offshore company for investing in crypto/stock market

[hmg78800]

I'm a Lithuania citizen with Estonian residence permit, living in Estonia, running a small marketing‌ business and renting out an airbnb under Estonian OU company. Thinking about starting crypto trading‍ and investing into stocks. Estonian company is absolutely ok in case of taxation, as you⁠ only pay when distributing dividends. But declaration process in case of trading is awful, every⁤ single operation should be declared and PL calculated into EUR(which is kind of tricky for⁣ crypto). So i'm looking into into incorporating some offshore company in jurisdiction with 0% profit/corporate⁢ tax and without requirement to declare/report crypto and stock trades and cheap formation+renewal.
The shareholder︀ of the offshore company could be my Estonian company, so i can dive the profit︁ from trades into real estate on behalf of the Estonian company.
The two questions i︂ have are:
1) what jurisdiction would you recommend? I have cayman islands and seychelles on︃ my mind currently, but may be there are better options.
2) after going through forums︄ i understood that more likely i would not be able to open a bank account︅ under that company, and the only option is some EMI, but my research showed that︆ prices for offshore companies are really high, which makes it not to even start it,︇ as i'm currently targeting into <50K yearly turnover

Maybe i'm missing something?

 

[TrueTroop]

Nevis might be a better option for you;

1) IBC can be registered for ~$1000/year,‌ no taxes, owner of IBC can be different company
2) Cayman is much more expensive,‍ and Seychelles has bad reputation
3) Bank account will be hard for any Caribbean company,⁠ but not impossible

 

[hmg78800]

bump

 

[uplana]

If you have the money I have great success with my Switzerland company I created‌ for some similar purpose. It has great reputation and you can find plenty of financial‍ services that want to work with you.

Business partners and potential new business partners look⁠ at it as a WAOW you have setup your business in Switzerland, you must do⁤ something right.

 

[flyingadventures662]

@uplana

I have the same question as OP. My main issue is the complex and‌ without clear rules way of calculating crypto profits. I want a company somewhere to be‍ like a "black box" for trading and just to pay dividend on what I get⁠ out of it .

Unfortunately, banana offshore republics seem not to work. Or at least⁤ I am too overwhelmed to keep trying to open one (for around a year so⁣ far). Too many issues.

What's the deal (and price) with the Switzerland company? And are⁢ there any similar and cheaper options elsewhere?

 

[Houdini]

Switzerland and Dubai may all work well for you.

Speak with @Fred about Dubai

 

[khinkali]

That look in the tax auditor's eyes when you explain‍ that the money will flow BTC -> XRP -> ETH -> OMG -> BNB ->⁠ whatever. conf/(%

Some jurisdictions allow for NAV (net asset value) accounting instead of trade by trade⁤ in local currency (which is a non starter). I think Cayman allows it, but you⁣ need to be big to justify the costs of setting up there.

Anywhere else?

 

[Don]

"But declaration process in case of trading is awful, every single operation should︈ be declared and PL calculated into EUR(which is kind of tricky for crypto)" - yes,︉ PL needs to be calculated, but you only need to declare when you withdraw dividends.︊ It would be like you have described as an individual though.
Note that you would︋ need to declare ownership and interest of offshore entities to Estonian tax office.

 

[zzzzzz]

Usually if you're the UBO, that company is also considered controlled from Estonia (cfc⁢ rules). In the end the most important thing is your personal tax residency.

 

[JackAlabama]

Cost is very︀ high if you do that in Switzerland.
Important: try to do all trading within a︁ Swiss banks which supports digital assets. There are a few options.
It will massively help︂ with records keeping and creating, otherwise the mess you will create, youd need a full︃ time employee to create records.
Or you try to create or find some analytic tools︄ to do it for you across multi-chains etc.

For these activities however, you will be︅ charged 2 legs and 1 arm usually.

 

[khinkali]

The PL calculations, are these per trade and if so‍ in what currency? Or just measuring PL on deposits and withdrawals?

I had some advice⁠ in Georgia (which for tax is currently similar to the Estonian system), that the Revenue⁤ Service don't need trade by trade or mark to market accounting (just measure deposits to⁣ and withdrawals from the company in local currency). The national bank would need something like⁢ trade by trade reporting (if investing for others) but not in local fiat currency (just︀ a trade log). A good compromise, but 20% tax is high depending on investor location︁ and tax treaties.

