Selling Bitcoin for Cash in Canada

Selling Bitcoin for Cash in Canada

In this post, I will look at selling Bitcoin for cash in Canada. The bottom line is that it’s legal to sell Bitcoin for cash in Canada so long as you watch out for cash buyers with illegal businesses looking to launder their drug proceeds (for example). We don’t want to get involved with any buyer that could be a target of law enforcement.


There is no law in Canada that specifically prohibits the sale of Bitcoin for cash. However, there are some laws that could apply to this activity. For example, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) require businesses that deal in cash to report suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This means that if you sell a large amount of Bitcoin for cash, you may be required to report the transaction to FINTRAC.

Cash Transactions Over the Limit

In addition to the PCMLTFA, there are also some provincial and territorial laws that restrict cash transactions. For example, in Ontario, cash transactions over $10,000 are required to be reported to the Ministry of Finance. In British Columbia, cash transactions over $5,000 are required to be reported to the Financial Institutions Commission of British Columbia.

What to Do If You Are Selling Bitcoin for Cash

If you are selling Bitcoin for cash, it is important to be aware of the laws that apply to this activity. You should also be prepared to report any suspicious transactions to FINTRAC. If you are unsure about the laws that apply to your situation, you should consult with an attorney.

Here are some tips for staying compliant with the law when selling Bitcoin for cash:

  • Keep good records of all cash transactions. This includes the date, time, amount, and identity of the person who sold you the Bitcoin.
  • Report any suspicious transactions to FINTRAC. This includes transactions that are large, unusual, or appear to be related to criminal activity.
  • Be aware of the provincial and territorial laws that restrict cash transactions.
  • Consult with an attorney if you have any questions about the laws that apply to your situation.

By following these tips, you can help to ensure that you are staying compliant with the law when selling Bitcoin for cash.


As the world becomes more digitally inclined, Bitcoin and other cryptocurrencies have grown in popularity and usage. This shift has resulted in governments worldwide, including Canada, taking steps to regulate this emerging financial landscape. In this article, we will explore the legal nuances around selling Bitcoin for cash and the implications of cash transactions that exceed established limits in Canada.

Regulations Around Selling Bitcoin for Cash

Selling Bitcoin for cash is legal in Canada. However, certain regulations govern this process to ensure transparency, prevent fraud, and curb money laundering. Bitcoin is generally considered a commodity by the Canadian government and is thus subject to the barter transaction rules under the Income Tax Act.

Those involved in Bitcoin transactions are also subject to regulations stipulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). As part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), businesses dealing with cryptocurrencies, including Bitcoin, must register with FINTRAC. This registration requires the implementation of certain protocols, such as verifying the identities of those involved in transactions, maintaining detailed transaction records, and reporting any suspicious transactions to the authorities.

Cash Transaction Limits

Cash transaction limits are another crucial factor in the legal landscape surrounding Bitcoin sales for cash. In Canada, any business that receives $10,000 or more in cash in a single transaction, or two or more transactions that total $10,000 or more within a 24-hour period, is legally obligated to report such transactions to FINTRAC. This rule applies to both Bitcoin-cash exchanges and traditional cash transactions.

These businesses must also keep detailed records of cash transactions exceeding this threshold. The information usually includes the identities of those involved, details of the transaction, and any suspicious activities. Non-compliance with these requirements can lead to severe penalties, including hefty fines and criminal charges.

Implications and Considerations

While the regulatory framework in Canada allows for Bitcoin transactions and sales, it is crucial to understand that this landscape can be complex. The government has clear guidelines to prevent illicit activities such as money laundering and fraud. For individuals or businesses involved in selling Bitcoin for cash, it is advisable to keep abreast of the latest developments in the law and maintain transparency in all dealings.

Additionally, as Bitcoin transactions fall under the umbrella of barter transactions, they are subject to taxation. Thus, all Bitcoin transactions should be duly reported in income tax filings.

It’s important to note that legal regulations and guidelines may have changed beyond this information, last updated in September 2021. Therefore, it’s recommended to seek professional financial or legal advice for the most accurate and current information.

In conclusion, the sale of Bitcoin for cash in Canada is generally permissible, provided that all transactions adhere to the country’s legal and financial regulations. Complying with these rules helps maintain a transparent and robust financial system that can leverage the potential of cryptocurrencies like Bitcoin while mitigating associated risks.

mexican SOFOM

Setting up a SOFOM in Mexico to Operate a Fintech, Financial Services, or Crypto Business

A Mexican SOFOM, or Sociedad Financiera de Objeto Múltiple, is a type of financial institution that can provide a variety of financial services, including money transmission, cryptocurrency, loans, leases, and factoring. SOFOMs can be either regulated or unregulated, with regulated SOFOMs being subject to more oversight by the Mexican government.

Fintech, financial services, and crypto companies in Mexico are increasingly using SOFOMs to provide their customers with a wider range of financial services. For example, fintech companies may use SOFOMs to provide loans to small businesses, while financial services companies may use SOFOMs to offer investment products to their customers. Crypto companies may also use SOFOMs to provide services such as cryptocurrency trading and custody.

SOFOMs offer a number of advantages for fintech, financial services, and crypto companies in Mexico. First, SOFOMs can provide these companies with access to a wider range of financial products and services. Second, SOFOMs can help these companies to reach a wider customer base. Third, SOFOMs can help these companies to comply with Mexican financial regulations.

As the fintech, financial services, and crypto sectors in Mexico continue to grow, SOFOMs are likely to play an increasingly important role in these industries. SOFOMs offer a number of advantages for these companies, and they can help these companies to provide their customers with a wider range of financial services.

The Most Efficient Structure for a Financial Services, Fintech or Crypto Business in Mexico is a SOFOM

A Sociedad Financiera de Objeto Múltiple (SOFOM) is a type of financial institution in Mexico that is authorized to provide a wide range of financial services, including loans, leases, and factoring. SOFOMs are regulated by the Comisión Nacional Bancaria y de Valores (CNBV), the Mexican banking and securities commission.

There are two types of SOFOMs: regulated and unregulated. Regulated SOFOMs are subject to more stringent regulatory requirements than unregulated SOFOMs. However, regulated SOFOMs also have access to a wider range of financial services and products.

A SOFOM is the most efficient structure for a number of reasons. First, SOFOMs are authorized to provide a wide range of financial services, which allows businesses to offer a more comprehensive suite of products to their customers. Second, SOFOMs are regulated by the CNBV, which provides businesses with a high level of financial stability and security. Third, SOFOMs have access to a wide range of financial resources, which allows businesses to grow and expand their operations.

If you are considering starting a financial services business in Mexico, a SOFOM is the most efficient structure to consider. SOFOMs offer a wide range of benefits, including access to a wide range of financial services, products, and resources.

Here are some additional benefits of incorporating as a SOFOM in Mexico:

  • Flexibility: SOFOMs have a great deal of flexibility in terms of the types of financial services they can offer. This allows businesses to tailor their offerings to the specific needs of their customers.
  • Scalability: SOFOMs are well-suited for businesses that are looking to grow and expand. They offer a wide range of financial resources that can help businesses to finance their growth.
  • Reputation: SOFOMs are regulated by the CNBV, which gives them a high level of financial stability and security. This is important for businesses that want to build a strong reputation with their customers.

Here are some specific examples of how SOFOMs are being used by fintech, financial services, and crypto companies in Mexico:

  • Fintech company Konfío uses SOFOMs to provide loans to small businesses.
  • Financial services company Banorte uses SOFOMs to offer investment products to its customers.
  • Crypto company Bitso uses SOFOMs to provide cryptocurrency trading and custody services.

These are just a few examples of how SOFOMs are being used by fintech, financial services, and crypto companies in Mexico. As these industries continue to grow, SOFOMs are likely to play an increasingly important role in providing financial services to Mexicans.

Here are the steps on how to set up a SOFOM in Mexico:

  1. Obtain a corporate charter. The first step is to obtain a corporate charter from the Secretaría de Economía (Secretariat of Economy). The corporate charter will set forth the basic structure of your company, including its name, purpose, and capitalization.
  2. Register with the National Banking and Securities Commission (CNBV). Once you have obtained your corporate charter, you must register with the CNBV. The CNBV is the Mexican government agency responsible for regulating the financial sector. The registration process with the CNBV can be complex, so it is advisable to seek professional assistance.
  3. Obtain a license to operate as a SOFOM. Once you have registered with the CNBV, you must obtain a license to operate as a SOFOM. The license application process is also complex, so it is advisable to seek professional assistance.
  4. Establish a physical presence in Mexico. To operate as a SOFOM in Mexico, you must establish a physical presence in the country. This means that you must have an office or other location where you can conduct business.
  5. Obtain the necessary permits and licenses. In addition to the license to operate as a SOFOM, you may also need to obtain other permits and licenses from local authorities. The specific requirements will vary depending on the location of your business.
  6. Hire qualified staff. To operate a successful SOFOM, you will need to hire qualified staff. This includes employees with experience in the financial sector, as well as employees with experience in the Mexican market.
  7. Develop a marketing plan. Once you have established your business, you will need to develop a marketing plan to attract customers. This plan should include strategies for reaching potential customers, as well as strategies for building relationships with customers.

