jurisdiction or apply for a VASP license.

To set up such a Company in Panama would cost around $1,500. For detailed information in regards to Panama check this Link: https://offshoreincorporate.com/panama-offshore-companies/

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Hong Kong Slashes Corporate Taxes

Hong Kong Chief Executive Carrie Lam has promised lower taxes on profits, tax deductions for businesses that invest in research and development (R&D) and the expansion of conference space in a prime area of Hong Kong in her initial policy declaration delivered last Wednesday, her first such announcement since coming to power earlier this year.

The new strategies seeks to diversify the economy and are likely to attract increased foreign investment (see below).

Most interestingly Hong Kong Companies will soon pay tax of just 8.25 per cent on the first HK$2 million of domestic profits, reduced from the existing flat rate of 16.5 per cent. Profits above HK$2 million will still be subject to the 16.5 per cent tax rate. Non Hong Kong sourced income will still be bankable in Hong Kong (or elsewhere) free from tax.

Lam also announced tax breaks for companies that invest in Research & Development (“R&D”), to be implemented from 2018. For the first HK$2 million, companies will be able to claim a 300 per cent tax deduction. For expenditure beyond the HK$2 million benchmark, a 200 per cent tax deduction will be claimable.

Currently, companies receive only a 100 per cent deduction for R&D expenses. This means that a company with HK$10 million in profit but HK$5 million in R&D expenses would be deemed to have an assessable profit of HK$5 million and would need to pay HK$825,000 in tax. Under the new policy, the same company would be considered as having spent an amount greater than its earnings on R&D and would not have to pay any tax on its profits.

With the increased international pressure on Companies to show some substance on the ground in the country where the Company is incorporated (and with Hong Kong’s liberal approach to issuing residency permits for foreign owners of HK Companies) such a policy is likely to attract entrepreuneurs currently looking for tax free Offshore Incorporation Solutions… Simply put if you can show you have an office in, and or employ staff in, and pay some tax in the country of incorporation (ie if you can show some substance on the ground in the country where your Offshore Company is incorporated) it’s far less likely that your “Offshore” Company is going to come under scrutiny from tax officials in your home state.

Put another way if you want to minimize the risk of your Offshore Company being taxed where you live it’s prudent to show your Company pays a little bit of tax somewhere.

No doubt a generous tax rate of just 8.25% is going to incentivize current and would be nil tax Company owners/users to Incorporate in and set up something on the ground in Hong Kong as the years progress….

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Second Residence Options: PANAMA

If you’re looking at second residency options (and are tired of living in a cold climate!) you might want to consider taking a close look at Panama.

Panama Offers what’s known as a “Friendly Nations Visa”.

With this VISA there is nothing to invest midterm or long term, you just need to:

(a) create a company in Panama where you will be the President and Shareholder and claim that it will be used for professional services in Panama; and

(b) open a bank account in your name in Panama. (This bank account would have to be funded with a minimum of $5,000.00. If there are dependents to be included with the main applicant, then $2,000.00 per dependent needs to be added).

Most of the bank account opening process can be done without you needing to visit Panama, so we can advance 90% with that and, once you arrive in Panama, finalize everything so that the account is opened in approximately 2 weeks.

You will need to travel to Panama at least twice.

On the first trip you will need to meet the bank and finalize the account opening, sign the power of attorney empowering us to file the application and have your passport registered with the Immigration Service.

Once the bank account is open you will need to send funds to activate the account and obtain from the bank a letter of reference and/or a statement of account stamped by the bank. Once you have that we can then start the process of incorporating the company (it takes roughly 5 days to incorporate a company in Panama). The account would need to be funded with $5,000.00 and $2,000.00 extra per dependent if such is the case.

If you’re able to stay in Panama for an extended period, we can file the application right away and obtain the provisional residence permit and multiple entry and exit permit (this last one is necessary to leave the country while the visa is being processed as otherwise upon the return of you can be penalized with a fine of $2,000.00).

On the second trip, ie once the Visa is approved, you will need to travel to Panama to obtain your permanent resident card.

Our legal fees are $4,500.00 + 7% service tax for the main applicant, plus $400.00 + 7% service tax per dependent. The fee includes the company formation.

The approximate expenses are:

$1,690.00 for main applicant and $1,300.00 per dependent. (Children under 12 years of age are exempt from the repatriation deposit of $800.00).

Our legal fees for the attainment of the Multiple Entry and Exit Permit is $200.00 + 7% service tax (per applicant) + $100.00 (per applicant) in costs payable to the Immigration Service.

To open the account, you will need to travel to Panama and meet the bank, and bring with you the following documents:

- Reference letter from a bank

- Reference letter from a lawyer, accountant or other professional

- Reference letter from a business partner

- Copy of your entire passport (the bank will make a copy)

- Copy of a secondary ID such as a driver’s license

- Proof of income, which can be provided in the form of payment stubs from your current employment or by submitting the last three tax returns you have filed.

These documents can all be submitted in English.

For the Visa, it is imperative that you have the bank account, so after the bank account has been opened we can move forward with the Visa application.

The documents each applicant needs to bring with him/her for submission as part of the Visa application are:

- Valid passport

- Police record issued by the FBI, RCMP or equivalent authority in your country (except children under 18)

- Marriage certificate (applicable if legally married and spouse is applying as dependent of main

applicant)

- Birth certificate (applicable if children of the applicant under 18 years of age are applying as dependents of the main applicant).

The rest of the documents can be obtained in Panama, including the Declaration form of personal background information.

Any and all documents issued abroad have to be legalized by means of a Panama Consulate or via Apostille and duly translated into Spanish.

Translations prepared abroad would also need to be legalized via Consulate or be Apostilled.

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

www.offshoreincorporate.com

info@offshorecompaniesinternational.com

Category Archives: Company- Management

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