In March this year, word got out that Japanese regulators were preparing to file criminal charges on Binance, one of the world’s most popular cryptocurrency exchanges, and threaten to shut down their Japanese operations.
Though regulators later clarified that they were only planning to issue a warning to the exchange, the company’s leadership did not wait around to find out.
Almost immediately, Binance decided to set up a new office in Malta, a country that is quickly gaining a reputation for being the “Blockchain Island” thanks to their crypto-friendly legislations and low tax environment.
Regardless of the industry you operate in, picking the right jurisdiction to operate out of is important. When it comes to crypto-related ventures, picking the right jurisdiction is critical.
Not only can it make a huge difference to your bottom line, but the government’s attitude toward crypto could mean the difference between you being the CEO of a thriving business or you being arrested for engaging in illegal activity like money laundering.
When we look at what makes a good jurisdiction for a crypto-related business, here are the primary factors we consider:
A good place to start when comparing jurisdictions is to look into how receptive a country is to crypto-related businesses. This can be seen in the clarity of the regulatory framework, as well as the attitude toward cryptocurrencies and blockchain technologies.
While some jurisdictions recognize cryptocurrencies as an important technological advance, others regard anything in the sector as criminal until proven otherwise. In jurisdictions that are suspicious of cryptocurrencies, you will face heavier KYC AML reporting and other regulatory requirements and could even be arrested for falling short of compliance.
Across all jurisdictions, the regulations regarding the crypto industry are nascent and frequently changing. To date, Malta is the only country to have established regulatory certainty for the industry with the introduction of a series of laws to set the regulatory framework for ICOs, cryptocurrencies and the process for setting up crypto-related businesses in the country.
In addition to existing regulations, you also want to pay attention to the general tone that the local government leaders use with relation to crypto and blockchain-related businesses. For example, when the Swiss Minister of the Economy comes out to say that he wants the country to become a “crypto nation” that’s a good sign.
For startups in any industry, the ease of business operations is crucial in choosing where to set up shop.
This starts with how easy or difficult it is to incorporate your company and manage its initial legal affairs. Can it be done with a few simple forms in a predictable time period, like in Delaware? Or is there a lot of bureaucracy and ambiguity in the process, like in China?
After company formation and set up, the next thing to consider is the ease of operations. Is it easy to open a bank account and hire employees in the country? Certain structures look great on paper, but the reality of actually doing business makes operations impossible.
This is especially true for crypto-related businesses, which often face another layer of difficulty. Do the local regulations require you to be licensed? Are banks willing to set up corporate accounts for crypto-related businesses at all?
The goal is to find a jurisdiction that is not overly bureaucratic, free of corruption, and has a financial system open to crypto-related ventures.
3. Low Taxes
Over the course of my career, I’ve seen time and time again how critical a business’ tax structure is.
Two businesses can have the same product and business operations, but the one with the more efficient tax structure will win out every time.
So if you’re shopping around for a jurisdiction and you’re open to moving, why pick one with high taxes?
Maximize the chances of your venture’s success by finding a country that has simple tax compliance requirements and preferably low corporate tax rates. Hiring a qualified legal professional to assist you with this will be well-worth the investment.
Beyond the rules and regulations you find in a jurisdiction, there are also a number of things you want to consider in the country itself—the location, the living costs, and the workforce.
You want to make sure the location is easily accessible and that living and operating costs are relatively low. After taxes, the costs of operating in a country can be the next biggest weight on expenses.
It is also wise to check if you will have access to a talented workforce within the country or at least ensure that the country has open immigration laws that enable you to bring in your team from elsewhere.
Lastly, if you’re going to live and operate your business in a location, it’s good to make sure that it’s a place that you like being in.
What does this mean for Crypto Law Insiders?
Crypto Law Insiders can maximize the success of their businesses by strategically picking a jurisdiction where costs are relatively low, the business environment is conducive for growth, and the government is friendly toward crypto-related ventures. Over the coming months we’ll be highlighting different jurisdictions for you to consider.
Keep in mind, while it is helpful to look at how crypto-friendly a country’s legislation may be, leaving the United States does not necessarily exempt you from US regulations. At the end of the day, the long arm of US regulators is long. Very long. And it’s likely the rest of the world will end up complying with whatever laws are enacted in the US.
So the best approach for Insiders is to take advantage of the benefits offered by certain jurisdictions, while continuing to be aware of the regulatory developments in the US.