Here are some additional requirements for setting up a SOFOM in Mexico:

  • A business plan that outlines the company’s goals, strategies, and financial projections.
  • A financial model that details the company’s sources of funding and projected cash flows.
  • Background information on the shareholders, including their financial and professional qualifications.
  • A copy of the shareholders’ agreement.
  • A copy of the company’s bylaws.

We can provide local directors if that is your need, but they are not required. Local directors can be helpful in navigating the Mexican legal and regulatory environment. They can also help to build relationships with local businesses and government officials.

If you are considering setting up a SOFOM in Mexico, we encourage you to contact us for more information. We can help you to assess your needs and develop a plan to achieve your goals. You can reach me directly at 

doing business in mexico

An Inside Look at the Business Climate in Mexico for FinTech and Crypto Businesses

The dynamic business landscape in Mexico is offering fertile ground for both FinTech and crypto businesses. Driven by a potent mix of regulatory evolution, market potential, and consumer demand, Mexico has emerged as one of Latin America’s hotspots for these disruptive technologies. Here’s a look at the vibrant business climate in Mexico for FinTech and crypto enterprises.

Mexico’s Favorable Regulatory Landscape

In 2018, Mexico established itself as a regional pioneer by enacting the first FinTech Law in Latin America. This comprehensive legislation provides a regulatory framework for companies in the FinTech space, including crypto businesses, ensuring their operations’ safety, security, and transparency.

Under the law, FinTech companies can operate as Financial Technology Institutions (ITFs), while crypto-related businesses must be authorized by the Mexican Central Bank (Banxico). The law paves the way for increased consumer protection, fosters competition, and encourages financial inclusion.

While there are still aspects of the law that require further clarification, its presence symbolizes the government’s commitment to fostering an environment conducive to FinTech and crypto innovation.

Untapped Market Potential

Despite significant strides in financial inclusion, a substantial portion of Mexico’s population remains unbanked or underbanked. These individuals and businesses, underserved by traditional financial institutions, represent a considerable untapped market for FinTech and crypto businesses.

FinTech solutions, including digital wallets, peer-to-peer lending platforms, and microfinance services, offer a potential route to financial inclusion. Simultaneously, cryptocurrencies, by their decentralized nature, can provide an accessible alternative for individuals who struggle to access traditional banking services.

Consumer Demand

Mexico’s digital economy is growing, with increasing internet and smartphone penetration. The demand for digital financial solutions, from online banking and digital payments to investment platforms, is on the rise.

Furthermore, the younger demographics of Mexico are more open to adopting these new technologies, creating a vast user base for FinTech and crypto businesses. Crypto, in particular, is gaining popularity among millennials and Generation Z due to its potential for quick returns and its decentralized, global nature.

Crypto Climate

Despite regulatory uncertainty in many countries, Mexico’s attitude towards crypto has been mostly positive. While Banxico does not consider cryptocurrencies as legal tender, it acknowledges their use as a medium of exchange, unit of account, and store of value.

Mexico’s crypto market is rapidly growing, with several crypto exchanges operating in the country. Mexicans use cryptocurrencies for various purposes, including remittances, a sector where cryptocurrencies can offer quicker and cheaper cross-border transfers.

However, it’s important to note that crypto businesses must adhere to strict regulations, particularly concerning money laundering and customer protection. Crypto businesses planning to launch in Mexico should prepare for rigorous compliance procedures, including getting authorization from Banxico and implementing robust KYC (Know Your Customer) protocols.

Market Demand for Fintech and Crypto Businesses

The market for FinTech companies in Mexico has grown significantly in recent years, fueled by a convergence of economic, technological, and demographic factors. As of 2021, Mexico is considered the leader in the FinTech ecosystem in Latin America, boasting the largest number of FinTech startups in the region. This has primarily been spurred by the demand for digital financial services, which are more inclusive, efficient, and user-friendly compared to traditional banking methods.

Market Landscape

Mexico’s FinTech market is diverse, with companies specializing in a wide array of services such as digital banking, payments and remittances, insurance (InsurTech), personal finance, crowdfunding, and blockchain technology. Each of these sectors caters to different user needs, from offering unbanked populations access to financial services to providing small businesses with efficient and cost-effective banking solutions.

Significant progress has been made in regulations too, making Mexico an attractive location for FinTech innovation. In 2018, Mexico became the first country in Latin America to enact a FinTech law, aimed at promoting financial stability and defending against money laundering, while also nurturing innovation and competition in the financial sector.

Demand Drivers

A critical demand driver for FinTech companies in Mexico is financial inclusion. A sizable proportion of Mexico’s population remains unbanked or underbanked. Traditional banks often have stringent requirements or high fees that many citizens can’t meet. FinTech companies, with their flexible and accessible solutions, present an opportunity to address this issue by offering services such as mobile banking, microloans, and digital wallets.

Digital remittances have also emerged as a significant market, with Mexico being one of the largest remittance-receiving countries in the world. FinTech solutions for quick, cost-effective cross-border transfers are in high demand, opening up opportunities for startups in this field.

In addition, Mexico’s thriving e-commerce market is driving demand for digital payments solutions. Consumers are increasingly turning to online shopping, necessitating secure, efficient payment systems that traditional banking often fails to deliver.

Finally, Mexico’s young, tech-savvy population contributes to the increasing demand. With one of the youngest demographics in Latin America and high smartphone penetration, Mexico’s population is well-positioned to adopt digital financial services.


The combination of a growing need for financial inclusion, increasing digitalization, a thriving e-commerce sector, and a young, tech-oriented population sets the stage for substantial growth in Mexico’s FinTech market. As traditional banks struggle to meet evolving consumer needs, FinTech companies can step in to fill the gaps, leveraging technology to provide more accessible, affordable, and efficient financial solutions. Given these conditions, Mexico’s FinTech market presents considerable opportunities for existing companies and new entrants alike.

Mexico’s burgeoning FinTech and crypto sectors reflect the country’s broader commitment to embracing digital transformation and promoting financial inclusion. The favorable regulatory landscape, coupled with untapped market potential and increasing consumer demand, creates a fertile environment for FinTech and crypto businesses.

While challenges remain, including refining the regulatory framework and improving digital infrastructure, the momentum is clearly with FinTech and crypto. As these sectors continue to evolve, Mexico is well-positioned to be a leader in the FinTech and crypto revolution in Latin America.

For more information on where I recommend you set up a Fintech, financial services, or crypto business in Mexico, please have a read through Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company. For more on the suggested structure, see Incorporating a Financial Services Company in Mexico – the Mexican SOFOM.I hope you’ve found this article helpful. For more information on setting up a business in Mexico, and on forming a SOFOM, please contact me at

where to do business in Mexico

Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company

In this post, I’ll explain why I believe Tijuana is the best business city in Mexico in which to set up a fintech, financial services, or crypto business. I’ve traveled and done business throughout Mexico for over 20 years and can say without a doubt that Tijuana is the most efficient option for setting up a fintech business. Here’s why. 

Mexico’s burgeoning FinTech landscape is diverse, innovative, and geographically rich, with Tijuana emerging as the city of choice for setting up a FinTech business. Here, a confluence of strategic location, global business acceptance, linguistic proficiency, cost efficiency, and regulatory allowances merge to create an environment that is uniquely supportive of FinTech growth. Let’s dissect why Tijuana is the best city in Mexico for FinTech enterprises.

Proximity to the U.S. Borde

Tijuana’s strategic location, sitting just across the border from the United States, renders it a natural nexus between two significant economies. This proximity is not just geographical but also deeply intertwined within the fabric of business and culture in the region, offering enormous benefits to the FinTech sector.

Being adjacent to the United States, Tijuana is ideal for businesses targeting a cross-border audience. With easy access to the U.S. market, FinTech companies in Tijuana can exploit the advantages of both countries, navigating market trends, consumer behaviors, and regulatory landscapes with ease. Furthermore, the proximity enables a seamless flow of knowledge, technology, and talent between the two nations, thereby fostering innovation and growth.

Accepting of International Businesses and Investors

Tijuana’s open-door policy towards international businesses makes it a hotbed for globalization. The city’s economic policies are geared towards attracting foreign investment, boosting its global competitiveness, and enhancing its status as a cosmopolitan city. For FinTech businesses, this translates into a supportive, innovation-driven environment that fosters both domestic and international success.

Moreover, Tijuana is home to numerous international tech conferences and events, encouraging networking and collaboration. Such gatherings generate opportunities for FinTech startups to forge partnerships, secure investments, and enhance their global visibility.

Ease of Finding English-Speaking Workers

With a large percentage of its population bilingual in English and Spanish, Tijuana offers a considerable advantage for FinTech companies. English proficiency is a critical factor in the global FinTech landscape, and having access to a skilled, English-speaking workforce is crucial for businesses that wish to operate on an international level.

