Bitcoin is a form of decentralized digital currency which was developed in 2009. Bitcoin has gained widespread popularity for providing users with financial privacy. However, many people do not realize that you may hold bitcoin in an offshore company for even greater privacy and protection. (This is to be used in legal, tax-compliant ways, only.)
NOTE: This article was written by a third-party author and was originally published on Jun 8, 2018. It has since been modified and updated per company policy. It does not necessarily reflect the views of our organization.
Why Take Bitcoin Offshore?
The primary advantage of bitcoin lies in the privacy that it provides. Bitcoin users do not have to register their names. As a result, bitcoin transactions remain anonymous. However, bitcoin users must create accounts with apps which allow them to perform transactions with their bitcoin. It is possible to increase the privacy afforded through the use of bitcoin by registering the digital account associated with the Bitcoin to an offshore company. Doing this creates an extra layer of separation between the bitcoin and their owner. The best protection for financial privacy when using bitcoin can be found by using bitcoin in combination with an offshore company.
Time is of the essence when it comes to moving bitcoin into an offshore company. In September of 2017, China had a massive crackdown on bitcoin. First, the government blocked initial coin offerings, known as ICOs. Next, the Chinese government closed all bitcoin exchanges in Mainland China and cut of access to offshore bitcoin exchanges. Finally, the government restricted the travel of anyone operating a bitcoin exchange outside of China. The main reason that China imposed restrictions on bitcoin was that the government worried the currency could be used to evade government taxes and regulation.
It is likely that other nations, including the United States, the United Kingdom, and countries in the European Union, will impose restrictions on the use of bitcoin. In the United States, the Internal Revenue Service has begun to target bitcoin as an asset. The government organization has begun to issue U.S. bitcoin investors with a John Doe Summons. This summons is used by the IRS in order to get a report on all US holding accounts, including those used to hold bitcoin. The purpose behind this is to make sure that people using bitcoin in the US pay tax on every sale.
Other US regulatory agencies have also started to crackdown on bitcoin. The United States Security and Exchange Commission is trying to treat bitcoin as if it is the same as cash. As a result, they are trying to treat initial coin offerings (ICOs) the same way as initial public offerings (IPOs). In the future, it is likely that the US will regulate bitcoin and try to prevent the currency from leaving the US.
We, too, recommend full compliance with tax, securities and other laws and to seek tax advice from an accountant and legal advice from an attorney. That is, privacy to protect your hard-earned wealth is one thing. Privacy to break the law is another. So, we recommend full compliance with the law and that private financial maneuvers be used in legal and ethical ways only.
Bitcoin has become a widely used currency. It is extremely unlikely that the US would ever ban the use of bitcoin. What it will try to do, however, is get Americans to report each and every international transfer. They will also try to make Americans pay tax on international transfers of bitcoin as if they were sales. Naturally, we recommend keeping yourself tax compliant and hiring a CPA and/or attorney to keep yourself legal and safe.
How To Use An Offshore Company For Trading Bitcoin
Using an offshore company can be a very effective way to protect the privacy associated with bitcoin. The offshore company then opens an account with a cryptocurrency exchange. The founder of the company is then appointed as the international business company’s authorized trader. Bitcoin can be turned into cash via a wage or consulting fee paid to the founder of the company. This money can be transferred to a domestic bank account. Tax deductions associated with ownership of the offshore business may be enough to cover the tax incurred, but check with a CPA. The value of the bitcoin can also be withdrawn using an ATM or debit card.
THAT SAID, U.S. PEOPLE ARE TAXED ON WORLDWIDE INCOME. THERE ARE NO BENEFITS WE KNOW OF FOR U.S. PEOPLE IN THIS REGARD. WE RECOMMEND IN THE STRONGEST TERMS YOU OBTAIN TAX ADVICE FROM A CPA, PAY YOUR TAXES, AND COMPLY WITH ALL TAX AND OTHER LAWS.