 

[flyingadventures662]

Thanks for that, I will look into Georgia!

I am not aware︁ of the Estonian system but I guess it's the same as in Bulgaria: you need︂ PL in the local currency for each trade. Which is a pure hell.

Imagine the︃ following scenario:

You buy ETH as 1,000$
Two weeks later you buy an NFT worth︄ 1 ETH, but at this time the ETH price is 1200$
Later, you trade this︅ NFT for another NFT + ETH on top of it.

To calculate only the last︆ trade, you need:

1) To assume you realized PL of 200$ when buying the NFT︇ (as the ETH you used to buy it has increased in price). Then, convert $︈ to local currency in both days to see if you made PL in the local︉ currency.
2) To calculate the local currency worth of the first NFT when you swap︊ it for the second, and for this you need:
a) the realistic price of the︋ first NFT by the time of the swap in ETH: but what is it? (Is︌ it its floor price, or some other price based on NFT traits?)
b) The price︍ in local currency of the NFT: convert the USD value of the NFT worth in︎ the buy day and in the second deal day. Then convert USD to local currency️ in both days and see what is the PL for that.
c) The price of‌ the extra ETH you add on top (and again, to calculate P/L) of the ETH‍ itself based on if the current ETH price is lower or higher than the price⁠ you bought it. Again, add on top of that the USD to local currency conversion.⁤

Now assume you have 100+ such trades in a year, but between the two deals⁣ you convert the ETH to BTC or whatever else and then back to ETH or⁢ do something complex with it.

Add on top of that the fact the currently no︀ accountant or lawyer was able to tell me with 100% certainty even: what is assumed︁ as an ETH value in $ for a certain deal where you need to take︂ daily rate. What is a "daily rate": close, (high + low)/2, etc...? They say sth︃ like "it doesn't matter that much". Well, that's not Forex. The crypto can do 30%︄ price volatility in a single day so I guess it does matter.

Now assume you︅ make decent profits and the tax office wants to look into your records. I would︆ always be concerned something is not right there. Or at least they can always pretend︇ something is not right.

That's why I am happy to pay even some low (non-zero)︈ tax but not to think about any accounting.

P.S. In Slovenia they had the best︉ crypto legislation proposal ever. You pay 10% on what you convert to fiat. That's it.︊ Nothing else, no complex operations accounting etc... But the parliament rejected it. They are supposed︋ to try again later. If they accept it I think as a no brainier I'd︌ relocate there.

Edit: I just checked Georgia. Sadly, it has a DTA with my country.︍ So the trades should be taxed here and also based on this complex system.

 

[Don]

Add into the equation the fun penal code in Bulgaria according to which the︇ unpaid tax level that triggers criminal responsibility is only 1534 EUR in unpaid taxes that︈ can result in a jail sentence. 6135 EUR or more is considered “heavy crime".
Estonia and Georgia have more or less the same tax system, where you only pay tax︉ on distributions. With an Estonian company, you have better payment processing options and wider access︊ to crypto exchanges. You can open a company with 1 cent share capital, with no︋ bank account, inject crypto as equity, and do your trading. It's even possible to avoid︌ the need of publishing annual financial reports.
In Georgia, you will probably lose out on︍ currency conversions when you need to deal with GEL, but they have a more interesting︎ tax regime for individuals dealing with crypto, and nice opportunities to exchange crypto for cash,️ real estate, etc. You hardly have any limitations when converting crypto to GEL.
In Estonia,‌ cryptocurrencies are regulated while in Georgia and Bulgaria, they are not.

 

[flyingadventures662]

As a Bulgarian, I haven't seen in my lifetime anyone going to jail for non︅ paid taxes.

But I have seen cases of the tax office + the prosecution (both︆ part of the mafia) to blackmail people who try to run a fair business. Just:︇ if you want us to leave you in peace, pay us bribe X.

I remember︈ from other posts you had companies both in Estonia and Bulgaria. I'd highly appreciate it︉ if you PM me to give me a bit more insights about Estonia as I︊ am seriously considering it.