Why are there so many English speakers in Tijuana compared to other large cities in Mexico? First, many of the people deported from the Western United States end up in Tijuana. They need jobs and have excellent English skills. Second, many in Tijuana middle class have US visas and families in America. They learned English from a young age and travel to San Diego frequently. 

Cost of Labor Compared to the U.S.

Labor costs in Tijuana are significantly lower than in the United States, even though the level of skills and expertise can be comparable. This cost advantage makes Tijuana an attractive location for FinTech startups looking to operate lean while maintaining high-quality services. By reducing the labor cost burden, companies can invest more in product development, marketing, and other critical areas to boost their competitiveness and growth.

Ability to set up a SOFOM (Sociedad Financiera de Objeto Múltiple)

In Mexico, FinTech companies have the option to establish themselves as a SOFOM – a non-bank financial entity that can operate in Baja and the rest of Mexico. This legal entity, dedicated to providing loans and credit, offers the opportunity to conduct financial operations without the need for a traditional banking license.

Setting up a SOFOM in Tijuana means your FinTech business can operate across Baja California and Mexico as a whole, delivering financial services and innovative solutions to a broad and diverse market. Additionally, the ability to set up a SOFOM underscores the flexibility and supportiveness of Mexico’s regulatory landscape towards the FinTech sector.

About Tijuana

Tijuana, an eclectic border city that melds Mexican culture with a dynamic international influence, is a bustling metropolis that attracts people from across the globe. Known for its vibrant cultural scene and burgeoning economic potential, Tijuana is a fascinating city that holds promise for the future. Here’s an overview of Tijuana’s size, population, and demographics.

Size and Location

Tijuana is situated in the Baja California Peninsula, the second-longest peninsula in the world, right at Mexico’s border with the United States. It is the largest city in the state of Baja California and covers an area of around 637 square kilometers.

The city’s strategic location on the U.S.-Mexico border plays a significant role in shaping its economic, cultural, and demographic makeup. Its proximity to San Diego, with which it forms an international metropolitan area, gives it a unique cross-border characteristic.


As of 2023, the estimated population of Tijuana is over 1.8 million people, making it the sixth-largest city in Mexico. The population has seen substantial growth over the past few decades, largely fueled by internal migration from other parts of Mexico and an influx of international immigrants, particularly from the U.S., China, and the rest of Latin America.

The city has a high population density due to its role as a regional hub for employment, culture, and commerce. It also serves as a magnet for individuals and families seeking opportunities in the bustling border economy.


Tijuana boasts a diverse demographic makeup, contributing to its rich cultural fabric. The majority of Tijuana’s inhabitants are of Mexican descent, but there’s a significant presence of residents with international roots, primarily from the United States, China, and other Latin American countries.

The age distribution of Tijuana tends to skew younger, aligning with the general trend in Mexico. The city’s median age is in the late twenties, a testament to the youthful energy that drives Tijuana’s economic and cultural dynamism. This young demographic is critical to the city’s labor force and its potential for innovation and growth.

Given its border location, a significant proportion of Tijuana’s population is bilingual, with proficiency in both Spanish and English. This linguistic capability is a valuable asset, particularly in the business and service sectors, fostering cross-border commerce and cultural exchange.

In terms of socioeconomic status, Tijuana exhibits a broad spectrum. The city houses affluent neighborhoods with high-income households, alongside areas characterized by lower income levels. Over the years, economic development efforts have been aimed at addressing these disparities and promoting inclusive growth.

The Bottom Line

Tijuana’s unique blend of size, population, and demographics creates a lively and dynamic city that serves as a nexus of cultures, economies, and opportunities. With its strategic border location, youthful population, and rich cultural diversity, Tijuana offers a vibrant environment ripe for economic growth and international collaboration. As Mexico continues to progress, the city of Tijuana is poised to play a significant role in the nation’s journey toward a prosperous future.


Tijuana’s strategic location, supportive environment for international business, English-speaking talent, competitive labor costs, and legal flexibility make it an ideal setting for a thriving FinTech business. By harnessing these attributes, FinTech entrepreneurs in Tijuana are well-positioned to drive innovation, foster growth, and pave the way for a robust, future-proof financial landscape in Mexico.

I hope you’ve found this article helpful. For more on setting up a fintech, financial services business, or crypto company in Tijuana, or on incorporating a SOFOM, please contact me at

dominican republic

A Review of the Political History of the Dominican Republic

The purpose of this post is to guide investors and business owners looking to do business in the Dominican Republic. Thus, it is written from a business perspective. I strongly recommend the Dominican Republic as a jurisdiction for a fintech business or as a domestic and international banking center. 

The history of the Dominican Republic is rich and complex, with its political landscape marked by periods of dictatorship, civil unrest, democratic progress, and economic development. Here’s a more comprehensive historical overview:

Pre-Columbian and Early Colonial Period: The island, which the Dominican Republic shares with Haiti, was originally inhabited by the Taíno people. In 1492, Christopher Columbus arrived, marking the beginning of heavy Spanish influence. The capital, Santo Domingo, was established in 1496, becoming the oldest continuously inhabited European settlement in the Americas.

Late Colonial Period: The 17th century saw the decline of Spanish influence, and by the late 18th century, the French controlled the western part of the island (modern-day Haiti). The eastern part (the present Dominican Republic) was returned to Spanish rule.

Early 19th Century: In 1821, the eastern part of the island declared independence from Spain, but it was quickly taken over by Haiti. For 22 years, the entire island was unified under Haitian control.

1844: The Dominican Republic declared independence from Haiti, marking the beginning of the Dominican Republic as a separate entity. The early years were marked by political instability, with frequent changes in leadership and government structure.

Late 19th Century: The country faced economic problems and political instability, which led to brief annexation by Spain in 1861-1865. The rest of the century was marked by periods of civil war and political instability.

1930-1961: The Dominican Republic fell under the dictatorship of Rafael Trujillo. His rule, marked by repression and human rights abuses, was one of the longest and bloodiest in Latin American history. Trujillo was assassinated in 1961.

1960s: The post-Trujillo period was marked by political instability. In 1963, democratically elected president Juan Bosch was overthrown by a military coup, leading to a civil war in 1965. U.S. troops intervened, citing the risk of a communist takeover similar to that in Cuba.

1966-1996: Joaquín Balaguer, a political ally of Trujillo, was elected president in 1966. Balaguer’s rule was marked by repression of political opposition, but also by stability and economic development. Balaguer served as president for most of the period from 1966 to 1996.

1996-Present: Since 1996, the Dominican Republic has seen a series of peaceful transitions of power, marking progress towards democratic consolidation. The country has faced various challenges, including corruption, drug trafficking, and social inequality. However, it has also made significant economic progress, particularly in industries like tourism and telecommunications.

This is a broad overview of the Dominican Republic’s political history, and it doesn’t cover all the complexities and nuances. The purpose of this article is to give some political context to those interested in purchasing a bank in the country. 

Dominican Republic Relationships 

The Dominican Republic’s strategic location in the Caribbean and its growing economy have led it to foster various international relationships, making it an active participant in several regional and international organizations. Here’s a brief look at some of its key international relationships and memberships as follows:

China: The Dominican Republic established diplomatic relations with the People’s Republic of China in 2018, severing its official ties with Taiwan. This move was seen as a significant shift in the country’s foreign policy, recognizing China’s “One-China” policy. The Dominican Republic’s relationship with China focuses on economic cooperation, trade, investment, and infrastructure development. China has become an important trading partner and source of foreign direct investment for the Dominican Republic.

Central American Integration System (SICA): The Dominican Republic is an associate member of SICA, a regional bloc aiming to promote economic integration and political cooperation among Central American nations. As part of SICA, the Dominican Republic has an opportunity to increase regional trade, strengthen political ties, and collaborate on issues such as security, human rights, and environmental protection.

Caribbean Forum (CARIFORUM): The Dominican Republic is a member of CARIFORUM, which consists of the Caribbean Community (CARICOM) member states and the Dominican Republic. CARIFORUM’s main function is to manage and coordinate relations between the Caribbean states and the European Union, particularly regarding economic cooperation and trade agreements.

Association of Caribbean States (ACS): As a member of the ACS, the Dominican Republic works with other Caribbean and Latin American nations to promote consultation, cooperation, and concerted action among all the countries of the Caribbean. The organization’s main areas of interest include trade, transport, sustainable tourism, and natural disaster risk reduction.

The Dominican Republic’s participation in these organizations reflects its commitment to regional integration, cooperation, and economic development. It also shows the country’s strategic approach to forging alliances and partnerships that can bolster its economic growth and political influence. However, like any country, the Dominican Republic must balance its international relationships with its national interests, a task that can sometimes be challenging.

Dominican Republic Currency and Central Bank

The currency of the Dominican Republic is the Dominican Peso, denoted by the symbol “RD$” or the code “DOP”. It is subdivided into 100 centavos. The Central Bank of the Dominican Republic (Banco Central de la República Dominicana, in Spanish) is responsible for issuing and managing the country’s currency.

