Incorporating a Crypto Company: Guidance Needed!

[Chonsai]

Hi everyone,

I'm getting into the world of business and have already attempted and failed at offshore incorporation. I'm now readying to attempt again, with offshorecorptalk as my guiding light!
Here's a breakdown of what I'm doing and my needs:

Business Operations:

• Sale of NFTs (I'm aware this means VASP licensing in many places, including the UK where I am currently a resident of (yikes)).
• Sale of 'credits' within our ecosystem (not a real cryptocurrency, think of them like in-game gems). Initially, we'll accept only Crypto payments but might consider fiat later on.
• Running crypto wallets.

Payment & Conversion Needs:

• I'll need to pay various contractors and expenses, many of whom won't accept Cryptocurrency.
• Thus, converting crypto revenue to FIAT is crucial, ideally through a system like Binance/Kraken -> Revolut or similar. Would this require special licensing?

Personal Preferences:

• I'm considering living in Europe or Asia. If I can live in the same jurisdiction as my company, whoopie!
• Also open to incorporating the company in a jurisdiction where I don't need to be physically present.

Company Requirements:

• Global incorporation options that don't give me a headache.
• Willing to pay corporate tax, but preferably capped at 20%.
• Somewhere with relaxed regulations, so easy to achieve licensing that won't cost $100k and take 6 months, or no licensing at all.

Seeking Advice On:

• Suitable jurisdictions for such a crypto company.
• Potential licensing and regulatory challenges for those jurisdictions.
• The tax implications for said jurisdiction.
• The process and best practices for operating an offshore company, given I'm a newbie.

I'd appreciate any insights or suggestions on these topics. Has anyone here gone through a similar process? Any pitfalls to watch out for?

I'm willing to pay for a mentor but most law firms just specialise in one jurisdiction, and coST SO MUCH MONEY.

Thanks! 🙂

 

[Ancova]

I would say Lithuania is the safest bet. We always send such inquiries our lawyers there.

 

[Chonsai]

Ancova said:
I would say Lithuania is the safest bet. We always send such inquiries our lawyers there.
Click to expand...

Thanks for your response, I have also heard Lithuania is a good candidate for EU companies.

I've had some consultation with various incorporating agents (legalbison seemed the most competent) and have come to the following structure:

Costa Rica LLC

• No tax
• No licensing as crypto is not recognised
• No KYC/AML requirements
• Minimal corporate obligations.

The only issue is that I do not have access to a fiat off-ramp. The solution?

UK LLC

• Invoices the Costa Rican LLC for costs such as marketing & development
• Takes crypto as payment
• Off-ramps to fiat, pays for all necessary services.

If anybody has any pointers or words of warning about this setup, I'd love to hear it. I have been lazy in selecting the jurisdiction for the second LLC as it does not require licensing (marketing & software development). Any unforeseen issues with having it in the UK?

 

[FDS ADS]

Chonsai said:
Hi everyone,

I'm getting into the world of business and have already attempted and failed at offshore incorporation. I'm now readying to attempt again, with offshorecorptalk as my guiding light!
Here's a breakdown of what I'm doing and my needs:

Business Operations:

• Sale of NFTs (I'm aware this means VASP licensing in many places, including the UK where I am currently a resident of (yikes)).
• Sale of 'credits' within our ecosystem (not a real cryptocurrency, think of them like in-game gems). Initially, we'll accept only Crypto payments but might consider fiat later on.
• Running crypto wallets.

Payment & Conversion Needs:

• I'll need to pay various contractors and expenses, many of whom won't accept Cryptocurrency.
• Thus, converting crypto revenue to FIAT is crucial, ideally through a system like Binance/Kraken -> Revolut or similar. Would this require special licensing?

Personal Preferences:

• I'm considering living in Europe or Asia. If I can live in the same jurisdiction as my company, whoopie!
• Also open to incorporating the company in a jurisdiction where I don't need to be physically present.

Company Requirements:

• Global incorporation options that don't give me a headache.
• Willing to pay corporate tax, but preferably capped at 20%.
• Somewhere with relaxed regulations, so easy to achieve licensing that won't cost $100k and take 6 months, or no licensing at all.

Seeking Advice On:

• Suitable jurisdictions for such a crypto company.
• Potential licensing and regulatory challenges for those jurisdictions.
• The tax implications for said jurisdiction.
• The process and best practices for operating an offshore company, given I'm a newbie.

