Seven opportunities: Cryptocurrencies go offshore

Cryptocurrencies go offshore

Cryptocurrencies go offshore

“If you are not willing to follow the laws, you have to leave the country to which they apply”

The above headline is not only a famous quote coined by the German writer and statesman Johann Wolfgang von Goethe. Also, it is the legal advice to cryptocurrencies and digital assets which are not welcome anymore in their home country. The digital, Internet-linked nature of coins and tokens makes it possible to go offshore and avoid meeting both the taxman and the regulator.

The cross-border transfer, as well as the establishment of digital businesses, have to carefully observe the local exit regulations and exit taxation rules. Remote-controlled ventures in crypto-friendly countries can’t be easily done in compliance with local legislation. However, they are a better alternative to illegal behavior under the radar of the government.

PUGNATORIUS Ltd. guides through the required steps to set-up or to transfer crypto ventures offshore, fully in compliance with Thai laws and regulations.

Not the cryptocurrency wallets but the crypto-offshore legislations are the new tax havens

Cold Bitcoin storage in the hot Carribean: Crypto offshore legislations are not identical with the renowned tax havens like BVI, Cayman Islands, Panama, and Seychelles. The benefits of traditional offshore jurisdictions are not congruent with the needs of a cryptocurrency investor, project developer or promoter. The German tax system with its tax-free capital gain – following the expiry of a lock-up period – might create offshore legislation around the cities Frankfurt, Munich, and Berlin.  

Cryptocurrencies are not by themselves Super Tax Havens: Holding coins in a private wallet allows protecting assets with complete anonymity, but not necessarily in a legally compliant manner and in-line with the local tax legislation. Crypto offshore structure, the same as traditional offshore tax planning, has the intention to avoid taxes and all kinds of transaction limits, fully in compliance with the regulatory requirements. Tax evasion does not require to go abroad.  

Digital coins with their intangible and easily transferrable characters are well-established financial assets in Europe, America, and Asia. The lack of regulatory hurdles and the limited control density give cryptocurrency an ostensible easiness. However, the present is not always a reliable guide for the future. Financial authorities worldwide are keen to close the legal loophole of independent, uncontrolled and untaxed crypto freedom. There are four pretty accessible gateways to do this:

  • The local  legislation on securities can include the trade of cryptocurrencies 
  • Any interaction with foreign currencies might be restricted by existing FX legislation.
  • Cryptocurrency profits can be taxed, supported by extensive reporting and documentation obligations.
  • Domestic exchanges and platforms can be easily accessed and searched by governmental agencies.

As a consequence, the structure of cryptocurrency ventures in the form of trading, exchange, mining or ICO should take into consideration smart opportunities to transfer the whole, or better a part of the digital project offshore to a more crypto-friendly jurisdiction.

Seven tools and modules for offshore blockchain & bitcoin at [current_btc_usd_price]

The perfect offshore cryptocurrency platform is extralegal, unregulated, untaxable and untouchable. This might be relevant especially for these crypto businesses: 

#1. Bitcoin offshore wallets: For tax and other reasons and depending on the particular case, it might matter where the peer-to-peer digital coins are physically located respectively stored. Offshore exchanges and platforms can be an effective tool for tax planning, succession planning, and asset protection and to avoid other transactional restrictions.

It can make a big difference to choose a beneficial accounting method to calculate cryptocurrency profits (and losses). The selection of LIFO or FIFO and to switch between both methods, offsetting of Bitcoin losses, deferred taxation schemes, use of controlled foreign companies in different jurisdictions, give the tax advisor all the tools and modules for a tax-efficient tax structure onshore and offshore. 

#2. Currency vs. asset vs. cash classification: Authorities prefer to treat digital coins under cherry-picking principles

  • as an asset for tax purposes, resulting in the taxation of capital gains if the coins are transferred into fiat money,
  • as securities under the SEC regulations, resulting in a securities licensing requirement,
  • as a foreign currency for FX regulatory purposes, resulting in an FX license requirement,
  • as cash or cash equivalents for customs purposes, resulting in reporting obligations when entering or leaving the country and asset forfeiture in case of non-compliance, and
  • as a string of data, with respect to the asset protection of the coin owners.

