Pre IPO buyin, and in particular Cryptocurrency speculation, is becoming a popular way to potentially make a lot of money very quickly.

We’ve seen many clients invest in the early stages of the development of new Technologies & Cryptocurrencies and go home with substantial sums of money in their pockets.

So what is a cryptocurrency and why are cryptocurrencies so popular?

In very simple terms a Cryptocurrency is a non-asset based digital means of exchange. Typically value is created by a mathematical process called mining whereby the ”coin’ is birthed once a mathematical equation has been closed. This equation grows mathematically tougher to solve the more coins are mined.

Particularly for those investing in the embryonic stages of a digital currency’s development (eg pre IPO) there is the potential for a massive capital gain to be realised. For example when Bitcoin came to market it started at circa $1 and grew at its height to over $1,200.

For those who get in on the ground (eg if you help fund the cost of bringing such products to market) the returns are potentially even higher.

If you are investing or thinking of investing in a program such as this, the prudent thing to do would be to set up a tax free Offshore Corporate structure to hold this investment before its value booms.

To summarise how it would work is:

• You set up a zero tax Offshore Company eg an International Business Company (“IBC”).
• The IBC would enter into a contract with you to buy the Investment/Cryptocurrency at its present value.
• The sale will need to be seen to be at fair market value (you can’t just sell the Investment to the IBC for one Dollar/Euro!). And the contract of sale will need to be seen to be on normal or reasonable commercial terms. That said the sale contract could be an instalment or vendor finance contract ie where a deposit is paid and ownership is transferred but the seller retains a mortgage until such time as all the instalments have been paid.
• Depending on where you live you may be able to “gift” the property to an Offshore entity. It might be difficult to explain why you’re gifting a piece of property to an IBC hence the smarter thing to do might be to set up (and transfer ownership of the property to) a PIF ie Private Interest Foundation (eg a Charitable Purpose Foundation). This one might survive the “sniff test”. Why? Because all day every day well intentioned wealthy persons gift money or assets to Charitable causes.
• Once the investment booms your IBC sells or exchanges the investment for hard currency (eg USD) and banks the profit free of tax.
• For all intents and purposes the IBC’s trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC Is structured properly).
• If you structure the Company correctly you should only be liable for tax at home once you draw down money from the Company.
• This should enable you, via the power of compounding, to grow your nest egg MUCH faster than you would otherwise had your company been liable to account for Corporate tax each year (eg up to 40%, depending on where you live).

Timing

Are you involved in an Investment or Trading Program (ie Trading bank/negotiable instruments) or a Private Placement Program and expecting a big pay day soon or in the not too distance future?

If so there are certain things you need to be aware of.

Often we are approached by persons looking to set up a tax free Offshore Company and or Tax Free Offshore Bank Account in anticipation of receiving profits from a private placement or bank trading programs.

The common misapprehension of 99% of such clients is that all they have to do to avoid paying tax at home on such a windfall is to set up an Offshore Company or Bank Account and have the proceeds paid into that

If you are in this position, to avoid tax in your home county, you will need more than just an offshore bank account to receive funds into.

Tips:

1. You will need to ensure that any contracts or instruments held or signed entitling you to a payday are sold to, transferred to or assigned at law to your tax free Offshore Company before you becomes entitled to be paid the profit.
2. Immediately you become entitled to receive the profit, even if you haven’t received the money yet, it’s a taxable event.
3. Hence if you want to avoid having to pay tax at home on the profits of your trading or private placement program you will need to set up a tax free Offshore Company BEFORE he become entitled to the profit.

Local laws can have an impact. Hence it would be wise to seek local legal/tax/financial advice before committing to invest in such a product/offering and before committing to set up an Offshore Corporate structure for such purposes.