Crypto staking is the practice of locking your digital Tokens to a blockchain network in order to earn rewards – usually a percentage of the tokens staked. Think of it as being the Cryptosphere version of fixed interest (term deposit) investments (ie where you commit to leave a certain amount of money with your Bank for an agreed amount of time and the Bank guarantees to pay you an agreed/fixed rate of interest upon maturity).
Cryptocurrency staking can take many forms, but it generally falls into two categories: active and passive.
Active Crypto staking is the process of locking your Tokens to a network for the purpose of actively participating in the network. Active participants may validate transactions and create new blocks to earn Token rewards.
Passive Crypto staking involves simply locking your Tokens to a blockchain network to help keep it secure and operating efficiently.
Here’s a basic example: Suppose a blockchain network is offering a 5% reward for a staking period of, say, a month. You decide to lock up and stake 100 Tokens in the network. After a month, you’re able to access your staked Tokens and you receive 5 additional Tokens as your reward.
Crypto Staking Using an Offshore Company
Straight up you’ll be pleased to hear that Offshore Companies are widely used in the Cryptosphere for Staking!
The starting point would be to set up a Company in a nil tax jurisdiction. Ideally, ie for tax optimization, that Company would be seen to be managed/controlled from Offshore (which would entail the appointment of an arms-length, nil tax jurisdiction based, “Nominee” Director) & beneficially owned from Offshore (which would entail the deployment of a Private Foundation to act as shareholder).
The Offshore Company would then acquire some Cryptocurrency. There are two ways to go about this. Either you would lend money (on an arms length basis) to the Offshore Company and it would acquire the Crypto or you could transfer Cryptocurrency owned by you to the Offshore Company (Check out this Article which explains how you might go about that: https://offshoreincorporate.com/how-to-transfer-ownership-of-cryptocurrency-to-an-offshore-company/ )
Once that’s done the following steps would apply…
Choose the form of Cryptocurrency you wish to stake. Not all Cryptocurrencies support staking, so your first step would be to choose an appropriate Token. Cryptocurrencies that use proof of stake or a similar consensus mechanism usually support staking.
Acquire the Cryptocurrency. Your next step would be to acquire the desired Crypto or exchange your current Crypto into your preferred staking Cryptocurrency. You can use one of many Crypto exchanges to complete this acquisition/exchange.
Select a staking platform. Choosing a staking platform is the most important part of this process. Your selected platform determines the type of staking and whether the Token storage is custodial or noncustodial.
Stake your Cryptocurrency. With the preferred Tokens in your digital wallet and a staking platform selected, you’re ready to follow the protocols of the platform to stake your Crypto. Staking a Token locks it to a blockchain network for a predefined time period.
Earn rewards. Your staked Cryptocurrency should (hopefully) then begin to generate rewards/returns in the form of more Crypto/Tokens!
All returns in this instance are generated by the nil tax Offshore Company. Those profits would be booked “Offshore” ie in a nil tax environment. Provided you take care in terms of how you go about structuring/administering your Offshore Company, potentially you should only have to declare/pay tax locally on any income that may be paid to by the Offshore Company. The remainder of your staking profits would be banked, and/or would be reinvested, Offshore potentially tax free.
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.