I'd appreciate any insights or suggestions on these topics. Has anyone here gone through a similar process? Any pitfalls to watch out for?

I'm willing to pay for a mentor but most law firms just specialise in one jurisdiction, and coST SO MUCH MONEY.

Thanks! 🙂
Click to expand...

I would say SVG, as it is free from regulations.

 

[Don]

I believe the key here is doing this cost-effectively since you are only a startup.
I'm currently selling one such structure (Estonia-Bulgaria, see my other thread), so I'll focus on highlighting the benefits of this here:

Business Operations:

• Sale of NFTs (I'm aware this means VASP licensing in many places, including the UK where I am currently a resident of (yikes)).
  can be possibly structured as exempt from VASP licensing in Estonia, but you still need to follow AML compliance
  
  
• Sale of 'credits' within our ecosystem (not a real cryptocurrency, think of them like in-game gems). Initially, we'll accept only Crypto payments but might consider fiat later on.
  Token issuance can be structured exempt from licensing in Estonia.
  
  
• Running crypto wallets.
  Here is where Bulgaria kicks in. It stands out with not having too much of a regulatory burden to legally do crypto business, and it has the lowest CIT in Europe.
  For licensing Lithuania and Estonia are indeed great options, but more expensive and the licenses come with many regulations, like high requirements for share capital (minimum 125k EUR).

 

[Chonsai]

Giorgi Kurtsikidze said:
I would say SVG, as it is free from regulations.
Click to expand...

You are implying Costa Rica has regulations that would apply, but the advice I received contradicts that. Could you clarify a little further if Costa Rica is necessarily a *bad* choice?

Don said:
I would say the key would be doing this cost-effectively since you are only a startup.
Click to expand...

I agree and was strongly considering this option, however for set up of the Costa Rica LLC it will only be costing $3,000. I don't believe there are any other overheads related to it, and with the benefit of then not having to worry about any regulations at all + no tax, it's even better if I can do it right.

 

[FDS ADS]

Chonsai said:
You are implying Costa Rica has regulations that would apply, but the advice I received contradicts that. Could you clarify a little further if Costa Rica is necessarily a *bad* choice?
Click to expand...

I am saying that Saint Vincent and Grenadines is the best, I am not sure Costa Rica is good or not.

 

[Sols]

Regarding Saint Vincent and the Grenadines, keep an eye on the regulatory developments. Notice To All Virtual Assets Service Providers And Persons Seeking To Conduct Business As A Virtual Asset Service Provider ”“ Financial Services Authority

Chonsai said:
Costa Rica LLC

• No tax
• No licensing as crypto is not recognised
• No KYC/AML requirements
• Minimal corporate obligations.

The only issue is that I do not have access to a fiat off-ramp. The solution?
Click to expand...

It's difficult but not impossible to place a Costa Rican company with high risk EMIs in Europe. You would be limited to SEPA and EUR, and probably high fees.

Tax residence of the Costa Rica company is also a concern, just like we discussed in regards to you Panamanian company.

Chonsai said:
UK LLC

• Invoices the Costa Rican LLC for costs such as marketing & development
• Takes crypto as payment
• Off-ramps to fiat, pays for all necessary services.

If anybody has any pointers or words of warning about this setup, I'd love to hear it. I have been lazy in selecting the jurisdiction for the second LLC as it does not require licensing (marketing & software development). Any unforeseen issues with having it in the UK?
Click to expand...

Since there is no such thing as LLC under UK law, do they mean private limited company (LTD) or Limited Liability Partnership (LLP)?

In principle, though, this arrangement can work. The revenue this company earns by invoicing the Costa Rican entity becomes taxable income. If the recipient is a UK LTD, you can pay yourself a reasonable salary to lower the tax burden and the rest as dividends, both of which would be subject to tax again.

If it's an LLP, it's just personal income tax applicable for you as a UK resident.

Banking for such an entity is difficult but not as difficult as banking a Costa Rica company.

However, there is a limit to how much you can scale this before you have to consider alternatives. At some point, you may start getting questions how your small UK company is taking in large amounts of money from a single client. Questions may arise regarding how much money is staying in Costa Rica vs how much you are paying yourself. Something to consider if you plan to scale this beyond just being a nice little cash cow for yourself into a bigger business.

Toggle signature
This is the probably the answer to your question.

 

[Chonsai]

Sols said:
keep an eye on the regulatory developments
Click to expand...

I was told when considering which jurisdiction to register my first company (Panama) that SVG would have VASP regulation likely by the end of the year, and they're stepping towards it, that was a big reason I chose Panama.

