Why Set Up An Initial Coin Offering (“ICO”) Offshore

In an earlier Article we talked about how you might go about launching an ICO Offshore.


To recap your options are:


(a)    Incorporate a nil tax International Business Company (“IBC”) which enters into an agreement with investors whereby, in consideration of the investor paying some money to the Company, the IBC agrees to issue the Investor with a Redeemable (Digital) Token

(b)   Incorporate a nil tax Private Fund Company (ie a non-licensed Closed End Fund) whereby investors agree to invest for a minimum/fixed period in return for which they receive shares in the Company in proportion to the amount of money they invest. These shares would entitle the investor to share in the profits made when the Cryptocurrency hits the open market and to cash out or reinvest at the end of the agreed minimum investment period.

(c)    Register a Private Foundation (which owns a/the Company issuing the Cryptocurrency) Investors pay donations to the Foundation in fiat currency. The Foundation uses that money to fund a/the tax free Offshore Company which develops/owns the Cryptocurrency. In consideration of the donation made to the Foundation the Company issues a Redeemable Digital Token to the donor/investor.


Twin Company Structure


The greatest concern you would have launching such a business is the risk of local regulators deciding you’re running an illegal Fund or offering an unregistered/unlicensed Financial Product and then (a) freezing the Investment Company’s Bank/etc Accounts and/or (b) prosecuting you for breaches of local Managed Investments Legislation or Corporations Law.


Worst case scenario is the investment doesn’t live up to expectations and the investor complains to local Managed Investment or etc Authorities. The Authorities would trace the money and see it left wherever and landed in the account of The Fund/Token Company. Depending on where that country is the Authorities could take legal action to freeze funds held in that bank account etc.


But imagine if, once funds hit the Fund/Token Company’s account, they are transferred to the Offshore account of a 2nd Company (let’s call it “Offshore Company B”)? Local Authorities would not be able to see where those funds went making it practically impossible to freeze those funds.


Company A could either invest with Company B via a general investment agreement or Company A could hold shares in Company B or Company B could be appointed as Company A’s Fund Manager.


Company A would in effect be the Investors Company. Company B could/would in effect be your Company.


The situation would be analogous to a Non Licensed Close End Fund save that the investors don’t get shares in the Company they instead receive a Token.


Hence ideally you’d want to place moneys received from investors into a separate/2nd vessel.


Where To Incorporate


Certainly you would not want to incorporate such a venture where you live. Ideally the Fund Company (+ Company B should you decide to go down the twin Company structure road) should be incorporated Offshore in a low regulation jurisdiction ie somewhere which hasn’t passed legislation making the manufacture and or marketing of Cryptocurrency or Tokens a Prohibited or Licenseable Activity. Ideally that jurisdiction should be somewhere where it is extremely difficult (ideally impossible) for local Regulators to find out who’s behind the Fund/ICO Company.


If you want to minimize the chance of regulatory interference/prosecution there are in essence 3 boxes you will want/need to tick ie:


1.         You will want to ensure that the Offshore Company/s (“OC”) is/are incorporated in a country which does NOT have a Tax Information Exchange Agreement with your home country. This will eliminate the risk of local authorities using the façade of a tax investigation to try and find out who actually set up (or is behind) the Company.

2.         You will want to ensure that management and control of the company/s is seen to be taking place from “Offshore”. This will entail deploying a (tax haven based) Nominee Director to act as Director of the Offshore Company/s.

3.         If you live in a country which has a Controlled Foreign Corporation law, and/or so that in the case of an investigation you can swear under oath I am not the director or owner or beneficial owner of the Company, you will want to set up a Private Foundation to own your shares in/of Company B ultimately (because a Private Foundation is presumed to be both the legal and beneficial owner of any asset it holds)


This strategy can also deliver tax deferral opportunities.


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