How To Fund An Offshore Company With Bitcoin
There are numerous legal strategies for funding an offshore company with bitcoin. The main purpose of these strategies is to maximize the financial privacy offered by using bitcoin. Any strategy which uses bitcoin is a step in the right direction as far as financial privacy is concerned. Bitcoin offers a level of financial privacy which is unmatched by conventional currency. However, some strategies may be more effective than others at maximizing bitcoin’s privacy benefits. There is no one size fits all solution for funding an offshore company with bitcoin. Strategies for doing so vary widely in cost and the additional protection that they provide.
The first option for transferring bitcoin offshore utilizes bitcoin which is being held by an individual in their own name. In this case, an international business company may be set-up offshore. The bitcoin may then be transferred from the onshore account into an offshore account held by the offshore company. The same scenario applies to bitcoin held by a domestic companies. The bitcoin can simply be transferred from the onshore company to the offshore company. The choice of offshore jurisdiction is really important when utilizing this strategy. Certain jurisdictions have favorable privacy laws which can be even more effective when combined with bitcoin.
Online traders, such as forex, commodities or share traders, have the option of opening a brokerage account in their own name. They may then transfer the bitcoin to the personal brokerage account. The trader can then open a brokerage account with the same broker in the name of the offshore company. The money may then be moved as an internal transfer from the personal brokerage account to the offshore company’s brokerage account. Using the same broker is the key to the success of this strategy. This is because internal transfers are not regulated in the same way as external transfers.
Generally speaking, the more layers of legal separation between the owner and the bitcoin, the more protection the strategy may provide. For this reason, the majority of strategies used to fund offshore companies with bitcoin will offer multiple levels of legal separation from the bitcoin. This can include layering bitcoin within different offshore legal entities. It can also include moving money offshore before purchasing bitcoin.
For example, it is possible to purchase local currency which then can be covered into bitcoin. The bitcoin may then be transferred to the international business company. The bitcoin may then be converted back into hard currency in order to make purchases, if desired. Additionally, one may gift the bitcoin to a family member or trusted friend who resides overseas. This friend or family member may then transfer the bitcoin to the offshore company.
It is also possible to buy items of great value which are easily transportable, such as jewelry or artwork, and sell them to a broker overseas. You may use the money received from this sale to purchase bitcoin. This bitcoin is then placed in the international business company and reported for tax and legal purposes as required before, during and after such transactions.
An international business company (IBC) may also be set up as an investment company. The founder of the company can then enter into an arm’s length investment agreement with the international business company. This is a loan agreement set on commercial terms. If the jurisdiction does not have this type of agreement, it will be very difficult for anyone to find out who owns the international business company. That being said, be sure to keep your activities legal and tax compliant.
One highly advantageous strategy for funding an offshore company with bitcoin is to set up a dual structure. An example of a dual structure would be an offshore company whose shares are held by an offshore private foundation. The private foundation is set up as a charitable foundation. Regular donations can be made to the foundation in bitcoin. The bitcoin can then be transferred to the international business company as share capital. This strategy is beneficial because it creates significant separation between the owner and the bitcoin.
Another option which provides a high degree of security is to set up two different international business companies. The first international business company would be used to enter into a general long-term investment with. This investment would be speculative, offering a high risk and a potentially high return. The second international business company would be set up as a trading company. The first international business company would be funded with bitcoin. It would then use those funds to invest in the international business company used for trading. The investment made by the first international business company may be set up so that it doesn’t pay a return for a very long time. The advantage to this strategy comes into play for those who want to avoid questions from prying eyes about money moved into bitcoin and then cashed out in an offshore bank account. If this question is asked, the purchaser may truthfully state they are not yet entitled to a return. As a result, this strategy has an additional benefit as a strategy for asset protection in addition to financial privacy.
THESE STRATEGIES ARE FOR PRIVACY PURPOSES. BUT WE RECOMMEND THAT YOU SEEK LEGAL ADVICE FROM AN ATTORNEY. WE ALSO RECOMMEND THAT YOU SEEK TAX ADVICE FROM AN ACCOUNTANT. BE SURE TO KEEP YOURSELF IN SAFE TERRITORY.