To choose legislation with a favorable qualification of Bitcoins and altcoins enables a tax-efficient structure with the lowest possible regulatory hurdles and a protection mechanism for asset protection. 

#3. Offshore exchanges: The smart combination and inclusion of exchanges outside of regulated and tax-infected jurisdictions might give back some flexibility and freedom which is now or soon limited by government regulations and a deeper control density of cryptocurrency ventures. 

With stricter rules imposed and entry barriers increased, onshore foreign exchange licenses are nearly impossible to be successfully applied. Crypto-offshore legislations make it easy to fulfill the capital and compliance requirements for a foreign exchange business license and securities dealer license as a legal basis for advanced cryptocurrency transactions. 

The Vanuatu Securities Dealers License, which can be applied by individuals and companies, allows bank-like services, Forex (FX) services, and commodity trading & brokerage services. The Mauritius Asset Payment Services Provider (PSP) License does not explicitly permit, but also not rule out cryptocurrency transactions. The devil is in the details and independent professional advice a must.

#4. Offshore mining operations: Bitcoin and altcoin mining fall under the legal framework and tax rules on the mining premises. For cloud mining and Initial Mining Offerings, more flexibility exists to pick the most beneficial jurisdiction.  

#5. Offshore banking: The NSA-infected SWIFT system, no privacy rights, extensive KYC and KYCC requirements, FATCA, the Panama Papers, the Paradise Papers and other negative effects on the banking system to search, delay and seize bank transfers can be circumvented by the blockchain technology in a legally compliant way.

Shifting the focus from private/offshore banking to FinTech is a game-changer for the offshore banking industry. Established offshore jurisdictions can have capital requirements that are incompatible with this volatile asset class. Offshore Financial Centers (OFCs) are in an evolve-or-die situation and, with Ripple as the announced SWIFT killer, the blockchain can save the whole industry.

#6. Offshore ICO: Regulatory hurdles for Initial Coin Offerings are obviously just a matter of time. To transfer the ICO offshore can be essential to achieve business goals and, as a consequence, be highly welcome by the ICO investors. Advantages might be, above others,

  • limited reporting requirements
  • availability or no need for an FX license
  • explicit crypto currency licenses. 

#7. Offshore crypto asset protection: Legitimate asset protection involves strategic planning to protect against unknown future claims. Asset protection structures are vulnerable because a potentially hostile authority or court could ignore a given structure and treat the grantor/beneficiary as the de-facto owner of trust assets. Courts have mechanisms, via contempt orders, to impose sanctions, fines and jail time to compel a debtor to disclose and turn over assets.

Digital assets, like cryptocurrencies, offer a way to keep assets safely away from potentially hostile courts and governments because they exist entirely on the blockchain as a decentralized digital ledger.

Going offshore is no one-size-fits-all solution. Hybrid fiat currency and cryptocurrency structures. How to use an offshore company in a crypto-friendly country for digital coin trading, crypto exchange services, mining business, and ICO Initial Coin Offerings is a complex decision.

Professional services in Thailand’s Fin-Tech sector

PUGNATORIUS Ltd. offers mainly these seven legal and tax services:

  • Thai crypto-compliant company formations
  • Regulatory-avoiding and tax-efficient cross-border structuring
  • Digital asset and financial services licensing
  • Blockchain and ICO advisory services
  • Thai and cross-border tax structuring
  • Cryptotransaction support services
  • Legal opinions and professional statements

The PUGNATORIUS group provides transaction support services for the company formation and company secretary service in Bahamas, Barbados, BVI, Cayman Islands, Chile, China, Curacao, Cyprus, Dubai /VAE, Hong Kong, India, Ireland, Luxembourg, Malta, Mauritius, Netherlands, Nevis, New Zealand, Panama, Seychelles, Singapore, Spain, Switzerland, and Uruguay.

Details can be found at “Legal advice, tax structuring, transaction support services and business matchmaking on Fintech, cryptocurrency and digital asset ventures“.

Disclaimer: This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship.

Comments are now closed for this article.