Where to set up COMPANIES ON CRYPTOCURRENCIES?

If you are in the crypto business, a jurisdiction analysis addressing where best to set up companies on cryptocurrencies is highly recommended to select the territory which best suits your project and avoid unpleasant surprises. While it is not surprising that some jurisdictions are undoubtedly more favorable than others, there is an impressive rate of unawareness of the benefits that some countries offer to welcome crypto entrepreneurs.

As global lawyers, we have prepared our Top 5 favorite countries in the world to set up a blockchain company[1], offering you a general vision of the international crypto-business ambience.

1. Estonia – Companies on Cryptocurrencies

Estonia is the best EU country for crypto and blockchain companies, since it is one of the pioneers of blockchain technology offering great business licenses for cryptocurrencies.

Estonia offers a single license for crypto exchanges and e-wallets. In other words, it is only required one license (Operating Crypto license) for all major crypto operations and the enterprises can obtain it in up to 60 days. The presence of the company in Estonia is mandatory.

The minimum share capital required to obtain a license is 12,000 EUR and the state fee is € 3,300.

This license is issued by Estonian Financial Intelligence Unit (FIU) and it comes with EU passporting rights, which means that the company has the right to operate in countries of the European Economic Area (EEA)[2] without needing additional licenses or establishing a branch in other countries.

The company is classified as a financial institution, although it currently has no additional tax requirements. Estonia has a top corporate tax rate of 20%, which is the seventh lowest in the EU. A reduced rate applies if the company’s taxable profit is less than or equal to the average of the three previous years. However, Estonian Tax System has two major advantages:

• Undistributed profits are tax-free, therefore the profits reinvested in the company are tax-free.
• The tax system is territorial, meaning that income earned abroad is completely tax-free.

In order to obtain a license, a company must have its own account with an institution that provides services in the territory of the EU. In a 2020 study, only 10% of crypto-service providers licensed in Estonia had accounts with local banks, LHV is widely seen as a crypto-friendly bank. About 40% banked with Lithuanian institutions, which are very supportive for entrepreneurs, startups, and companies involved with cryptocurrencies.

2. United Arab Emirates (DMCC and ADGM)

UAE has already shown its strength and serious intention to be positioned as an emerging technology hub for blockchain and cryptocurrency companies.  It certainly provides the perfect landing for any business focused on any number of areas across this booming innovative tech sector and offers a wide array of support, products and services. There are two main Free Zones in UAE leading this market:

Dubai Multi Commodities Center (DMCC) – UAE Companies on Cryptocurrencies

 Dubai’s DMCC opened its new Crypto Centre for crypto and blockchain businesses on May 24, 2021, which aims to be a hub for the development and application of cryptographic, blockchain and ledger technologies.

In order to set up a cryptocurrency business, you need to obtain a crypto license issued by the DMCC Free Zone Authority. DMCC currently issues two crypto licenses: 

• Crypto Trading License: A Crypto trading license is issued to companies that conduct proprietary trading in Crypto commodities.
• The Distributed Ledger Technology Services license includes activities such as providing database management solutions and ancillary services based on distributed ledger technologies, such as blockchain.

The issuance of each crypto license in DMCC is subject to a minimum share capital requirement of AED 50,000 and these activities cannot be combined with others.

Crypto companies operating within DMCC will be exempt from paying taxes, including income tax.

Account opening allowed at Commercial Bank of Dubai (CBD) for crypto companies at DMCC (June 2021 Agreement), including exclusive digital business accounts which can be opened instantly with zero balance options.

Abu Dhabi Global Market (ADGM): The Financial Free Zone

ADGM prides itself as a leading destination of choice for virtual asset companies, reason why international players across the globe reach out to the Financial Services Regulatory Authority (FSRA) to obtain Crypto Asset Exchange licenses in order to set up virtual asset operations within ADGM.

The fees to obtain a license in relation to conducting a regulated activity in crypto assets are:

• Non-Custody Intermediary Activities only: Application fee of 20,000$ and annual supervision fee of 15,000 $
• Virtual Asset Custodian and Non-Custody Intermediary Activities: Application fee of 40,000$ and annual supervision fee of 30,000$
• MTF: Application fee of 125,000$ and annual supervision fee of 60,000$
• MTF and Virtual Asset Custodian: Application fee of 145,000 and annual supervision fee of 75,000$.