The DOP is a free-floating currency, not a pegged currency. This means its exchange rate with other currencies, including the United States Dollar (USD), is determined by the foreign exchange market based on supply and demand factors, rather than being fixed to the value of another currency like the Eastern Caribbean (EC) Dollar is to the USD.

Over the years, the exchange rate between the Dominican Peso and the US Dollar has generally seen a gradual depreciation of the DOP. This means it takes more Dominican Pesos to buy one US Dollar over time. However, the rate of depreciation and the exact rates can fluctuate based on a variety of factors, including economic conditions in the Dominican Republic and the United States, monetary policy decisions by the respective central banks, and global economic factors.

While the Central Bank of the Dominican Republic doesn’t peg the DOP to the USD, it may intervene in the foreign exchange market to prevent excessive volatility in the DOP/USD exchange rate. This intervention can involve buying or selling US Dollars or other actions to influence the supply and demand for the two currencies.

The Central Bank plays a crucial role in the Dominican Republic’s economy, performing several essential functions:

  1. Monetary Policy: The Central Bank is responsible for formulating and implementing the country’s monetary policy with the goal of maintaining price stability. This typically involves managing interest rates and controlling the money supply to manage inflation and stabilize the economy.
  2. Currency Issuance: The Central Bank has the exclusive right to issue currency in the Dominican Republic. It is responsible for ensuring there is sufficient currency in circulation to meet the demands of the economy, while also managing the risk of inflation.
  3. Financial Stability: The Central Bank works to maintain the stability of the country’s financial system. This can involve acting as a lender of last resort to banks facing liquidity problems, overseeing payment systems, and monitoring economic indicators to identify potential threats to financial stability.
  4. Foreign Exchange Management: The Central Bank manages the country’s foreign exchange reserves and regulates the foreign exchange market. This can involve intervening in the foreign exchange market to stabilize the exchange rate of the Dominican Peso.
  5. Economic Research and Statistics: The Central Bank conducts economic research and publishes a range of economic and financial statistics. This information helps inform decision-making by government, businesses, and investors.

In summary, the Central Bank of the Dominican Republic plays a vital role in maintaining the stability of the country’s economy and financial system. Its actions can have significant impacts on issues such as inflation, economic growth, and the stability of the Dominican Peso.

Santo Domingo, Dominican Republic 

Santo Domingo, the capital of the Dominican Republic, is not only the largest city in the country but also one of the largest cities in the Caribbean region. The estimated population of Santo Domingo was around 3 million in the city proper, with over 4 million in the larger metropolitan area.

Santo Domingo plays a vital role in the Dominican Republic’s economy, contributing significantly to its GDP. The city is a hub of economic activity, with several key industries driving its economic growth:

Tourism: Santo Domingo is rich in historical and cultural sites, including the Zona Colonial (Colonial Zone), a UNESCO World Heritage site with buildings dating back to the 16th century. The city’s hotels, resorts, restaurants, and historical sites draw tourists from around the world, making tourism a significant contributor to the city’s economy.

Services Sector: The services sector, including finance, real estate, health care, and education, is a key economic driver. Santo Domingo hosts the headquarters of many banks and financial institutions. The city is also home to some of the country’s most important educational institutions and hospitals.

Trade and Commerce: Santo Domingo is a central hub for both domestic and international trade. Its location and infrastructure, including the Port of Haina, one of the busiest ports in the Caribbean, facilitate imports, exports, and commerce. Retail is also a significant part of the city’s economy.

Manufacturing and Industry: Santo Domingo and its surrounding areas host several industrial free zones, where goods are produced for export. Industries include textiles, pharmaceuticals, tobacco, and food processing.

Telecommunications and IT: The city is a center for telecommunications and information technology services in the Dominican Republic. Various national and international telecom and IT companies have their operations based in the city.

Construction and Real Estate: The real estate and construction sectors have seen significant growth, with numerous residential and commercial developments in recent years.

Given its role as the capital and its diverse economy, Santo Domingo plays a significant part in the Dominican Republic’s economic stability and growth. However, the city also faces challenges, such as traffic congestion, pollution, and social inequality.

Credit Card Issing and Fintech Transaction Rules

Credit Card Issing and Fintech Transaction Rules

In this post, I will consider why card issuers and certain fintech businesses have compliance requirements and how those KYC and AML rules translate to transaction monitoring rules within the core system or compliance system. The focus of this post is on anti-money laundering and related transaction rules. 

Know Your Customer (KYC) and Anti-Money Laundering (AML) rules are important components of regulatory compliance for financial institutions, including those issuing virtual prepaid credit cards. Here is some sample transaction rules a company might use to meet KYC and AML obligations:

  1. Customer Identification Program (CIP): Every customer must be properly identified before a virtual prepaid card is issued. This requires collecting, at minimum, the customer’s full legal name, birth date, address, and identification number (like a Social Security number or passport number).
  2. Identity Verification: After collecting this information, it must be verified through reliable means. This can include checking the provided information against databases or asking for additional documentation like a scanned passport or utility bill.
  3. Risk-Based Verification: Customers who are likely to pose a higher risk of money laundering or terrorist financing may require enhanced due diligence, which can involve collecting more detailed information about their personal background, sources of funds, and intended use of the prepaid card.
  4. Ongoing Monitoring: After a card has been issued, its usage must be monitored for suspicious activity. This can include transactions that are unusually large, frequent, or inconsistent with the customer’s normal behavior.
  5. Transaction Limits: To reduce the risk of money laundering, virtual prepaid card issuers may set limits on the amount that can be loaded onto a card at any one time, or the total amount that can be transacted within a certain period.
  6. Reporting Suspicious Activity: If suspicious activity is detected, the card issuer has a duty to report this to the relevant authorities in a timely manner. This typically involves filing a Suspicious Activity Report (SAR).
  7. Record Keeping: Detailed records of all customer information, transactions, and any actions taken in response to suspicious activity must be kept for a certain period, usually five years.
  8. Sanctions Screening: The issuer must ensure that neither the customer nor the recipients of any funds from the card are on any government sanctions lists.
  9. Privacy and Data Security: All collected customer information must be stored securely to protect against data breaches. There should be policies in place to ensure that customer data is only used for the purposes it was collected for and is shared only with authorized entities.
  10. Regular Audits: Internal or external audits should be conducted periodically to ensure that all KYC and AML procedures are being followed, and to identify any areas where improvements can be made.

Please note that these are just samples and the actual rules may differ depending on the jurisdiction the company is operating in, as well as other factors. Always consult with a legal expert or a compliance officer when designing or updating your KYC and AML policies. You can reach us at 

Criminals can use credit cards in several ways to launder money:

  1. Credit Card Factoring: A common method involves setting up a shell company (a company that exists only on paper and has no office and no employees) and using it to process credit card transactions for non-existent goods and services. The shell company can then pass off these transactions as legitimate business income.
  2. Cash Withdrawals: Criminals can use credit cards to withdraw cash at ATMs, especially in foreign jurisdictions, to obscure the origin of the funds.
  3. Purchase and Resale: Individuals may use a credit card to purchase high-value items (like electronics, jewelry, etc.) and then sell these items to generate “clean” cash. This method allows the laundering of money through legitimate commercial transactions.
  4. Overpayment Fraud: This method involves the criminal intentionally overpaying on the credit card, then requesting a refund from the credit card company. The refund is then returned as a check, which can be deposited into a bank account, effectively converting illicit cash into seemingly legitimate funds.
  5. Gift Cards and Prepaid Cards: Criminals can purchase gift cards or prepaid cards using a credit card. These cards can then be sold for cash or used to purchase goods, thus obfuscating the source of the funds.
  6. Balance Transfers: By continuously transferring balances between different credit cards owned by the same individual or different individuals, money launderers can make it difficult for authorities to track the source of funds.
  7. Collusion with a Merchant: Criminals can also collude with corrupt merchants to carry out fraudulent transactions. The merchant will charge the credit card for non-existent goods or services, and after deducting a commission, transfer the rest of the funds back to the criminal.

These methods are illegal and can lead to severe penalties for the card issuer or fintech that allows the transaction through. Credit card companies and financial institutions must have systems in place to identify and prevent such activities, such as transaction monitoring systems, KYC procedures, and real-time fraud detection algorithms.

Money laundering involves making illegally-gained proceeds appear legal, a process typically accomplished through a three-step process: Placement, Layering, and Integration. Criminals have developed various methods to launder money using credit cards. Here’s how it could happen:

  1. Placement: The initial stage of money laundering where illicit money is introduced into the financial system. With credit cards, this can happen in a few ways:
    • A criminal could use a stolen or counterfeit credit card to purchase goods and then resell them for cash.
    • Fraudulently obtained credit cards could also be used to purchase other forms of monetary instruments, such as gift cards or prepaid cards, which can later be sold or used without leaving a direct link back to the criminal.
  2. Layering: This is the process of creating complex layers of financial transactions to disguise the audit trail and provide anonymity. In the context of credit cards:
    • The criminal might use the card to make numerous small purchases or cash withdrawals across different locations and businesses to obscure the source of funds.
    • They might also use the card to purchase items online, further complicating the trail because these transactions could involve multiple jurisdictions.
  3. Integration: This is the final stage where the ‘cleaned’ money is mixed with legally obtained money. With credit cards:
    • The criminal might operate a fake business and process false transactions using the credit card, making the money appear as legitimate earnings.
    • They might also use a legitimate business to charge the credit card for non-existent goods or services, then present this as legitimate income.

