You have an idea for a crypto/web3 business – great! You are convinced you will get product market fit fairly quickly – even better! You already ran some tests and you already have market validation – high five! Now the serious work starts.
In order to scale, you will need to hire some staff that probably wants to be paid a salary and purchase goods and services from suppliers that will send you bills that need to be paid in fiat currencies.
The question starts popping up in your mind: “Wouldn’t it be easier if I would incorporate my project into a legal company/entity?”.
Incorporating comes with some advantages. It’s easier to raise funds, to pay suppliers (unfortunately, not everything can be bought with crypto those days). However, it can also make certain things more challenging. For example, you will likely have to doxx yourself, also, you make yourself an easier target for law enforcement.
In this article, the goal is not to understand whether or not you should incorporate your crypto project (this will be for another article). But rather, to present elements to keep in mind when picking the best possible jurisdiction for your specific case.
Over the last weeks, I talked with over 20 crypto founders to understand where they registered their legal entity, and more importantly, why they picked this jurisdiction. Let’s dive in.
Legal disclaimer
It is important to note that this article does not constitute legal advice. Every crypto project is unique, and it is important to consult with a professional legal advisor when making those decisions. Additionally, the regulations surrounding crypto projects are constantly changing, so it is important to stay up to date on the latest news and regulations. With that in mind, this article will provide an overview of popular jurisdictions and important considerations to keep in mind when making your decision.
One project with whom I talked incorporated using the law firm flagtheory.com. They were so happy with their choice that they suggest I give a shout-out to them!
The key takeaway
After interviewing a couple of builders, it became quickly clear that there are two types of motivations when it comes to incorporating legal entities. Some optimize for “peace of mind“, and others optimize for “flexibility“. Additionally, some founders incorporate two companies (or more) to try to get the best of both worlds “hybrid“
The peace of mind model
As an example, a lot of founders prefer to incorporate in the jurisdiction where they live – out of simplicity. I incorporate in the Czech Republic because I leave in Prague, or I incorporate in France because the team is in France, etc…
Here are some examples of the reasoning behind incorporating in the country where the team physically leaves.
We wanted to stay in France because we really didn’t want to be too involved in something that was potentially shaky and touchy (or that could become so in the years to come), France has the reputation of a high tax state. And in most cases, this reputation is also justified. However, for very early-stage crypto companies there are strong solutions. For example, some projects have been creating an Association under the law 1901 coupled with a SAS (the equivalent of an Ltd) to raise funds
It turns out that France has special tax statutes that are very interesting for companies in our case, so in fact, most people are talking nonsense. With the JEI + CIR status you have one of the most advantageous statuses in the world in terms of taxation by being registered in France.
The majority of our team is based in the Czech republic and Slovak republic, that is why we are incorporated here. We would like to stay in the European Union and stay transparent, with the people behind the company, and also follow the local law. We expect that MICA or other forms of regulations is inevitable and we want to follow it since we believe that is the only sustainable strategy to survive massive changes in the crypto industry.
Our company is in a European country because it is simply easier as a citizen of that country. Also, we do not want to give off a shady image or tax problems
The whole team lives in the same European country and the CEO already has a mining rig company in that same country, so it’s logical that we stay there.
Note: In order to increase the anonymity of the founders helping me with this article, I took the initiative to anonymize some of the answers without changing their essence.
Note#2: I am very close to the french community – that’s why France-related answers are more represented in the survey.
The “Flexible” model
On the opposite corner of the ring, we have the founders who are looking for the most flexibility. They generally incorporate in jurisdictions such as BVI, Seychelles, Cayman, St Vincent, Marshall Islands, Singapore, etc…
By incorporating offshore, they profit from lower tax rates, higher protection against international claims, and ease to raise capital.
Here are some of the most interesting answers from the survey:
We’ve chosen this jurisdiction (Seychelles) since we don’t have plans to launch DAO any time soon and wanted to start with a regular legal structure. Seychelles have no strict VASP (Virtual Asset Service Provider) implemented yet, so it is quite chill for our kind of product. Besides that it is relatively easy to incorporate with no physical persistence required.
We choose Singapore because low tax and a hub of financial market. We may move our Project headquarter to somewhere else. I know many of them have moved to Dubai or HK. It is a trend that Singapore government is less friendly to blockchain recent years
We choose US (new Hampshire). No additional state capital gains tax, politically moderate with a strong libertarian streak that views crypto favorably. Lots of considerations in the US, vary from state to state. New York is a huge pain with the bitlicense.
Singapore has good taxes! Not as good as the offshore countries but their mature legal framework is definitely worth it. We are biased though as we are operating from southeast Asia and we are like 2 hours away from Singapore. We have many friends and colleagues there to handle things if needed. There may be better options in Europe. Switzerland is pretty popular in the crypto (and finance) scene it seems.
I’m not really comfortable sharing this part of the information but I can tell you the general places people incorporate, I believe people use the Cayman Islands, Singapore, Panama and BVI to incorporate their main company. Mostly for token generation and sales (not considered securities in most of these countries) as well as tax related reasons.
