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]

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 anybody︁ 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 does︃ not require licensing (marketing & software development). Any unforeseen issues with having it in the︄ UK?

 

[FDS ADS]

I would say SVG, as it is free from︌ 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 having︀ too much of a regulatory burden to legally do crypto business, and it has the︁ lowest CIT in Europe.
  For licensing Lithuania and Estonia are indeed great options, but more︂ expensive and the licenses come with many regulations, like high requirements for share capital (minimum︃ 125k EUR).
  

 

[Chonsai]

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?

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 the︀ 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]

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

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 in︀ regards to you Panamanian company.

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

In principle, though, this arrangement can work. The revenue this company earns by︈ 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 rest︊ 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 such︌ 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 to︍ consider alternatives. At some point, you may start getting questions how your small UK company︎ is taking in large amounts of money from a single client. Questions may arise regarding️ 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.

 

[Chonsai]

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.
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 on︀ it.
The specific reason for not having an off-ramp I *think*︁ is because it would have licensing implications, rather than not being possible.
My mistake, it's a UK LTD. I did not consider a LLP︃ though, I thought that would not be relevant.
Honestly I thought banking for the UK LTD would be︅ easy - I'll learn about that shortly!

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

Any insights on how︊ 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]

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 cutoff︁ is somewhere around the point where it no longer matches your professional profile and what's︂ 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 keeps︄ 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 a︅ message from your bank explaining how come you earned ###,### GBP last year. You show︆ them the financials of the UK company. Then they might ask to see proof of︇ work you've done for the client. They might look into or ask about who owns︈ the Costa Rica company, what it does, who its customers are, et cetera.

 

[Chonsai]

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 ‍♂️

 

[Blimp5699]

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 is︀ that most VASPs and virtual assets are not considered securities. This seems to be the︁ case with my own VASP as well.

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

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

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

Why is Panama appealing?

 

[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.

 

[Don]

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 each︀ jurisdiction where your clients are based. Sometimes, you can still onboard clients with unregulated foreign︁ structures, assuming you are not involved in direct solicitation.

 

[Chonsai]

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. Other︀ 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 not︂ bother.

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

 

[Meta]

May you share your experience please if it︅ will necessarily become a problem. If the Costa Rica company has proper substance it should︆ look highly unusual but legitimate, should not it? I mean, both entities are ultimately controlled︇ by the same person, the prices for marketing services are probably inflated... but it is︈ a transfer from 0 tax jurisdiction to a high tax one! No tax gains, only︉ losses. If it's a legit business the banks may want to inspect the Costa Rica︊ company documentation, but should be satisfied by it - no money laundering. It does not︋ have a license, well, it does not require one... Jurisdiction arbitrage to avoid VASP licensing︌ requirements, yes, but looks legitimate to me.
The only thing is to not look like︍ 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]

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

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