It’s important to note that financial institutions, card issuers, and fintech’s are well aware of these tactics, and have measures in place to detect and prevent such activities. These include monitoring for suspicious transaction patterns, implementing strong KYC and AML procedures, and reporting suspicious activities to the authorities.

Credit card transaction rules are guidelines or protocols established by credit card companies to detect and prevent fraudulent transactions, ensure regulatory compliance, and enhance customer security. Here are some common credit card transaction rules:

  1. Daily Spending Limit: To prevent fraudulent transactions, a daily spending limit is often set. If transactions exceed this limit, they may be denied until the cardholder confirms the transactions are genuine.
  2. Geographical Restrictions: Transactions made in unfamiliar locations or foreign countries may be flagged or blocked, especially if the cardholder hasn’t notified the card issuer about their travel plans.
  3. Frequency of Transactions: If there’s a sudden increase in the frequency of transactions, it could indicate fraudulent activity. The card issuer may block further transactions until they can confirm the activity with the cardholder.
  4. Unusual Purchase Patterns: If a transaction or series of transactions deviate significantly from the cardholder’s typical spending habits, they might be flagged as potentially fraudulent.
  5. Online and Card-Not-Present Transactions: These types of transactions can be riskier than in-person transactions, and may be subject to additional security measures, like requiring the cardholder to enter a CVV number.
  6. Incorrect Personal Information: If a transaction is attempted with incorrect personal information (e.g., wrong billing address or zip code), the transaction may be declined.
  7. Large Purchases: Large purchases may be flagged or blocked, especially if they’re inconsistent with the cardholder’s typical spending behavior.
  8. Suspicious Merchant Categories: Transactions with certain types of merchants (e.g., gambling websites or cryptocurrency exchanges) may be flagged or blocked due to the higher risk of fraud or regulatory compliance issues.
  9. Multiple Declined Transactions: If multiple transactions are declined in a short period of time, the card may be temporarily blocked to prevent potential fraud.

These rules help credit card issuers manage risk and protect customers from fraud. However, they’re not foolproof, and cardholders should always monitor their accounts for suspicious activity.

Transaction Rules for Credit Card Issuers and Fintech Companies:

  1. Account Opened, Maxed, and Closed: This rule will alert when the cardholder loads and uses the card up to the balance and then closes the account quickly. There should be a min value such as $5,000.  
  2. High-Risk Jurisdiction Transactions: This rule will alert any transactions that are conducted with high-risk jurisdictions, including those known for high levels of corruption, organized crime, or terrorist activity.
  3. Frequent Small Transactions: This rule will alert when there are frequent small transactions that, collectively, account for a substantial sum. This could be an indication of “structuring” or “smurfing,” techniques often used to evade reporting requirements.
  4. Rapid Movement of Funds: This rule alerts when there is rapid movement of funds from one account to another, or across multiple accounts. This could be indicative of layering, a money laundering technique.
  5. Transactions Just Below Reporting Threshold: This rule will alert transactions that are just below the reporting threshold set by the regulatory bodies. This could be an attempt to evade detection.
  6. Inconsistent Transaction Activity: This rule alerts when the transaction pattern significantly deviates from a customer’s usual behavior or expected transaction pattern.
  7. Round Dollar Transactions: This rule alerts when transactions are made in round numbers (e.g., $1000, $5000), especially when they occur frequently. Criminals often use round numbers for simplicity.
  8. Transactions Matching Sanctioned Lists: This rule will alert any transactions associated with individuals, organizations, or countries that appear on national and international sanctions lists.
  9. Cash Advances: This rule will alert frequent or large cash advances, which could indicate an attempt to obtain cash for illicit purposes.
  10. Multiple Cards to the Same Address: This rule alerts when multiple cards are issued to the same address. This could be a sign of a fraud or identity theft operation.
  11. Transactions with High-Risk Businesses: This rule will alert transactions with businesses known to be high-risk for money laundering, such as casinos, pawn shops, or shell companies.
  12. Non-Resident Transactions: This rule will alert when transactions occur frequently from non-residents, especially from high-risk jurisdictions.
  13. High Number of Declined Transactions: This rule will alert when a customer has a high number of declined transactions, which could indicate fraudulent activity.
  14. Unusual E-commerce Transactions: This rule alerts when there are unusual e-commerce transactions, such as frequent purchases from a single online vendor, which could be indicative of fraudulent activity.
  15. Inconsistent Shipping Information: This rule alerts when the shipping address frequently changes or doesn’t match the customer’s known address. This could be a sign of fraud.
  16. Sudden Increase in Credit Card Usage: This rule will alert when there is a sudden spike in credit card usage, which could indicate that the card has been compromised.
  17. Transactions at Odd Hours: This rule will alert when transactions are conducted at odd hours, inconsistent with the cardholder’s known behavior.
  18. Large Purchases or Withdrawals: This rule will alert any large purchases or cash withdrawals that are unusual based on the customer’s profile and transaction history.
  19. Transactions Involving Cryptocurrency Exchanges: This rule will alert when transactions are made to or from cryptocurrency exchanges, as these can sometimes be used to launder money.
  20. Use of the Card After a Long Period of Inactivity: This rule will alert when a card that hasn’t been used for a long period suddenly becomes active. This could indicate that the card has been compromised.
  21. Frequent Address Changes: This rule alerts when there are frequent changes to the cardholder’s registered address, which could be indicative of identity theft or fraud.
  22. Sequential Card Numbers: This rule will alert when multiple cards are issued with sequential numbers, which could indicate a mass production of fake cards.
  23. Card Not Present Transactions: This rule alerts when there are frequent or large ‘card not present’ transactions, which could suggest fraudulent online or phone purchases.
  24. Multiple Transactions at One Vendor: This rule will alert when there are multiple transactions at one vendor in a short amount of time, which may suggest either a system error or a fraudulent activity.
  25. Overseas Transactions: This rule alerts when a card is used in a foreign country, especially if the cardholder has not reported traveling.
  26. ATM Withdrawals in Multiple Locations: This rule alerts when frequent ATM withdrawals are made in different locations in a short time period, which could indicate the card is cloned.
  27. Multiple Declined Authorization Attempts: This rule will alert when there are multiple declined authorization attempts, which may suggest either a stolen card or a testing of a cloned card.
  28. High-Risk MCC Codes: This rule alerts when there are transactions associated with Merchant Category Codes (MCC) known to be high-risk for fraud or money laundering.
  29. Transaction Volume and Frequency: This rule will alert when a card’s transaction volume or frequency significantly deviates from its usual patterns.
  30. Out-of-pattern Transactions: This rule alerts when transactions are inconsistent with the customer’s established patterns, such as purchases from vendors they haven’t used before.
  31. Multiple Cards Associated with the Same Identity: This rule will alert when multiple cards are issued to the same person, which could be indicative of identity theft.
  32. Same Card Used with Different Merchants Simultaneously: This rule will alert when the same card is used simultaneously at different merchant locations.
  33. Credit Refunds: This rule will alert when there are frequent or large credit refunds to a card, which could indicate return fraud or ‘overpayment’ scams.
  34. Inactivity Followed by High Activity: This rule will alert when a period of card inactivity is followed by a surge of high-value transactions.
  35. Purchases of Gift Cards or Other Monetary Instruments: This rule alerts when the card is used frequently to purchase other cash-like monetary instruments, which could be a money laundering technique.
  36. Unusual Payments to Government Entities: This rule alerts when there are unusual payments to government entities, which could suggest an attempt to hide illicit funds.
  37. Transactions from Unrecognized Devices or IP addresses: This rule will alert when transactions are made from devices or IP addresses that are not recognized or commonly used by the customer.
  38. Duplicate Transactions: This rule alerts when two or more transactions have the same amount, date, and merchant, which could indicate a system error or fraud.
  39. Transactions in Non-Customer’s Regular Geo-Location: This rule alerts when the card is used in a location that is not part of the customer’s regular geographical pattern.
  40. Mismatch between Shipping and Billing Address: This rule alerts when the shipping address for a purchase does not match the billing address of the cardholder.
  41. Multiple Credit Cards Used on a Single Device/IP: This rule alerts when multiple cards are used on a single device or IP address, which could suggest card testing or fraudulent activity.

Again, these rules should be adapted and refined based on the specific requirements of the institution, local regulations, and the evolving risk environment. You can reach us at if you are interested in hiring us to build your compliance program and system. 

building a fintech crypto card issuing business

Building a Compliance Program for a Fintech, Crypto, or Credit Card Issuing Business

In this post, I will review how to build a compliance program for a new or startup fintech, crypto, or credit card issuing business. Most startups focus on tech, testing, and finding customers in the early days. But, a complete compliance program should be the first thing a fintech, crypto, or credit card issuing business should build because this governs onboarding and nearly all aspects of the business. 

