Crypto currency has continued its meteoric rise in interest over the past few years and is now positioned to rival traditional business in some sectors. However, most crypto investors and traders are doing little protect their downside risk through the use of offshore structures. Subsequently, in this guide I will discuss setting up an Offshore Company for Crypto Trading and what benefits it can provide.
- Why Form an Offshore Company for Crypto Trading
- What Benefits Can a Crypto Trader Reap from Going Offshore?
- Disadvantages of Having an Offshore Company for Crypto Trading
- What Country is Best for Cryptocurrency Operations?
- What Does it Cost to Setup an Offshore Company for Crypto Trading ?
- Final Points & Key Takeaways
- Related Articles
Why Form an Offshore Company for Crypto Trading
Let’s ne honest. The past five years have been a watershed moment with blockchain and digital currency technology. The sector has continued to expand exponentially to the point that even traditional banks and financial institutions are taking notice.
However, as the market continues to grow it is now inviting additional regulation and oversight from the authorities. Along with potential regulation, we are also now starting to see litigation with courts taking a very traditional view of crypto currency operations.
Subsequently, the risks for token issuers, exchangers, and traders are growing daily and you could, potentially, lose everything if you are sued and have all of your assets onshore. Therefore, it makes perfect sense to look abroad for a trading company structure that can save you money as well as reduce your risk of vexatious lawsuits.
What Benefits Can a Crypto Trader Reap from Going Offshore?
Firstly, the privacy you can gain is worth every penny you will need to spend on setting up the company. Most of the traditional offshore jurisdictions have no publicly searchable database of ownership and you can even add in nominee directors (directors in name only) who can serve your interested without your name appearing on any documents. This is a, highly, privacy efficient setup that can go a long way to protecting your assets and operations from prying eyes.
Additionally, depending on the jurisdiction, it can be incredibly difficult to take legal action against an offshore entity. Countries such as Nevis require an individual to lodge a US$100,000 bond with the court before commencing any sort of action. There are also no attachment orders in Nevis which means, even if they can get a judgment against your company, it is nearly impossible to collect upon.
Finally, there are plenty of tax benefits for placing your crypto assets and operations offshore. In many countries, crypto is taxed on a capital gains basis which can be incredibly costly. Depending on your offshore setup, you may find you can shelter those gains offshore or even, potentially, ameliorate them completely.
Disadvantages of Having an Offshore Company for Crypto Trading
Probably the biggest hurdle you are going to face is on the banking front. If you intend to convert your crypto holdings into fiat, at any point, it can be challenging to find a banking institution that is prepared to work with you an accept the risk of dealing in crypto currency.
I know, I know…there is no risk! However, remember that most financial institutions are incredibly conservative and are always decades behind the rest of us on the innovation front. So, it can take some convincing to get them to work with you as a client.
Mostly, you will face lengthy questions on the compliance aspects of your business. I would recommend preparing your own compliance program manual that highlights the various rules that you will be abide by when undertaking crypto trading. This tends to provide them with some comfort that you are legitimate and know what you are doing.
Regardless, you will be able to source banking facilities given that there are plenty of smaller institutions and EMI’s that specialize in banking services for crypto holders. Subsequently, don’t let this dissuade you from going offshore.
What Country is Best for Cryptocurrency Operations?
Probably the most crypto friendly locations currently are Nevis and Panama given they expressly allow crypto for personal funds. Subsequently, they are both relatively easy to form an International Business Company (IBC) in and there are plenty of banking options, around the world, which will accept them.
In fact, Nevis is likely to be my favorite location to form an entity given its strong privacy and legal protections in place. As mentioned, it is incredibly hard to file a lawsuit against an entity based in Nevis and brings with it significant costs.
What Does it Cost to Setup an Offshore Company for Crypto Trading ?
A Nevis Based formation is fairly cheap and you can expect to pay around the US$2,500 mark which includes all professional fees, and the government license costs. If you decide upon using nominee directors/shareholders (I recommend this) then you can add on another US$500 or so annually.
The corporate service provider will require a certified/notarized copy of your passport and proof of address and some compliance checks will be run on you to ensure you are not on a sanctions list anywhere. Other than that, it is a seamless and easy process that will see you with a Nevis IBC or LLC open in around 5 days.
Panama also provides much the same services as Nevis but lacks some of the privacy aspects with a publicly searchable register of companies. If you choose to go with a Panama entity, then you should use nominee directors to ensure your name is not listed anywhere on the register.
Panama entities are somewhat cheaper, and you can get a complete Panama IBC setup for around the US$1,100 price point.
Final Points & Key Takeaways
Litigation is becoming increasingly common across the crypto sphere as trading and investing becomes more common. I’m now seeing significant legal cases going through both the US and Australian court systems which is likely to set precedents on the treatment of crypto and their operations.
Subsequently, the time is now to ensure that you have a liability shield setup between your valuable crypto assets and potential litigants. Through the use of offshore entities, you can effectively separate your holding and trading operations and ensure that there is no legal risk to your crypto assets.
Nevis is an ideal location for the formation of an offshore company to trade crypto related products. It provides not only privacy but also a significant legal barrier to anyone looking to take legal action against you.
At a cost of around US2k it is money well spent in my opinion!
Setting Up an LLC for Crypto Investing
Steven James
