If you’re looking to protect your crypto assets from long-lost cousins, lawsuits, or overreaching governments, then you’ve arrived in the right place.
That’s because crypto – by its decentralized nature – is the perfect asset for investors looking for privacy, security, and tax advantages.
But to maximize those benefits, you’ll likely want to set up an international company.
We’ll share with you in this article what kind of structure we recommend.
Of course, you shouldn’t consider that legal or tax advice as we are neither attorneys or accountants.
That said, we’ve helped dozens of crypto investors move their holdings to an offshore corporation – legally, ethically, and to great advantage.
Why Start an International Company?
Here are 3 primary reasons for doing so
First, if you live in the ‘western’ world, you’ve likely noticed an increase in government meddling and oversight. For instance, in the U.S., the government may soon begin tracking any transaction over $600.
They claim to be doing it under the guise of monitoring for money laundering. But they’re most likely looking for people who avoid paying taxes by working for cash.
In other words, they’re getting desperate.
Which makes sense since they’ve racked up nearly $30 trillion in debt. The last $7 trillion just since 2019.
And as of the end of 2020, the debt to GDP ratio was 125%. To put it in comparison, Greece’s reached 138% when they froze bank accounts and subsequently limited withdrawals to $67 a day.
Will your government freeze or otherwise come after your crypto assets? Not if they’re safely deposited offshore.
Then, there’s taxes. President Biden’s desire is to tax capital gains for high-income earners at their ordinary income rates. This would mean the top marginal tax rates on crypto gains would be a hefty 39.6%. Combined with state and other taxes, you could be paying 48.4%.
That’s the highest in the OECD (Organization for Economic Cooperation and Development and a massive chunk of your crypto profits.
Take a look at how this tax affects the compound growth of your investments:
Speaking of capital gains taxes, if President Biden gets his way, you’ll pay those on unrealized gains. Which means you’ll be paying those large taxes on paper profits – profits made before you even sell.
Even if you put your assets in a trust for the next generation, they may still be vulnerable to taxes. That’s because – under new proposed legislation – assets inside a trust could be taxed when transferred to the beneficiary.
The government is desperate for money. And they appear to be willing to do just about anything to get it. Including taking a giant slice of what you’ve worked hard for.
Fortunately, if you structure your international company correctly, your crypto profits are not taxable. In fact, they’re legally non-reportable to the IRS.
And finally, there’s safety.
There are all kinds of bad actors looking to cash in on your good fortune.
Maybe you have a litigious ex-spouse. Or a long-lost cousin who comes out of the woodwork, demanding money. Or maybe a ‘slip and fall’ con artist tries to sue you for all you’ve got.
If your crypto assets are inside your home country, they may be vulnerable. Even if they’re in an LLC or corporation.
So, it pays to move them offshore where they’re safe.
There are other reasons to set up internationally as well:
- Your money becomes independent of political jurisdiction.
- It enables you to set up generational wealth with estate planning.
- It becomes nearly impossible for your money to be confiscated under the international rule of law.
- Your portfolio is diversified, with you working outside of the fiat money system.
- And it’s worth saying again: Your compound growth is amplified.
7 Common Myths and Mistakes of Setting up an Offshore Company
There are some common misconceptions when it comes to starting your international company.
Here are the main ones:
Myth #1 - Setting Up an International Company Means Zero Tax
This is not necessarily correct.
Setting up an international company doesn’t automatically nullify taxes. You have to set it up correctly.
First, the country you’re born in – and the country you live in – matter.
Every country has its own policies when it comes to taxation, and taxation mostly has to do with your tax residency, typically decided by the “183-day rule.”
In most countries, if you live there 183 days or more out of the year, you become a resident for tax purposes.
So, your tax residency is an important piece of the puzzle, plus, different countries have different types of taxation. For instance, the USA has citizenship-based taxation.
This means that US citizens are supposed to pay the IRS regardless of where they live. Residential tax systems - in countries such as Canada - tax residents on worldwide income. Territorial tax systems - like in Hong Kong and Singapore - only require taxes on income sourced inside the country.
Countries – such as the Cayman Islands – are income and capital gains tax-free. That’s because funding for their government comes from exports, tourism, and/or foreign investment.
So, citizenship and taxation play a critical role in how you move forward when setting up an international corporation.
This is why you should always seek professional help when doing so. You don’t want to wind up with a surprise tax bill you could have avoided in the first place.
Myth #2 - Setting Up an International Company Solves All My Past Tax Problems
While your international company can help you in the future, it can’t magically reduce any tax bills you have now. Reducing your past tax bills is very difficult to do legally.
So, prior planning and preparation are always better than reacting. The person who strategizes about this early on will get the most out of it.
The best time to set up an international investing structure is ten years ago. The second-best time is today.
