In simple terms, a cryptocurrency is a form of virtual currency which acts as a medium of trade. It is developed by using cryptography to safeguard financial transactions of the coin ownership, verify the transfer of assets and regulate the creation of additional units. Cryptocurrencies are majorly used as a mode of payment to conduct digital transactions (exchange of goods and services).

Advantages of Using an Offshore Company

There has been an extensive rise in using offshore vehicles to boost the existing advantages for cryptocurrency transactions. Especially, offshore company formation in crypto-friendly jurisdictions is a highly suggested alternative for cryptocurrency traders.

Read more: Crypto Exchange Requirements

Following are some significant advantages of using an offshore for crypto-based activities –

• Better Privacy & Asset Protection

Optimised privacy is the main demand which tends crypto-based businesses to turn towards offshore. It seems normal that if the digital coin (i.e. bitcoin) and its owners are more distinct, there will be deeper layers of protection for this type of digital assets. For this intent, maintaining digital coins and other cryptocurrencies in partnership with an international business company will be a win-win situation for all. Some notable offshore management vehicles which are also mostly favoured are constituting a foreign trust or limited liability company.

• Tax Benefits

By keeping your coins preserved in offshore companies, you can ease the worry on a set of tax obligations as levied in your native country. Although, it depends on the kind of jurisdiction you want to include your offshore company for cryptocurrency in which the savings can be more or less substantial proportions. Many nations are acceptant of cryptocurrencies, comprising digital coin just like a product or financial related service, instead of a currency. As an outcome, they have no hesitations to permit an exemption from VAT/Sales tax for crypto related businesses. 

Challenges and Potential Solutions

Cryptocurrencies are facing their own set of challenges. Take into account the below mentioned ones and their potential solutions –

• Significant Threat of Volatility

Digital currencies and other virtual assets are believed to be risky in nature. Because these digital currencies are usually not kept under the observation of governments, the price volatility may be as major consequence thereafter. Without any safety, traders of cryptocurrency can experience potential losses.

• Structure

In respect to your complete offshore structure, setting up a cryptocurrency company in itself is not the real concern. There are jurisdictions like Labuan where it is quite easy to set up a company which uses cryptocurrencies. The main challenge lies in finding a bank which permits you to connect your account to a company which is involved with cryptocurrencies. The easiest solution is instead of convincing your current bank to let you engage in crypto activities, look for banks which already participate with companies involved in cryptocurrencies.

• Employees

You will require to be thorough on how you portray your crypto business to any potential employees. You will have to be ready to pay them in fiat currency rather than crypto as not everyone will be as willing to get on board with crypto-business. 

Additional Considerations

Establish an international limited liability company or an investment holding company, then move towards operating an adept wallet to keep your cryptocurrency in. This digital wallet can behave for same operations as offshore bank accounts that permit necessary transactions of the wallet’s holders to be safe and private. Many offshore jurisdictions with strict confidential laws can even provide optimum protection from civil creditors.

Shift your cryptocurrency offshore by setting up two offshore companies. The first offshore company that is primarily funded with cryptocurrency targets at a sustainable investment, the second one will operate as a trading company whose funds are invested by the first company.

The integration of private foundation and international business company can pose beneficial. You can set up an offshore company to be maintained by a private foundation which is mainly functioned for charitable reasons.

Setting up an offshore trust is valuable. Several high-net-worth investors with their coin fund attaining more than USD 1 million in worth are generally in support of international trusts for the ideal estate and asset protection.

Labuan Cryptocurrency License

Labuan enables you to cope with international markets with complete control without any interruption of local Malaysian authorities and enjoy the benefits of just 3% corporate tax. Labuan being a midshore jurisdiction, enables one to deal with the Malaysian market which is exposed to local 24% tax.

An Interesting Read: Cryptocurrency Exchange Malaysia

Benefits of Labuan Cryptocurrency License

• 100% foreign ownership, no Malaysian partner required
• 3% corporate tax on trading profit
• No Withholding Tax on Interest, Management Fee, Royalty Fee and Technical Fee
• No Foreign Exchange Controls
• No Stamp Duty and GST
• No Import Duty / Sales / Service Tax
• No Capital Gain Tax and Inheritance Tax
• Ability to access to more than 70 Malaysia Tax Treaty partners
• 50% tax abatement for expatriate professionals/managers’ employment
• 100% tax exemption on director’s fees for foreign directors
• No tax on dividends to shareholders
• 2-year multiple entry working visa (renewable) to stay in Malaysia (Optional)

Labuan, being the substance-enabling jurisdiction at a reasonable cost, permits the exchange to easily demonstrate operations substance in the jurisdiction where the cryptocurrency business is domiciled. A low-operational cost and fully compliant jurisdiction is a highly recommended by most cryptoprenuers. Interested to set up a company for crypto based business in Labuan, reach out to QX Trust team of consultants at CONTACT US or consultant@qx-trust.com.

Read more: Cryptocurrency Tax Malaysia