But my doubts are that if I remain tax person of︋ Bulgaria, due to the DTA, they would assume the Estonian company is operating and thus︌ being taxed in Bulgaria under the same ridiculous system.

P.S. In Bulgaria, add to the︍ equation the legal uncertainty if NFT trades need to pay VAT due to being considered︎ copyright deals. I hope this nonsense does not exist in Estonia or other countries.

 

[algotrader]

Check out these comments by⁠ Bulgarian lawyers:

Дискусионно: Кратък преглед на новите правила за контролирани чуждестранни дружества и защо︆ те няма да проработят в България
https://www.newbalkanslawoffice.com/cfc-rules-in-bulgaria/

 

[flyingadventures662]

@algotrader

Thanks! I am very well aware of these.

But as you said, it⁠ applies to CFC rules and thus works for offshore company (from a country without DTA),⁤ because due to the lack of DTA, regarding the PE rule, all you need is⁣ a local Nominee Director there and to claim he manages the company there.

But apart⁢ from CFC, you need to worry about PE.

So when there is DTA in place,︀ it clearly states that if you act on the company in the country, even by︁ using a POA, it is assumed to have a PE there. So you still don't︂ need to worry about CFC in this case but PE ruins everything.

If this was︃ not the case, I would have opened long ago an offshore in some nice place:︄ Luxembourg, Malta, Dubai, etc... (if I am not wrong even the UK offers 0% for︅ offshore companies) and I wouldn't have wasted time trying to arrange things with jurisdictions such︆ as SVG, BVI, Seychelles, etc...

My hope for Estonia (and other DTA-based jurisdictions) was nomadic︇ style, claiming:

1) As a natural person, I am a tax resident of Bulgaria as︈ I have my parents' home there. So I pay 5% and not 20% on the︉ Estonian dividends (thanks to DTA).
2) But I don't live in Bulgaria as I am︊ a nomad, thus, my company has no PE in Bulgaria and is taxable in Estonia︋ for the corporate tax, e.g. 0%.

But this is just my idea which I still︌ haven't discussed with a lawyer and to be honest I have doubts it may work.︍ It seems hard to get 1) and 2) to be convincingly true in the same︎ time.

 

[algotrader]

PE and PoEM are in fact CFC rules to determine wether a company is foreign‌ controlled by another company from abroad but they do not apply to a BG natural‍ person owning a company registered abroad. The Bulgarian NRA won't care about the company except⁠ for the dividends or salary. Ask your lawyer. And since your office address will probably⁤ be in Estonia and your place of effective management around the world you won't have⁣ a problem with these rules anyway. But the real problem with this setup is that⁢ you will have difficulties to open accounts with banks/brokerage firms without a permanent address in︀ Estonia. Therefore, it might indeed be necessary to have a nominee director with address in︁ Estonia.

 

[flyingadventures662]

I have asked my lawyer and one accountant with︂ legal degree, they both confirmed DTA claims PE in Bulgaria. But I will ask again.︃ It's just written clearly in the DTA, you can check point 5) in the PE︄ section.

The fact PE is a CFC rule does not mean it can exist outside︅ of the CFC scope as a legal concept.

I really, really hope you are right.︆ But it sounds too good to be true and I was already explicitly told the︇ opposite by my tax consultations.

I don't think any bank will accept me anyway, and︈ I was ready for it as I was preparing to use jurisdictions like SVG.

 

[hmg78800]

I have discussed it with tax board and they said same rules apply for companies too,⁤ the only difference is that company only pays taxes while distributing dividends, so losses are⁣ not taxed, but still too much effort to declate every trade, especially in my case,⁢ as i trade crypto against crypto(eth/btc pair for example)
What do︂ you mean? company has its own assets, liabilities, taxes, etc. and my personal tax residency︃ only matters if i'm taking money out of company

 

[Don]

Im afraid this is⁢ incorrect.

The obligation to declare crypto transactions is completely different for individuals and companies. In︀ the case of companies, separate transactions are not taxed. Only the distribution of profits, i.e.︁ the payment of dividends, is taxed. The profit distribution is reflected in Appendix 7 of︂ the income and social tax declaration (TSD), which is submitted to the Tax and Customs︃ Board by the 10th of each month.