Sols said:
Tax residence of the Costa Rica company is also a concern
Click to expand...

I will work with a more reputable registering agent who will assist, to ensure the company is structured & operates appropriately. Something such as nominee directors, place of office... Whatever Costa Rican lawyer requires to sign off on it.

Sols said:
not impossible to place a Costa Rican company with high risk EMIs in Europe
Click to expand...

The specific reason for not having an off-ramp I *think* is because it would have licensing implications, rather than not being possible.

Sols said:
If it's an LLP, it's just personal income tax applicable for you as a UK resident
Click to expand...

My mistake, it's a UK LTD. I did not consider a LLP though, I thought that would not be relevant.

Sols said:
Banking for such an entity is difficult
Click to expand...

Honestly I thought banking for the UK LTD would be easy - I'll learn about that shortly!

Sols said:
there is a limit to how much you can scale this
Click to expand...

Understood, specifically in regards to the UK LTD. In regards to the Costa Rican company I would not have thought scale would bite me in the a*s, then again I might be wrong. I will investigate other jurisdictions that may be good for a 'business services' company .

Any insights on how much scale you are talking for the UK LTD? £50k? £250k? £2.5m? Obviously, nobody knows, but your guess is better than mine.

Thanks for your replies 🙂

 

[Sols]

Chonsai said:
Honestly I thought banking for the UK LTD would be easy - I'll learn about that shortly!
Click to expand...

Banking for a UK marketing and development services company: easy.

Banking for a UK marketing and development services company that gets paid in crypto from a Costa Rica company: not so easy.

Chonsai said:
Understood, specifically in regards to the UK LTD. In regards to the Costa Rican company I would not have thought scale would bite me in the a*s, then again I might be wrong. I will investigate other jurisdictions that may be good for a 'business services' company .

Any insights on how much scale you are talking for the UK LTD? £50k? £250k? £2.5m? Obviously, nobody knows, but your guess is better than mine.
Click to expand...

The cutoff is somewhere around the point where it no longer matches your professional profile and what's reasonable for a company like yours that's being operated "normally."

250,000 GBP is probably fine. As you get closer to a million, it starts becoming unusual that one person keeps getting paid so much money from a single company, in crypto, from Costa Rica.

Also at some point, your personal bank may start asking questions. One day you get a message from your bank explaining how come you earned ###,### GBP last year. You show them the financials of the UK company. Then they might ask to see proof of work you've done for the client. They might look into or ask about who owns the Costa Rica company, what it does, who its customers are, et cetera.

Toggle signature
This is the probably the answer to your question.

 

[Chonsai]

It's annoying I can't edit my posts, but on your point

Sols said:
It's difficult but not impossible to place a Costa Rican company with high risk EMIs in Europe
Click to expand...

It's not due to licensing, rather the registering agent thinks it's impossible to do ”â™‚️

 

[Blimp5699]

Chonsai said:
It's annoying I can't edit my posts, but on your point

It's not due to licensing, rather the registering agent thinks it's impossible to do ”â™‚️
Click to expand...

I find myself in a situation similar to yours, as I am also seeking advice for operating a VASP (Virtual Asset Service Provider). I'm interested in finding the most cost-effective and low-risk location for this. Would you still recommend Panama for this purpose?

I've noticed that St. Vincent and the Grenadines (SVG) has enacted its Virtual Asset (VA) Act, but the compliance costs are quite high, around $20,000 USD. Seychelles, on the other hand, does not have specific VASP regulations. They do have securities laws, but my understanding is that most VASPs and virtual assets are not considered securities. This seems to be the case with my own VASP as well.

I'd greatly appreciate any insights or recommendations on this topic. Thank you!

Costa Rica a Bill to Regulate Cryptocurrencies that was put forth for consideration: Bill to Regulate Cryptocurrencies in Costa Rica

So currently VASP/VA are unregulated in Costa Rica, although I anticipate this will soon change.

Why is Panama appealing?

Last edited: Sep 6, 2023

 

[Blimp5699]

Who are you using for your Panama company formation. This seems good, although I've heard mixed opinions about BBCIncorp: Panama offshore company formation | all fees included

Besides a Panama IBC, what other licenses do you recommend to operate a VASP with full compliance? The VASP I intend on running provides services for skills-based blockchain video games, consider the types of transactions you typically see in video games and now imagine them on-chain -- well I intend to provide services to do that.