Myth #3 – It’s Easy to Set Up an International Company and Bank Account
Setting up a bank account properly is the Achilles heel of international business, especially for cryptocurrency.
Think of it this way: banking is a privilege, not a right. Banking is a deposit taking activity that is highly regulated because it’s the literal creation of fiat money.
Banks will profile you depending on the perceived risk to them. Then decide accordingly whether they want to take you on as a client or not.
You have to remember that banks are fundamentally commercial institutions, so they want to be sure they’ll make money from you.
An offshore company with crypto may have difficulties opening a bank account because of the perceived high risk and therefore compliance costs of having you as a client.
Myth #4 - Setting Up Internationally Means Zero Accounting
Good business comes down to good accounting. If you don’t keep your books in order, then you’ve lost before you’ve even started.
You still have to hire a bookkeeper or accountant. Better yet, one who understands crypto.
Myth #5 - You Can Hide Your Company from the Government
Hollywood shows about white-collar crime have misled us. In the old days, it may have been possible to hide your assets offshore, but not anymore.
The government can get any information it wants about you and your money.
These days, internationalizing is NOT about avoidance – it’s about legal optimization. Done right, you can still have all the same benefits of hiding your offshore company – without doing anything illegal or immoral.
Myth #6 - Starting an Offshore Corporation is All About Reducing Taxes
This isn’t quite right, either.
You can’t start a business for the sole purpose of reducing your tax liability. In this area, business intention matters. The purpose of your business is NOT to reduce taxes; it’s to make a profit.
Tax reduction comes along as a side benefit.
If you start a business that’s simply about reducing your taxes and the government finds out… then it’s audit time. If you have no interest in running a crypto business – that is, you’d rather invest in crypto passively – then an international trust may be a better vehicle for you. We’ll discuss further below.
Myth #7 – You Can Set Up Your Offshore Structure on Your Own
You can have the best crypto investing strategy in the world, but if you set up your structure incorrectly, your results will be sub-optimal.
It can literally be the difference between paying 40%+ tax on profits and paying 0%.
This is why having professional help always costs less than doing it on your own.
Which Vehicle Should You Choose for Your Cryptocurrency Operations?
So far, we’ve used the words ‘international company’ and ‘international corporation’ interchangeably. But the truth is, there are a variety of vehicles that you can use, depending on your situation and your goals.
Most people choose between an international business and an international trust.
And, of course, both have their pros and cons.
Here’s a quick breakdown…
International trusts are better for asset protection and passive investing. If your goal is to invest without having a business, this could be the choice for you.
- Trusts protect assets and prepare them for distribution.
- An international trust can be very secure due to international law (e.g. The Cook Islands trust is almost impenetrable.)
- It reduces your political risk of confiscation.
- It can be difficult to open trust accounts due to the high level of KYC and compliance.
- It can lead to a ton of paperwork, especially with diverse assets and multiple beneficiaries.
- It’s not suitable for active businesses.
Generally speaking, business incorporation is better for lifestyle design and active wealth accumulation. It’s hands-on compared to a trust. Here are some of the benefits:
- You create a vehicle that delivers cash flow and then converts this cash flow into assets on your balance sheet.
- You can claim business expenses from your overseas company without paying taxes on them.
- It simplifies your tax returns.
- You can still make your company legally non-reportable to the IRS or your home government.
- You get all the tax breaks of a business owner.
The downside? You need to do bookwork.
You need an understanding of business strategy. You have to invoice from one company to another.
In sum, you have to take a more active approach than you would with a trust.
How to Choose a Jurisdiction for Establishing Your Crypto Investing Company
As you can imagine, there are multiple factors to consider when choosing where to set up your international company or trust..
The first thing to consider is the political and economic stability of the country you’re considering.
Ask yourself these questions…
Is the country known for corruption? Is it at war?
A ‘yes’ to these might be a deal killer.
You’d also want to consider if the country is economically stable. Earlier we mentioned the U.S. has hit a dangerous debt to GDP ratio. So, countries with a similar or worse ratio don’t make much sense as a place to set up shop.
Likewise, you wouldn’t choose a place like Venezuela, no matter how many incentives were thrown your way. You’ll also want to weigh out the tax structure there…reporting requirements…and legal obligations for running your business there.
Finally, consider economic substance requirements.
Countries vary on what you must do in order to prove you have a legitimate business in that country. Some are careful about not being perceived as a tax haven by the OECD. And so they’re stringent on compliance.
Other countries turn a blind eye, choosing to take in the revenue, no matter how small. Some require you to have a registered office address. Others require you to go much further, recording meeting minutes and the location of business actions performed.
The key is meeting the requirements successfully and consistently, regardless of what they are.
And to choose your country of establishment with eyes wide open at the beginning.
Tax Rates For Crypto-Friendly Countries
When choosing a country, you want one that has low or zero capital gains tax on cryptocurrency.
