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Offshore Strategies for Cryptocurrency: Advantages, Drawbacks, and Jurisdiction Selection

Business owners from all over the world often set up offshore companies to legally grow their business in multiple jurisdictions. These foreign (a.k.a. offshore) companies are key to getting the necessary crypto and financial service licenses. 

However, please remember that careful planning is very important here because not all jurisdictions accept digital assets as official, and there might be taxes on these operations. You should also look at all the possible risks in the cryptocurrency market and explore ways to use offshore companies for crypto-related businesses.

Top offshore jurisdictions for crypto

Below, the International Wealth team will look into the offshore states that issue cryptocurrency licenses. You will also learn where in the world you won’t have to pay taxes on these activities and what operating strategies are legal in this sector.

Top offshore jurisdictions for crypto transactions in 2024 

Since Bitcoin first emerged in 2008, the variety of cryptocurrencies has surged, with about 2,000 now available for trade. This figure is poised to grow as new currencies enter the market. 

Digital currencies stand out for their independence from any single nation’s economic system. Regulatory approaches vary widely: some nations have outlawed cryptocurrencies, others regulate them, and some have yet to legally define crypto.

It pays to keep in mind, however, that the establishment of cryptocurrency firms and the acquisition of licenses are not universally permitted. Even in permissive jurisdictions, digital currencies may not be treated as equivalent to traditional currency. These are all critical considerations for those about to pick a suitable country for their cryptocurrency business.

These offshore jurisdictions are considered the best to set up your offshore company in 2024:

  • Europe: The continent in general boasts a crypto-friendly environment, yet Malta, Estonia, Switzerland, and Lithuania are the champions.
  • Asia: Singapore and Hong Kong are key players in the Asian market.
  • North and Central America: In the Americas, Canada and El Salvador are prominent for their crypto activities.
  • Middle East and CIS: The UAE, Kazakhstan, and Georgia are significant in their regions.
  • Offshore Locations: Islands and territories like Nevis, Seychelles, Comoros, and the Cayman Islands may be your prime choice.

While each nation has its own set of laws and adheres to the Financial Action Task Force’s international standards, offshore jurisdictions are particularly appealing due to their tax exemption policies for crypto businesses. These countries typically have certain requirements as far as minimum capital and financial security are concerned, but these criteria vary among companies.

Why opt for an offshore jurisdiction for your crypto business?

  • Confidentiality: Offshore jurisdictions facilitate the separation of digital assets from their owners’ identities, and thus offer substantial protection. While complete anonymity isn’t guaranteed since registration agents will know the owner’s identity, the level of privacy varies.
  • Tax Advantages: Many offshore jurisdictions offer significant tax benefits, exempting international businesses with no local revenue from corporate taxes. However, the extent of these benefits depends on the country of registration, as some European and Asian states have specific income tax rules for licensed financial entities.
  • Organizational Flexibility: Offshore jurisdictions allow for a variety of legal structures to suit different business objectives. Cryptocurrencies can be managed through investment funds, while services are often offered by IBCs or LLCs. Trusts remain the most secure structure, legally separating the capital from the beneficiary.
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Choosing the appropriate jurisdiction and legal structure to set up an offshore company may appear a challenge, and expert advice comes in useful here. Assisted by International Wealth seasoned experts, you will manage the task with ease though!

Incorporating your crypto company in an offshore jurisdiction: reasons to think twice

Cryptocurrency firms choosing offshore jurisdictions might face certain challenges:

  • Converting Digital to Fiat Currency: The task might seem like a walk in the park, but these companies often struggle to exchange cryptocurrencies into fiat money for everyday expenses, which include paying bills, services, and salaries, especially through banks where they hold accounts.
  • Establishing Corporate Accounts: Linked to the conversion issue, despite banks increasingly accommodating crypto services, it’s still a complicated task for offshore companies to open bank accounts. For high-risk businesses, finding banking partners often is particularly tough. A workaround could be partnering with an EMI-licensed payment system that allows account openings for international offshore companies.
  • Dealing with Currency Fluctuations: The well-known volatility of cryptocurrencies comes with risks, especially when a company’s funds are stored on an exchange or in a cryptocurrency account.
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NB: Offshore companies must comply with the financial and tax laws of their residency states. In some countries, this includes dealing with CFC rules that require financial reporting and tax payments.

Use your offshore company to deal in crypto the right way

Setting up a successful cryptocurrency business offshore depends on the chosen country, the founder’s goals, and available funds. It requires significant investment to establish the corresponding legal structures, secure licenses, and ensure the financial health of your future crypto company.

These are the offshore structures that can be incorporated to manage crypto and digital assets:

  • IBC/BCs: Cryptocurrencies are stored in wallets, akin to bank accounts, owned by a legal entity. This secures the beneficiary’s privacy and safeguards the funds, with some jurisdictions offering legal creditor protection.
  • Dual IBC Approach: One IBC holds cryptocurrencies for long-term investment, while another functions as a trading company. The investment IBC funds the trading one, allowing for legal financial activities.
  • Private Funds and Offshore Companies: A private fund within an offshore company may accept crypto donations that form the IBC’s authorized capital.
  • Offshore Trusts: Popular among wealthy investors and big international companies, offshore trusts manage assets like real estate, business interests, and digital currencies, providing both protection and privacy for the beneficiary.
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NB: For your crypto business to stay afloat, you must always adhere to the legal requirements of each jurisdiction that your company operates in and seek regular advice from seasoned legal and tax pros.

Summing up

In 2024, blockchain and decentralized finance (DeFi) are fast-growing domains that often raise debates due to the lack of established regulations in many states.

The potential for growth and profit in the crypto business is clear. Yet, selecting a country and strategy for it requires careful consideration of legal norms and recommendations from experienced advisors in law, finance, and economics.

Please keep in mind that the information provided on the International Wealth website is for your reference only. For advice specific to your needs, please get in touch with our experts.

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