We chose St. Vincent because our lawyer recommended it because it has no limitations on crypto businesses.
The hybrid setup
In this article, we will refer to the hybrid setup when a project incorporates multiple companies to try to achieve the best of both worlds. For example, raising funds from an entity in a tax-heaven, but having the product-building entity (the one that employs the staff and pays suppliers) in a more “regulated” jurisdiction.
So our DAO has no incorporation because it’s a DAO. However, the company we used to raise funds is in the BVI and the core employees are based in a western european country. Where we pay wage tax social security. So for paying salaries of our staff, we picked the country where most of us lived. We took BVI because this is where our US investors were feeling good and we did not wanted our country of residence (western Europe) to be able to seize funds.
We are not yet incorporated. But the day we will, we will have our headquarter in Swiss. A parent company in Switzerland, either a non-profit association or a foundation. This company will be responsible for issuing the token. A video game development studio in France. It would not be exposed to crypto, it would be a simple game studio that takes contracts from the parent company in Switzerland. The advantage is to be able to work in France, in good conditions, without taking the risk of being bothered by the taxman. The French story is simple, we are a game studio and we take contracts. Switzerland being much more quiet than France legally, and in acance on the question of cryptos. This is also applicable to our team typology. Or we are all in France and I am in Switzerland.
We are combining a Singapore Pte Ltd structure with a Cayman-based foundation for token issuance. Still home to some of the top web3 funds and influencers. 0 capital gains tax.
Out of more than 20 founders, all of them except one incorporated their company. Their answer was interesting:
We did not create any company behind our protocol – makes it complicated sometimes but also easier 🙂
What do VCs prefer?
Chances are, you gonna want to raise funds, so the question is what do VCs prefer? I talked with a few of them and got some interesting insights.
- More regulation is expected. Anon founders with obscure company structures won’t make it through the due diligence. Even though some still try.
- VCs will also more and more require a so-called “legal opinion” before investing. This aims to have clarity on the question of whether the token could be considered a security/commodity, or if it’s a clear utility token. Those “legal opinions” are often required before listing on a centralized exchange.
- Equity over tokens. The deeper we go into the bear market, the more VCs want Equity over tokens. But what is the point of owning equity in a jurisdiction where it’s harder to apply corporate law? That’s why the trend will take crypto businesses towards more law enforcement jurisdictions.
When is the right moment to incorporate your crypto project?
Again, it depends. It depends especially if you need to raise funds to build your prototype or not. In an ideal world, you would first validate the market interest before you do anything else. For example, let’s say you are building a decentralized P2P with no KYC like Offramp.xyz, then it’s probably smarter to spend significant time interviewing market makers or p2p users to validate whether they will or not use your product when it’s live. Only when all your hypotheses are validated, start thinking about how to get legal.
The classical answer is “it depends”
There is no “one fit all solution” when it comes to where to incorporate your crypto project. It all depends on what you want to do and how legit the business will be.
In general, you have two schools of thought. Those who want to be “onshore”, for example, a team based in France might consider incorporating in France in order to look as compliant as possible. Whereas other teams might seek more flexibility “offshore”, either in terms of labor laws or capital access, taxes, and anonymity. Those teams might prefer offshoring. Such as in BVI, Seychelles, Cayman Islands, etc…
If you are looking to incorporate your crypto project, there are a number of different jurisdictions to consider. Seychelles is a good option if you are looking for a quick and easy registration process. For a higher level of corporate recognition, you may want to consider Panama, Singapore, St. Lucia, the Cayman Islands, BVI, or the Isle of Man. Each of these jurisdictions requires a satisfactory KYC process and notarized documentation. If you are an American Citizen, you will also need to answer several FACTA-related questions. UK and Canada are two additional options for those looking to “play in the big leagues” and make use of their commitment to promoting Bitcoin technology and innovation. Finally, Iceland provides a private setting for crypto projects, although it is unclear if they fully support digital currencies. Ultimately, it’s important to seek professional legal advice when making decisions regarding which jurisdiction is right for your crypto project.
What are the most popular choices?
Being in crypto for many years, I help projects get off the ground. One of the questions I get the most often is “where should we incorporate our project?” So far the most popular choices are the following:
- Belize
- BVI
- Seychelles
- Singapore
- Panama
- St. Lucia
- The Bahamas
- The Cayman Islands
- Delaware
How to decide where to incorporate your crypto project?
First of all, you need to know what you want out of the incorporation. Here are some useful questions you might wanna ask yourself:
- Does speed matter in terms of incorporation to you?
- Does privacy matter the most to you?
- Does taxes matter the most to you?
- Does compliance matter the most to you?
I hope that you found this article interesting. I gathered this content with my best effort without being a legal expert. If you have any feedback, feel free to share it with me on Twitter. As a friendly reminder, this article does not constitute legal or financial advice.