Also, your compliance program and documents are the keys to maintaining good relations with your bank, brokerage, exchange, processor, or issuer. Many providers will open an account with minimal documents. But, once you begin transacting, they will ask all kinds of questions. If you don’t have a compliance program in place, your fintech, crypto, or credit card issuing business will be paused or closed until you can build a proper compliance program. 

Building the Program – First Steps

Building a compliance program for a credit card issuing company requires adherence to various regulatory requirements, including those from payment networks like MasterCard and Visa, as well as complying with Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. Here is an overview of the process:

  1. Understand MasterCard and Visa requirements: Both MasterCard and Visa have their own set of rules and regulations for credit card issuers. These may include guidelines on transaction processing, chargeback management, fraud prevention, data security, and reporting. Review the MasterCard Rules and the Visa Core Rules and Visa Product and Service Rules to familiarize yourself with their requirements.
  2. Develop internal policies and procedures: Create comprehensive internal policies and procedures that adhere to MasterCard and Visa requirements, as well as applicable federal and state laws and regulations. This may include policies for card issuance, underwriting, account management, billing, dispute resolution, and fraud management.
  3. Implement a KYC program: A robust KYC program should include customer identification procedures, risk-based customer due diligence, and ongoing monitoring of customer transactions. Ensure that your program aligns with applicable KYC regulations and industry best practices.
  4. Implement an AML program: Develop an AML program that includes risk-based customer due diligence, transaction monitoring, suspicious activity reporting, record-keeping, and employee training. Ensure that your program complies with applicable AML regulations, such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act.
  5. Establish a Compliance Management System (CMS): A CMS is a formalized system for managing compliance within the organization. It should include components like compliance policies and procedures, a compliance officer, employee training, and monitoring and corrective action processes.
  6. Develop a data security program: Implement a data security program that complies with the Payment Card Industry Data Security Standard (PCI DSS) and any applicable data privacy regulations, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA).
  7. Train employees: Train employees on your compliance program, policies, and procedures. Regularly update training materials to ensure that employees stay informed about regulatory changes and industry best practices.
  8. Monitor and audit: Regularly monitor and audit your compliance program to identify any gaps or areas for improvement. Implement corrective actions as necessary to maintain compliance with all applicable regulations and requirements.

Creating a compliance program for a credit card issuer is similar to creating a compliance program for a bank in several ways:

  • Both require adherence to federal and state regulations, as well as KYC and AML policies.
  • Both need to establish a CMS to manage compliance within the organization.
  • Both require employee training to ensure understanding of and adherence to the compliance program.
  • Both need to conduct regular monitoring and audits to maintain compliance with applicable regulations and requirements.

However, credit card issuers must also comply with the specific rules and regulations set forth by payment networks like MasterCard and Visa, as well as adhere to the PCI DSS for data security.

Building a Program – Toolbox

A robust compliance program for a credit card issuer should include various tools and resources to ensure adherence to regulatory requirements and mitigate risks. Some common and popular compliance tools include:

  1. Compliance Management System (CMS): A CMS is a centralized platform to manage, track, and report on all aspects of the organization’s compliance program. It can help automate and streamline processes, such as policy management, risk assessment, training, and reporting.
  2. Risk Assessment Tools: Risk assessment tools can help identify, assess, and prioritize risks associated with credit card issuing activities. These tools may include questionnaires, checklists, or software solutions designed to assess risks in areas like fraud, AML, and data security.
  3. Policy Management Software: Policy management software can be used to create, maintain, and distribute internal policies and procedures related to credit card issuing operations. This software typically includes version control, approval workflows, and audit trails to ensure consistency and compliance with regulations.
  4. Transaction Monitoring System: A transaction monitoring system can be used to detect suspicious activities, potential fraud, and other risks related to credit card transactions. This may involve rule-based systems or machine learning algorithms to analyze transaction data and generate alerts for further investigation.
  5. Fraud Detection Tools: Fraud detection tools, such as artificial intelligence (AI) and machine learning algorithms, can help identify patterns indicative of fraudulent activities. They may be used to analyze transaction data, monitor user behavior, and identify potential risks in real time.
  6. Know Your Customer (KYC) and Customer Due Diligence (CDD) Solutions: KYC and CDD solutions can help automate customer identification, verification, and risk assessment processes. These tools may include identity verification services, watchlist screening, and ongoing customer monitoring.
  7. Anti-Money Laundering (AML) Software: AML software can help automate the process of monitoring transactions for suspicious activity, filing suspicious activity reports (SARs), and maintaining compliance with AML regulations. This may include rule-based systems or more advanced AI-driven solutions.
  8. Data Security Solutions: Data security solutions, such as encryption tools, firewalls, and intrusion detection systems, can help protect sensitive customer and transaction data, ensuring compliance with data privacy and security regulations like the Payment Card Industry Data Security Standard (PCI DSS).
  9. Training and Learning Management Systems (LMS): An LMS can help manage and track employee training related to compliance, including course content, attendance, assessment, and reporting. This can be especially useful for organizations that must regularly train employees on AML, KYC, and other compliance topics.
  10. Regulatory Reporting Tools: Reporting tools can help streamline the process of generating, submitting, and tracking regulatory reports, such as SARs or periodic financial statements. These tools may include templates, automated data aggregation, and tracking capabilities.

While these tools can help support a comprehensive compliance program for a credit card issuer, it is important to remember that the specific tools needed will depend on the organization’s size, risk profile, and regulatory environment. Tools will also depend on the jurisdiction of your customers, of which I was uncertainly reviewing your website. 

Building a Program – Bank Secrecy Act

The Bank Secrecy Act (BSA) does apply to credit card issuers. The BSA, also known as the Currency and Foreign Transactions Reporting Act, was enacted to combat money laundering and other financial crimes. It requires financial institutions, including credit card issuers, to maintain certain records, file reports, and implement anti-money laundering (AML) programs.

Credit card issuers and fintech companies are considered financial institutions under the BSA, as they offer various types of financial products and services. Therefore, they are subject to the same AML rules and regulations as banks and other financial institutions. These rules and regulations include Know Your Customer (KYC) policies, Currency Transaction Reports (CTRs), Suspicious Activity Reports (SARs), and other due diligence requirements.

Compliance with the BSA helps credit card issuers mitigate risks associated with money laundering, terrorism financing, and other financial crimes. Non-compliance can lead to substantial fines and penalties, as well as reputational damage.

Building a Program – US Sanctions for Card Issuers

U.S. sanctions are relevant to U.S. credit card issuers and fintech companies because they impose restrictions on transactions and dealings with specific individuals, entities, or countries. They are required to comply with these sanctions to prevent financial crimes, such as money laundering and terrorism financing. Non-compliance can lead to significant penalties and reputational damage.

Here’s how U.S. sanctions are relevant to U.S. credit card issuers and fintech companies:

  1. Restricted transactions: Sanctions prohibit U.S. credit card issuers from engaging in transactions with individuals, entities, or countries designated by the Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury. This includes processing payments, providing services, or extending credit to sanctioned parties.
  2. Compliance programs: Credit card issuers must implement comprehensive compliance programs to identify and block transactions involving sanctioned parties. These programs should include policies and procedures, employee training, and transaction monitoring systems to ensure compliance with OFAC regulations.
  3. Due diligence: Credit card issuers are required to conduct due diligence on their customers, merchants, and business partners to ensure they are not engaging in transactions with sanctioned parties. This involves screening customers against OFAC’s Specially Designated Nationals (SDN) list and other restricted party lists.
  4. Reporting requirements: U.S. credit card issuers must report any blocked or rejected transactions involving sanctioned parties to OFAC within a specified timeframe. Failure to report such transactions can lead to penalties and enforcement actions.
  5. Penalties for non-compliance: Non-compliance with U.S. sanctions can result in substantial fines, penalties, and reputational damage for credit card issuers. In some cases, individuals involved in non-compliance may also face criminal prosecution.

U.S. credit card issuers and fintech companies must stay informed of updates and changes to U.S. sanctions programs and ensure their compliance programs are up-to-date and effective. This helps protect the issuer from potential financial and reputational risks associated with non-compliance.

Building a Program – AML & BSA Risk Assessment 

An Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) risk assessment is a comprehensive evaluation of an organization’s exposure to money laundering, terrorism financing, and other financial crime risks. A risk assessment typically includes factors such as geographical risk, market risk, product risk, customer risk, and distribution channel risk. By assigning scores to these factors, an organization can better understand its risk exposure and implement appropriate controls to mitigate those risks.

