Setting Up an Offshore Company for Crypto Trading
The crypto market is booming — and whether you’ve opted for day trading, swing trading, or a long-term investment strategy, you’re looking for ways to maximize your returns, increase flexibility, and protect your assets. Setting up an offshore company for crypto trading is one of the strongest ways to achieve these goals. It’s also a complicated process, so let’s take a look at what you need to know if you’re investigating this crypto trading strategy.
Why You Should Use an Offshore Company for Crypto Trading
Offshore companies have an undeniably bad reputation — but let’s reframe that. An offshore company is nothing more or less than a company domiciled outside of the United States, and it can simplify your tax reporting while opening the door to opportunities not usually available to US-based crypto traders.
One of the strongest reasons to consider setting up an offshore company is the ability to take advantage of Initial Coin Offerings, often off-limits to US citizens and residents. The benefits don’t end there, though. An offshore company allows you to separate your personal and business assets to protect your wealth and privacy while making it easier to attract investors.
As for taxation, you may subconsciously think “tax evasion” the moment you hear “offshore company,” but while popular offshore countries have favorable tax environments, you’ll still have to pay taxes. Your reporting will, however, be greatly streamlined with an offshore company for crypto trading. If Form 8949 is already giving you Kafkaesque nightmares, there’s a lot to be said for that — especially as a frequent trader.
How Does an Offshore Company Impact Taxes for Crypto?
As cryptocurrency picks up steam and joins fiat as a powerful economic force, the dream of an anonymous and decentralized investment vehicle seems further away than ever. Everyone wants a slice of the action, and that very much includes the IRS.
One of the main challenges? Crypto can potentially be taxed in at least three different ways — as capital gains, income, or business income. That’s not just costly, but it also creates a lot of red tape. For high-frequency traders who are tired of reporting every single transaction, an offshore company can make the process a lot simpler.
Key advantages to be aware of if you’re considering establishing an offshore company for crypto trading include:
- By setting up an offshore company for crypto trading, you can condense your tax reporting requirements onto just one line through Subpart F income. (You will likely, however, also have to complete Form 5471 and Form 926 to disclose foreign accounts.)
- Any income a US company generates is immediately subject to taxation. On the other hand, the income an offshore corporation or LLC earns generally won’t be taxed until that revenue is distributed to shareholders or members.
- Offshore companies can take advantage of deductions not available to individual traders or sole proprietors. They can, for example, deduct salaries, educational expenses, travel expenses, and set up retirement accounts.
Despite the fact that offshore jurisdictions are appealing because they offer favorable tax situations (with lower tax rates or even without corporate tax), traders should also be aware that losses cannot be used to offset other incomes with an offshore company for crypto trading, at least unless or until the company is liquidated.
An offshore company does not get you out of paying taxes — but it does greatly simplify reporting and offer tax deferral benefits. For many traders, that’s reason enough to go ahead. The question is, how?
How to Form an Offshore Company
Spoiler alert: An offshore company for crypto trading can cut down on red tape in the long run, but the road ahead is filled with paperwork. Having local and US tax experts on your team isn’t optional.
Ready to take a look at the steps required to form an offshore company? Let’s get this show on the road!
1. Choose an Offshore Destination
Exploring crypto-friendly offshore countries should be your first step — and you have more options than you might think. Some of the most popular countries to set up an offshore company for crypto trading include:
- Seychelles, famous for favorable privacy laws and low setup costs.
- Cayman Islands, which does not charge direct taxes on profits, capital gains, or income.
- British Virgin Islands, with an established crypto infrastructure, strong privacy laws, and no corporate tax.
- Switzerland, with a strong crypto infrastructure and no income or capital gains taxes for crypto companies.
2. Register Your Offshore Company for Crypto Trading
The paperwork required to register your offshore company varies from one jurisdiction to the next, but you can expect to have to submit:
- The registration fee
- Your business plan
- A copy of your passport
- Proof of physical addresses
- Incorporation documents (like Articles of Incorporation or a Memorandum of Association)
Does that sound overwhelming? You’re not alone. As offshore companies become more popular among crypto traders, dedicated firms that handle registration and maintenance have also arrived on the scene. If you’re not sure what you’re doing, it is possible to have an expert take care of the entire process.
3. Open Accounts
Once your offshore company is registered, your next step is to open local bank accounts and establish crypto accounts. Developing good working relationships with local financial institutions is crucial for your long-term success.
4. Make Sure You Stay Compliant
Remember that poor reputation we discussed earlier? You don’t want to accidentally become a tax evader. Making sure you’re compliant with both US and local (at your offshore destination) requirements is essential.
Hire local teams to handle your accounting and legal needs — a process that becomes easier with referrals from other crypto traders — and work closely with your CPA or tax expert to maximize the tax benefits you gain from your offshore company for crypto trading, while making sure you’re always compliant.
A Final Word
Establishing an offshore company for crypto trading won’t get you out of paying taxes — and it might not even lower the total tax owed. It will, however, streamline your reporting and give you access to new investment opportunities.
The bottom line? Look before you leap. Carefully investigate the pros and cons of each offshore destination you’re considering, looking at privacy laws and crypto regulations as well as taxation, and don’t be afraid to work with local experts as you take the first steps.
Comments are closed