Entrepreneurs who are just starting to think about expanding their crypto business activities and intend to enter the international market, or who just want to obtain crypto license and register a company, are often interested in the question of choosing a country for registering a company. When opening a company abroad or investing funds, it is important to remember that there are many jurisdictions, each of them has its own tax rules, its own policy on asset protection, and confidentiality of information about beneficiaries. Moreover, founders registering legal entities abroad pursue different goals. Below we will look at the difference between offshore crypto licenses and onshore ones for crypto-activities, and make short comparative jurisdiction analysis.
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Overview of Offshore and Onshore Crypto Licenses
Let’s take a brief excursion into what is the main difference between these two categories of market spaces and make a short regulatory comparison. The main feature of offshore companies is that companies registered in their territories are exempt from income tax and do not submit reports, provided that they do not operate within the state. Such companies only maintain and store accounting records and pay an annual fee.
In connection with global deoffshorization today, classic offshore companies, especially those on the “black” lists, are increasingly causing distrust among regulatory authorities and foreign partners. International banks often refuse to open accounts and serve offshore companies; they carefully check the activities of the legal entity and its actual presence in the country of registration.
Onshore jurisdictions include jurisdictions that do not offer tax benefits. As a rule, these are highly developed countries with strict requirements regarding reporting and business transparency. Characteristic features of onshores:
- developed financial sector;
- there is income tax;
- necessity to submit reports.
The popularity of such states for doing business is low due to the high cost of servicing business and increased interest from government agencies, however, onshores are sometimes used in multi-level schemes.
In terms of regulatory frameworks, advantages of companies from non-offshore jurisdictions include next-listed.
- Respectability and legal protection.
- Wider opportunities for opening bank accounts.
- Possibility of using double taxation agreements.
As global crypto industry standards say, disadvantages of such countries include the high cost of registration and the cost of maintaining companies, associated, among other things, with the real liability of local directors, high income taxes, the need for annual filing of financial statements and audits, and the openness of the register of data on directors and shareholders.
Next-listed is typical for standard onshore crypto-companies.
- Maintaining accounting records and complying with reporting audit requirements in the country of registration
- Calculation and payment of taxes in accordance with standard legislation (without benefits).
- The right to apply treaties for the avoidance of double taxation.
- Complete and real workflow.
If we talk about offshore VS onshore benefits, it should be mentioned that distinctive characteristics of offshore crypto companies are next-mentioned.
- Absence or low level of tax burden on export earnings.
- No requirement to submit tax reports.
- Information about beneficiaries is closed to public access.
- Relatively low costs for company registration and administration.
- Availability of a mandatory annual contribution to the offshore budget (commission for company renewal).
Sometimes the characteristics of such crypto license jurisdiction include the presence of a country on the “gray” or “black” lists of international organizations and countries. Taking into account global changes in the economy and international regulation, the situation has changed greatly.
Licensing Procedures for Offshore and Onshore: Steps, Documentation and Crypto License Requirements
So, let’s talk about the crypto law of offshore spaces. Both local and foreign companies can obtain a cryptocurrency license. If necessary, a foreign enterprise can open a subsidiary or sister company offshore. The process of registering a new enterprise usually does not take more than 2-3 days.
Applicants must provide the regulator with next-mentioned documents for license acquisition:
- an application form filled out in accordance with all the rules;
- detailed business-plan;
- documentation of all directors and owners of the company;
- AML-policy manual and fulfillment of compliance requirements;
- complete list of services that the company will provide;
- copies of company registration documents confirming the legality of the business.
If the company has already carried out activities previously, then bank statements from the corporate account will be needed. The company also needs to provide the regulator with financial guarantees. Of course, the process of obtaining permission differs depending on the jurisdiction that the entrepreneur chooses.
Before submitting an application, the licensee registers a company in the territory of the selected offshore. Next he/she must:
- collect evidence of crypto compliance with business-principles;
- ensure that there is no prosecution for money laundering and promotion of terrorism;
- show full technical readiness to conduct business.
When choosing an offshore where it is most profitable to work with cryptocurrency, it is important to take into account some of the nuances of regulating the instruments. It is possible to identify countries that equate working with such currencies to ordinary activities, that do not consider cryptocurrency to be subject to taxation, and that issue official licenses for work. Among best crypto license jurisdiction spaces in this category we should mention Gibraltar, Cayman Islands, BVI and some others.
Successful registration of a company with a license largely depends on the completeness and correctness of the package of documents. In addition, registration of an offshore company with a license requires compliance with rules regarding the organizational and legal form, the minimum amount of authorized capital and subsequent reporting. Compliance with these conditions is necessary not only to obtain a license, but also to ensure that it is not subsequently revoked.
Now let’s turn our close attention to obtaining an onshore crypto license. Once again, it is worth noting that the specific terms and conditions depend on the chosen onshore jurisdiction, however, the general procedure may look like this. Before licenses are issued, it is necessary to register a legal entity engaged in cryptocurrency. Many countries impose minimum administrative requirements for registered legal entities, in particular the following:
- to carry out financial actions with cryptocurrency, a legal entity must be provided with a bank account with the authorized capital stored on it;
- minimum staff of a registered legal entity must include shareholders, local board members (as a rule), and a local contact person responsible for relations with government agencies.
Top crypto license jurisdiction spaces in this category include Estonia, Lithuania, Georgia and some others.
Having completed the registration of a cryptocurrency company, the owner has the right to apply for licenses for cryptocurrency operations. Along with the application you must provide:
- contacts of the applicant company;
- information of persons providing services;
- information of the legal representative of the legal entity;
- documents confirming the non-criminal background of all interested parties and employees.
It is worth noting that even today a number of countries continue to ignore the existence of cryptocurrencies, some are even trying to ban this instrument. But there is a list of progressive countries that have already developed a legal framework for control, regulation and licensing of the crypto market. As part of regulation, states introduce mandatory licensing requirements for this activity.
The choice between an onshore and an offshore state is not easy to make, and it must be based on how you want to develop your crypto business and what benefits you expect from a crypto license. Our experts will help you choose a jurisdiction; we can advise you on any crypto license country and guide you by hand along this difficult path. Contact us now and secure your bright commercial future.
Article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.