Last edited: Sep 6, 2023

 

[Don]

Blimp5699 said:
Who are you using for your Panama company formation. This seems good, although I've heard mixed opinions about BBCIncorp: Panama offshore company formation | all fees included

Besides a Panama IBC, what other licenses do you recommend to operate a VASP with full compliance? The VASP I intend on running provides services for skills-based blockchain video games, consider the types of transactions you typically see in video games and now imagine them on-chain -- well I intend to provide services to do that.
Click to expand...

With Panama IBC, you can generally operate as VASP in jurisdictions where VASP activities are not regulated.

Jurisdictions are catching up and regulating VASP activities, so you must comply accordingly in each jurisdiction where your clients are based. Sometimes, you can still onboard clients with unregulated foreign structures, assuming you are not involved in direct solicitation.

 

[Chonsai]

Blimp5699 said:
Who are you using for your Panama company formation. This seems good, although I've heard mixed opinions about BBCIncorp: Panama offshore company formation | all fees included

Besides a Panama IBC, what other licenses do you recommend to operate a VASP with full compliance? The VASP I intend on running provides services for skills-based blockchain video games, consider the types of transactions you typically see in video games and now imagine them on-chain -- well I intend to provide services to do that.
Click to expand...

I do not recommend BBCIncorp. I have only incorporated one company, so I do not have any recommendations.

BBCIncorp took 2 months to incorporate where it should have taken 3 weeks. Other providers offer it to be done in like 2 weeks - it was a joke. The respond once a day, regardless of how fast I reply to them. Do not bother.

Panama you can operate a VASP without any licensing requirements AFAIK (have discussed with many lawyers and registering agents).

 

[Meta]

Sols said:
Banking for a UK marketing and development services company: easy.

Banking for a UK marketing and development services company that gets paid in crypto from a Costa Rica company: not so easy.


The cutoff is somewhere around the point where it no longer matches your professional profile and what's reasonable for a company like yours that's being operated "normally."

250,000 GBP is probably fine. As you get closer to a million, it starts becoming unusual that one person keeps getting paid so much money from a single company, in crypto, from Costa Rica.

Also at some point, your personal bank may start asking questions. One day you get a message from your bank explaining how come you earned ###,### GBP last year. You show them the financials of the UK company. Then they might ask to see proof of work you've done for the client. They might look into or ask about who owns the Costa Rica company, what it does, who its customers are, et cetera.
Click to expand...

May you share your experience please if it will necessarily become a problem. If the Costa Rica company has proper substance it should look highly unusual but legitimate, should not it? I mean, both entities are ultimately controlled by the same person, the prices for marketing services are probably inflated... but it is a transfer from 0 tax jurisdiction to a high tax one! No tax gains, only losses. If it's a legit business the banks may want to inspect the Costa Rica company documentation, but should be satisfied by it - no money laundering. It does not have a license, well, it does not require one... Jurisdiction arbitrage to avoid VASP licensing requirements, yes, but looks legitimate to me.
The only thing is to not look like a shell (well, and to not be one, to have some operations in Costa Rica).
Would you think transfer pricing 0-tax -> high-tax may be fine?

 

[Sols]

Meta said:
May you share your experience please if it will necessarily become a problem. If the Costa Rica company has proper substance it should look highly unusual but legitimate, should not it? I mean, both entities are ultimately controlled by the same person, the prices for marketing services are probably inflated... but it is a transfer from 0 tax jurisdiction to a high tax one! No tax gains, only losses. If it's a legit business the banks may want to inspect the Costa Rica company documentation, but should be satisfied by it - no money laundering. It does not have a license, well, it does not require one... Jurisdiction arbitrage to avoid VASP licensing requirements, yes, but looks legitimate to me.
The only thing is to not look like a shell (well, and to not be one, to have some operations in Costa Rica).
Would you think transfer pricing 0-tax -> high-tax may be fine?
Click to expand...

As long as you can answer all questions the recipient bank will have and as long as the recipient bank is crypto friendly/tolerant, you should be fine. Costa Rica is considered medium or high risk by most banks outside of South America.

If you have legal opinions to support your assumption that VASP license isn't required, that helps. Remember, you might not need a VASP license to offer crypto services from Costa Rica in countries that don't have VASP regulations. But if you're offering crypto services from Costa Rica to for example Denmark or Singapore, which have VASP regulations, you are probably breaking Danish/Singaporean law and not engaged in lawful activities.

Toggle signature
This is the probably the answer to your question.