And one that meets your preferences for running a business. Here are six potential options:
Hong Kong has no capital gains tax on crypto. As mentioned before, it’s a territorial income tax system.
Singapore also has zero capital gains on crypto and a very similar tax system to Hong Kong.
Costa Rica has two tax systems. You can register an inactive company giving you territorial income tax and no capital gains tax on crypto.
This is always a good option for people who live in the USA due to the geographical proximity.
The British Virgin Islands
The BVI are a tax haven with no taxes payable due to the way they structure their economy.
The Cayman Islands
The Cayman Islands are very similar to the BVI and are probably the most well-known tax haven in the world.
Malaysia has very similar rules to Hong Kong and Singapore, again with no capital gains on crypto.
There are plenty more including Belarus, Germany, El Salvador, Malta, Portugal, and Switzerland. Take the time to find the best fit for your business.
Accessing Your Money
A jurisdiction for your crypto business won’t do you much good if you can’t access your money. And accessing your money starts with a bank account.
These days, the hardest part of this whole process is establishing a bank account as a non-resident.
Remember, banks will profile you based on the risk of taking your business on. They want to make sure they can reliably profit from your account without any headaches.
Ideally, crypto and blockchain will make banks unnecessary. But for now, we have to play by their rules to access our money.
If you don’t set up your bank account correctly, you will have frozen accounts or worse yet, lost funds.
This risk is even higher if you select the wrong bank (i.e. one that isn’t crypto-friendly). So it pays to do your due diligence upfront.
The best way to set up your company is to have two financial institutions.
The first should be a crypto-friendly bank for related fiat transactions. One that won’t be suspicious of large fiat-to-crypto or crypto-to-fiat transactions. Here are a few examples:
- Mercantile Bank of Puerto Rico
- Signature Bank in the USA
- Silvergate Bank in the USA
- Bank of Georgia in the country of Georgia
There are plenty of others. Just make sure they accept clients who deal in crypto-related business.
Second, for fiat-only transactions, it’s best to use an operational account.
This is usually an Electronic Money Institution (EMI). A few examples of many are:
Revolut (Which also has a crypto-friendly reputation)
Then, you also want to open up a custody account for bank-level crypto security.
You open this account up in the name of your international business and store your crypto within. It gives you staking ability which produces yield.
When done right, your entire crypto portfolio is working for you without getting taxed on any of the gains.
We suggest opening up a Viva Crypto Custody Account, where ease-of-use meets institution-level security.
Putting It All Together - A Working Example
John is American and has a tech company set up in Costa Rica to hold assets. He has set up the company in a way that the assets are not reportable to the IRS legally, and therefore doesn’t have to include them on his US tax return.
John also has an LLC in the USA doing security consulting. He does client work and generates revenue.
On his regular tax return each year he does the normal numbers and pays himself personally, just like any business owner and satisfies the IRS requirements.
The company in Costa Rica has an agreement to provide business optimization services to his USA business for 30% of the revenue the USA business generates.
So, the local LLC is paying the international company for real services provided and it legally earns money outside of the USA.
In Costa Rica, it’s a territorial tax system, so the company is not paying taxes on those earnings. In other places it could be zero income tax depending on the jurisdiction of the business.
Regardless, John isn’t paying taxes on the money he sends from the local LLC to the Costa Rican tech company, because it’s a legal contract signed for services rendered.
Finally, the Costa Rica company owns a crypto custody account and invests in crypto using its income (from the USA LLC).
The compound gains from the crypto are not subject to any capital gains tax because of the Costa Rican law towards crypto.
The company requirements for Costa Rica are managed with attorneys each year to satisfy local filing requirements each year.
If John ever needed to transfer money to the USA LLC for any reason, he can have it invoice the Costa Rican company for services or send it as a loan.
An added bonus?...
John keeps a business expense card for his business in Costa Rica.
He charges roughly $50,000 a year to it from business and business development expenses, giving him legitimate tax deductions and further reducing taxable income.
John is a happy man.
If you want to start an international company for investing in crypto, you have to start thinking like a business owner. Intention matters, a lot. Your intention is always to start and operate a business, not to reduce tax.
Your next goal is to convert your cash flow into assets on your balance sheet…have those assets earn yield…and legally pay zero tax.
Again, you can’t do it with the sole intention of reducing tax. You have to be out to earn a business profit.
The best places to set up are countries with no capital gains tax on crypto because your compound growth will occur even faster.
You also want to consider each jurisdiction’s requirements for doing business before committing.
The best time to set up this structure is now. After all, countries will only get more draconian…foreign bank accounts will only get tougher to acquire…and tax rates seem likely to rise for the foreseeable future.
If you want to work with professionals to start your own international company, schedule a free 30-minute consultation with us today.
By partnering with us, you can rest assured that your business is set up correctly right from the start.