Here is a description of an AML/BSA risk assessment that incorporates a scoring system based on various risk factors:

  1. Geographical risk: Assess the countries and regions where the organization operates or conducts business with customers. Assign a score based on the level of risk associated with each location, considering factors such as political stability, corruption levels, the presence of organized crime or terrorist groups, and AML/CTF regulatory framework effectiveness.
  2. Market risk: Evaluate the organization’s exposure to market risks, such as fluctuations in interest rates, currency exchange rates, or stock market prices. Assign scores based on the level of market volatility and the organization’s susceptibility to these risks.
  3. Product risk: Assess the organization’s products and services, focusing on their vulnerability to money laundering and terrorism financing. Assign a score to each product or service based on factors such as the level of anonymity, transaction size, ease of transferability, and complexity of the product or service.
  4. Customer risk: Evaluate the organization’s customer base, considering factors such as customer type (individual, corporate, or government), occupation, source of funds, and expected transaction patterns. Assign a score based on the level of risk associated with each customer segment.
  5. Distribution channel risk: Assess the organization’s distribution channels, such as branches, agents, digital platforms, or correspondent banking relationships. Assign a score based on factors such as the level of oversight, transparency, and the risk of money laundering or terrorism financing associated with each channel.
  6. Internal controls and compliance risk: Evaluate the effectiveness of the organization’s internal controls and compliance program, including policies, procedures, employee training, and monitoring systems. Assign a score based on the level of risk mitigation provided by these controls.

Once the scores are assigned, the organization can aggregate the scores to create an overall risk score for each category. This process helps identify areas of higher risk that require enhanced due diligence and monitoring.

The results of the risk assessment should be used to develop and enhance the organization’s AML/BSA compliance program, ensuring that resources are allocated effectively to mitigate identified risks. Regularly reviewing and updating the risk assessment is essential to maintain its effectiveness and ensure the organization’s compliance with evolving regulatory requirements.

Building a Program – Miscellaneous Policies 

Here’s an overview of a few key policies and their relevance to credit card issuers which I haven’t covered above:

  1. Suspicious Activity Reports (SARs) Policy: Under the Bank Secrecy Act (BSA), credit card issuers are required to file SARs for any transaction that may involve money laundering, terrorist financing, or other suspicious activities. This policy should establish guidelines for identifying, investigating, and reporting suspicious transactions, as well as maintaining proper documentation.
  2. USA PATRIOT Act Policy (Section 314 reporting): Section 314(a) of the USA PATRIOT Act allows financial institutions, including credit card issuers, to share information with law enforcement agencies to identify and report potential money laundering or terrorist financing activities. The policy should outline procedures for responding to 314(a) requests, safeguarding customer information, and maintaining records of information sharing.
  3. FinCEN Policy: The Financial Crimes Enforcement Network (FinCEN) is responsible for implementing and enforcing the BSA and AML regulations. A credit card issuer’s FinCEN policy should detail the company’s compliance with FinCEN’s regulations, including Customer Identification Program (CIP), Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), and recordkeeping requirements.
  4. OFAC Policy: The Office of Foreign Assets Control (OFAC) enforces economic and trade sanctions against certain individuals, entities, and countries. Credit card issuers must have a policy in place to ensure compliance with OFAC regulations, including screening customers, transactions, and business partners against OFAC’s Specially Designated Nationals (SDN) list and other restricted parties lists, as well as blocking or rejecting prohibited transactions.
  5. FBAR Policy: The Report of Foreign Bank and Financial Accounts (FBAR) is a reporting requirement for U.S. persons with foreign financial accounts. While this requirement may not directly apply to credit card issuers, they should have policies in place to ensure compliance with FBAR regulations if they hold or have signature authority over foreign financial accounts.
  6. Identity Theft Policy: The Fair and Accurate Credit Transactions Act (FACTA) requires financial institutions, including credit card issuers, to establish an Identity Theft Prevention Program (ITPP) to detect, prevent, and mitigate identity theft. The policy should include procedures for identifying and addressing red flags, verifying customer identity, maintaining customer information security, and responding to identity theft incidents.

By developing and implementing these policies, credit card issuers or fintech companies in the United States can demonstrate compliance with relevant regulations, mitigate risks associated with financial crimes, and protect their customers and business from potential harm. Regularly reviewing and updating these policies is essential to ensure ongoing compliance and effectiveness.

Building Program – Why is this Relevant 

Credit cards and fintech systems can be used in various ways to facilitate money laundering. Money laundering is the process of making illegally-gained proceeds appear legitimate by disguising their origins. Here are some ways that credit cards can be used in money laundering schemes:

  1. Overpayment and refunds: A criminal may make a large overpayment on their credit card account using illicit funds and then request a refund. This creates the appearance of a legitimate transaction and allows the launderer to receive “clean” money from the credit card issuer.
  2. “Credit card factoring” or “credit card laundering”: This involves a criminal using a shell or front company to process fraudulent credit card transactions. They use stolen or fake credit card information to create transactions, which are then processed through the merchant account of the shell company. The company receives the funds from the credit card processor, less any fees, and transfers the laundered money to the criminal’s account.
  3. Collusion with merchants: Criminals may collude with complicit merchants who allow them to use their credit cards to make purchases or pay for services with illegal funds. The merchant then refunds the transaction, providing the criminal with laundered money from the merchant’s account.
  4. Buying and selling goods: Criminals may use illicit funds to purchase high-value goods or services using credit cards, and then sell those goods or services to convert them back into cash. This process can help disguise the origins of the illegal funds.
  5. Multiple small transactions: Criminals can use credit cards to make multiple small transactions (structuring) to avoid detection or reporting thresholds. These transactions may be spread across several accounts, cards, or merchants to further reduce the risk of detection.
  6. Prepaid credit cards: Prepaid credit cards can be used to launder money, as they can be bought and reloaded with cash. Criminals can use these cards for purchases, ATM withdrawals, or online transactions without revealing their true identity. In some cases, they may also use prepaid cards to transfer money between different countries.

Financial institutions, including credit card issuers and Fintech companies, are required to implement robust anti-money laundering (AML) programs to detect and prevent such activities. This includes Know Your Customer (KYC) policies, transaction monitoring systems, and Suspicious Activity Reports (SARs) to identify and report any suspicious activities.

Building a Program – Transaction Flow for a Credit Card Provider

The typical transaction flow for a credit card issuer involves multiple parties and several steps. This section is specific to card issuers as fintech companies have structures that are to diverse to cover in an article, Here is an overview of the process when a cardholder makes a purchase using a credit card:

  1. Cardholder initiates a purchase: The cardholder presents their credit card to the merchant for payment.
  2. Merchant processes the transaction: The merchant uses a point-of-sale (POS) terminal, payment gateway, or other payment processing system to capture the card details and submit the transaction for authorization.
  3. Transaction is sent to the acquiring bank: The merchant’s acquiring bank (or payment processor) receives the transaction details and forwards the information to the card network (e.g., Visa or MasterCard).
  4. Card network routes the transaction: The card network routes the transaction to the issuing bank (the bank that issued the credit card to the cardholder) for authorization.
  5. Issuing bank authorizes the transaction: The issuing bank checks the cardholder’s account for available credit, verifies that the card is valid and not flagged for fraudulent activity, and either approves or declines the transaction. The response is sent back through the card network and the acquiring bank to the merchant.
  6. Merchant receives authorization response: The merchant receives the response and completes the sale if the transaction is approved. The approved transaction is then stored in a batch for later settlement.
  7. Merchant submits the batch for settlement: At the end of the business day or another predetermined time, the merchant submits the batch of approved transactions to the acquiring bank for settlement.
  8. Acquiring bank requests funds: The acquiring bank sends the batched transaction details to the card network, which then forwards the information to the respective issuing banks.
  9. Issuing banks transfer funds: The issuing banks transfer the funds for the settled transactions, minus interchange fees, to the card network.
  10. Card network transfers funds to the acquiring bank: The card network consolidates the funds from the issuing banks and transfers the net amount, minus network fees, to the acquiring bank.
  11. Acquiring bank deposits funds to the merchant’s account: The acquiring bank deposits the funds, minus any applicable fees, into the merchant’s account.
  12. Cardholder is billed: The issuing bank adds the transaction amount to the cardholder’s account balance. The cardholder will be responsible for paying the balance according to their credit card agreement.

This transaction flow represents a simplified version of the process. In practice, there may be variations depending on the specific payment infrastructure, card network, and additional services or features offered by the involved parties.