ADGM is a tax friendly environment, with 0% direct tax and access to the UAE’s extensive double tax treaties.

 Once ADGM issues the license, the company can apply for a bank account which is subject to the policies and requirements of the bank and the rules of “Prudential – Investment, Insurance Intermediation and Banking Rules” (“PRU”).

3. El Salvador – Companies on Cryptocurrencies

El Salvador moved to adopt the cryptocurrency as legal tender with its Bitcoin Law which entered into force on September 7^th 2021.  Some of the most important benefits of this new Law are that Bitcoin can now be used to pay taxes and foreign investors will not be subject to capital gains taxes. The national government has also worked with entrepreneurs to introduce a simplified bitcoin wallet for low-fee transactions.

El Salvador opens the door to all kinds of business models based on crypto assets, from franchises, developers of point of sale terminals, payment aggregators, processors, ATMs. One of the advantages of El Salvador compared to other countries is that it has great potential to generate geothermal energy, which is why cryptocurrency companies would allow it to take advantage of this resource, especially those involved in Bitcoin mining.

The Salvadoran government acquired 400 startup bitcoins, defending that its adoption will help the population become bankarized. In addition, the collaboration of the Mexican platform Bitso, in charge of providing cryptocurrency services for the digital wallet (wallet) “Chivo, created by the Salvadoran government, which opens an area of interesting opportunity for other exchanges.

4. Bermuda

Bermuda’s Digital Asset Business Act 2018 is the statutory basis for regulating Digital Asset Business (DAB) in Bermuda. It establishes the regulation for individuals and entities who undertake the following activities: issuing, selling and redeeming cryptocurrency and other digital assets; operating as a crypto payment provider, including the provision of services for fund transfers; operating a cryptocurrency exchange and providing wallet services; and operating a cryptocurrency services vendor.

All of this basically directs what establishes digital business in Bermuda, which tolls zero pay and capital gains tax. It truly works as a kind of magnet for people and organizations as one of the principal systems for digital business.

To act as an illustration of Bermuda’s crypto-accommodating nature we can look to Bitcoin ETFs (trade exchanged assets). In late 2020, following a while of ineffective endeavors to dispatch a Bitcoin ETF in the U.S., the Bermuda Stock Exchange supported the Hashdex Nasdaq Crypto ETF, which was one of the first of its sort and shows that the nation should keep on being and considered as a hub for crypto enterprises.

5. Cyprus

Cyprus is well-known for its laissez-faire attitude towards digital currencies including Bitcoin. Despite the fact that, Cyprus doesn’t have set guidelines for digital money yet, this Middle-Eastern Island country seems to be on such a way and encourages many cryptocurrency and blockchain businesses.

The Cyprus Securities and Exchange Commission has set up an Innovation Hub for enterprises to share information in line to its main goal to guarantee financial backer insurance within regulated entities.

ICOs (initial coin offerings) are the one space of crypto that obviously does presently fall under legal jurisdiction in Cyprus now. Assets got from ICOs are treated as taxable income in Cyprus.

Simultaneously, Cyprus is noted for its alluring 12.5% corporate expense rate.

The Cyprus SEC is pushing for more oversight yet currently there appears to be no mining limitations, reporting prerequisites, in general, things remain genuinely wide-open for crypto in Cyprus.

There are several forms of company ownership available. Your ultimate choice of jurisdiction will depend on the amount of capital that you are willing to invest, your requirements to the banking system in the country, the intended form of company ownership, and many other factors; in other words, your top 1 of your list will ultimately depend on your personal criteria and your business necessities.

You are welcome to apply for a personal consultation on setting up a crypto company. Although we have selected this top 5, in our top 10 we would include other countries such as Georgia, Gibraltar, Portugal, Malta, and Singapore. We will be happy to discuss the options.

**This information does not intend to be legal advice and the content is merely indicative and is subject to change as relates to governmental decisions.

***For additional information on UAE corporate information, kindly visit our site posts (Example: Foreign Ownership in the UAE).

 

[1] Our ranking is based on three metrics: the implemented legislation in cryptocurrency and tax incentives, the latest development in the crypto business operations in these countries and we also considered the presence of major crypto businesses and industry leaders.

[2] The EEA Agreement, created in 1991, is an area in Europe that allows the free movement of goods, services, capital and people.
The following EEA countries currently have passporting rights: Austria, Belgium, Bulgaria, Croatia, Cyprus (South Part of the Island), Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.