Recently we were approached by a client who had acquired Cryptocurrency some time back and who is confident that Crypto generally (and Bitcoin in particular) is going to go on a Bull Run (EG many respected Industry pundits are predicting that the price of a Bitcoin will punch through the $US100,000 price barrier by year’s end).
In short, the client was inquiring about strategies for how to get the Crypto into a Tax Free Offshore Corporate structure before the price booms without having to incur any, or any substantial, CGT (Capital Gains Tax) liability pre-transfer.
Some eminent tax lawyers have suggested that there are two methods one could consider deploying in terms of transferring Crypto cost effectively to a (nil tax) Offshore Company.
The first method would be to characterize the proposed Foundation as a Charitable or Benevolent Foundation and to “donate” the Crypto to the proposed Foundation. Would this amount to a disposal” such as might trigger the application of CGT (Capital Gains tax locally?). Maybe (hopefully) not! Nevertheless, that is a question you will need to seek specialist local Tax Advice on.
The second option, would be to lend the Crypto to the Offshore Company, that is you and the Company would enter into an arms-length loan agreement. This loan ideally should be seen to be on commercial terms with a commercially realistic/explicable interest rate (ideally, from your perspective, this would be the lowest interest rate possible). Usually, we see such agreements with loan periods of 30 years with the first 5 years of the loan only requiring the borrower to make interest only repayments to the Lender. Whatever profit the borrower makes on the Crypto it gets to keep (less the interest component, which it pays to you and which would presumably be reportable/taxable income your side). Potentially the interest only repayment period could be rolled over every 5 years such that the borrower would not have to pay the back the principle until you’ve moved to a nil tax jurisdiction and want to shut down the structure and cash out (See below).
That said for this strategy to work you’ll want to structure/administer the Offshore Company in such a way as to minimize the chances of the Company being called upon to pay taxes onshore/where you live.
For many clients this could potentially be achieved by setting up a nil tax “Offshore” Company:
(a) With an Offshore Management System ie the Company would need to be seen to be managed/controlled from Offshore (which would entail the deployment of an active nil tax jurisdiction based “Nominee” director);
(b) With an Offshore beneficial ownership structure ie the “beneficial owner of the Company would be seen to domiciled Offshore ie in a nil tax environment (which would entail the deployment of a Private Foundation to act as the shareholder of the Company – as a Private Foundation is presumed at common law to be both the legal owner and the beneficial owner of any asset it owns/holds.
Would you like to know more? Then please Contact Us:
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.