SOP for a Credit Card Processor and Fintech Company

Creating a comprehensive compliance Standard Operating Procedure (SOP) for a credit card issuer and a fintech company requires addressing multiple areas of regulatory and operational compliance. While the exact SOP will depend on your specific circumstances, the following components should generally be included:

  1. Compliance Management System (CMS): Develop a formalized system for managing compliance within the organization, including the appointment of a dedicated compliance officer, clear reporting lines, and regular communication with senior management.
  2. Regulatory Compliance: Ensure adherence to all applicable federal, state, and local regulations, as well as payment network rules (e.g., MasterCard and Visa). This may include consumer protection laws, fair lending practices, data privacy, and security requirements.
  3. Know Your Customer (KYC): Establish a robust KYC program that includes customer identification, risk-based due diligence, and ongoing monitoring of customer transactions. Ensure that the program complies with all applicable KYC regulations.
  4. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF): Implement a comprehensive AML/CTF program, including risk-based customer due diligence, transaction monitoring, suspicious activity reporting, record-keeping, and employee training.
  5. Third-Party Risk Management: Develop a process for assessing, monitoring, and managing risks associated with third-party service providers, such as payment processors, technology vendors, and collection agencies.
  6. Fraud Prevention and Detection: Implement a fraud management program that includes transaction monitoring, fraud detection tools, chargeback management, and customer education on fraud prevention.
  7. Data Security and Privacy: Establish a data security program that complies with the Payment Card Industry Data Security Standard (PCI DSS) and any applicable data privacy regulations, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA).
  8. Internal Policies and Procedures: Develop and maintain comprehensive internal policies and procedures that cover all aspects of the credit card issuer’s operations, including card issuance, underwriting, account management, billing, dispute resolution, and fraud management.
  9. Employee Training and Awareness: Provide regular training to employees on compliance requirements, internal policies, and procedures. Ensure that training materials are updated to reflect regulatory changes and industry best practices.
  10. Monitoring, Auditing, and Reporting: Establish a process for regularly monitoring and auditing the credit card issuer’s compliance program to identify gaps, areas for improvement, and potential violations. Implement corrective actions as needed and report any significant compliance issues to senior management and, if required, to regulatory authorities.
  11. Record-Keeping: Maintain accurate and complete records of all compliance-related activities, including risk assessments, audits, training, and reporting, as required by applicable regulations.

The million-dollar issue: Do all credit card issuers and Fintech companies take possession of client funds? As a result, do all credit card issuers require a money services license?

Credit card issuers and Fintechs generally do not take possession of client funds in the same way as banks, which hold deposits in customer accounts. Credit card issuers extend a line of credit to cardholders, allowing them to make purchases or obtain cash advances up to a specified limit. Cardholders are then required to repay the borrowed amount, typically with interest, according to their credit card agreement.

As a result, credit card issuers usually do not fall under the category of money services businesses (MSBs) and may not require a money services license. MSBs typically include entities involved in money transmission, currency exchange, check cashing, and other financial services that involve the handling of client funds.

For more on this topic, you might also read through Structuring a Fintech or Card Issuer without an MSB License

Process to Apply for a Money Service Business License

In the United States, money transmission licensing is regulated at the state level. Each state has its own requirements and procedures for obtaining a money transmission license, which means that if you plan to operate in multiple states, you may need to obtain a license in each state where you conduct business. Here is a general outline of the process:

  1. Research state-specific requirements: Begin by researching the specific licensing requirements for each state in which you plan to operate. You can usually find this information on the state’s financial regulatory agency website or by consulting with a legal professional.
  2. Prepare your application: Each state has its own application form and supporting documentation requirements. Commonly required documents may include a business plan, financial statements, policies and procedures, AML program documentation, background checks, and fingerprints for key personnel, as well as information about the company’s organizational structure and management.
  3. Obtain a surety bond: Most states require money transmitters to obtain a surety bond as part of the licensing process. The bond amount varies by state and is designed to protect consumers in case the licensee fails to meet its obligations.
  4. Pay application fees: Each state typically requires payment of a non-refundable application fee and, if applicable, a licensing fee upon approval.
  5. Submit your application: Once you have prepared all the required documents, submit your application to the appropriate state agency for review. The review process can take several weeks to several months, depending on the state and the complexity of your application.
  6. Respond to any inquiries or requests for additional information: During the review process, the state agency may request additional information or clarification. Respond promptly to these requests to avoid delays in the licensing process.
  7. Obtain your license: If your application is approved, the state agency will issue your money transmission license. You may need to pay an initial licensing fee or meet additional requirements, such as providing proof of a surety bond, before your license becomes active.
  8. Maintain compliance: Once licensed, you must maintain compliance with state-specific regulations, including periodic reporting, financial statement submissions, and maintaining a surety bond. You may also be subject to periodic examinations by the state agency to ensure ongoing compliance.
  9. Renew your license: Money transmission licenses typically have expiration dates and must be renewed periodically. Each state has its own renewal process and fees, so be sure to stay aware of the requirements and timelines to avoid any lapses in your license.

Bond Requirements (CA and TX as examples)

Money Services Businesses (MSBs) are required to obtain surety bonds as part of the licensing process. These bonds help protect consumers from potential financial loss resulting from the MSB’s failure to comply with state regulations or unethical business practices.

Here are the bond requirements for MSBs in California and Texas:

  1. California: Money transmitters in California are required to obtain a surety bond under the California Money Transmission Act. The bond amount varies based on the volume of the money transmitter’s business. The minimum bond amount is $250,000, and the maximum bond amount is $7,000,000. However, if the money transmitter also conducts business in receiving money for obligations, the maximum bond amount may be increased to $10,000,000.
  2. Texas: In Texas, MSBs that are engaged in money transmission or currency exchange must obtain a surety bond under the Texas Finance Code. The bond amount is determined by the Texas Department of Banking based on the MSB’s business activity and volume. The minimum bond amount is $300,000, and the maximum bond amount is $2,000,000. In addition to the state-level bond requirement, certain cities in Texas, such as Austin and Houston, may also require MSBs to obtain a separate bond at the local level.

Note that bond requirements may vary based on the specific type of MSB (e.g., money transmitter, check casher, currency exchanger) and other factors, such as the volume of transactions processed. The above is just an example.

Given the complexity and state-specific nature of money transmission licensing, this is a very complex matter. We are capable of applying for licenses in multiple states if that is what’s required. My quotation below does NOT include the cost of applying for an MSB license(s).

Consulting Services

We can create a compliance program that covers all essential aspects, including regulatory compliance, risk assessment, transaction monitoring, fraud detection, data security, and employee training as described above. Our team of experienced compliance professionals will work closely with you to ensure the program is tailored to your organization’s unique needs and requirements.

We can assist in all aspects of a fintech, crypto, or credit card issuing business compliance program. For more information and pricing, please contact us at For information on this topic for banks, see my other website 

FBO Account MSB License

Structuring a Fintech or Card Issuer without an MSB License

One of the biggest issues facing fintech and card issuers in the United States is how to structure the business to avoid the need for an MSB license. An MSB license can tie up many millions of dollars in capital and cost a fortune to acquire on a national level. Thus, there is how to structure a fintech or card issuer without an MBS license. 

First, allow me to describe an MSB license. An MSB or Money Services Business license is a regulatory approval that is mandatory for any company operating in the money transfer industry or providing financial services. MSB is a broad term that encompasses various types of financial service providers such as currency exchanges, money transmitters, and stored value card issuers. The goal of this license is to prevent money laundering, terrorist financing, and illegal activities from being conducted through these companies.

For fintech or card issuer companies, obtaining an MSB license is critical because it enables them to legally operate in the financial industry. Fintech companies who engage in activities such as international transactions or online payments must have this license to conduct business. Card issuers, on the other hand, may need an MSB license when offering prepaid cards or other stored-value products. In addition to compliance with regulations, holding an MSB license can also help improve customer confidence and trust as it provides a level of legitimacy and credibility to a business.

Basically, any time you take control of customer funds, you need an MSB license. Thus, the way to eliminate the need for an  MBS license as a fintech or card issuer is to not take control of customer funds. One way to accomplish this is to use an FBO account at your local bank. 

An FBO (For Benefit Of) account is a type of bank account used to hold funds on behalf of a third party. It is different from a typical corporate bank account in that the funds in an FBO account do not belong to the account holder but rather to the named beneficiary or beneficiaries.

FBO accounts are commonly used in various scenarios, such as when a company collects funds on behalf of its clients, in trust accounts managed by lawyers, or by non-profit organizations to hold donations.

The primary difference between an FBO account and a regular corporate bank account lies in the ownership and control of the funds. In an FBO account, the account holder (usually a business) acts as a custodian, merely holding the funds in a fiduciary capacity for the benefit of the named beneficiary or beneficiaries. The account holder does not have the authority to use the funds for its own purposes.

In contrast, a typical corporate bank account is owned and controlled by the company, which can use the funds as needed for its business operations.

Regarding the need for an MSB (Money Services Business) license, FBO accounts can help reduce or eliminate the requirement for such a license because the account holder does not take possession of client funds. MSB licenses are typically required for businesses that transmit or convert money, such as money transmitters, currency exchangers, or check cashers.

By using an FBO account, a business can avoid being classified as an MSB because it does not take possession of client funds, nor does it engage in money transmission or currency exchange activities. Instead, it merely holds the funds in a fiduciary capacity on behalf of the client. However, it’s essential to consult with a legal or compliance expert to ensure the specific arrangement does not trigger any regulatory requirements, as regulations may vary depending on jurisdiction and the nature of the business.

I hope you find this information helpful. For more information on banking licenses, see our website on this topic, We are here to assist you structure a fintech or MSB or credit card issuing business in the United States or in Mexico. For more information, please send me a message to

10 Reasons to do Business in Mexico

10 Reasons to Move Your Business to Mexico in 2020

In this post, I’ll look at the top 10 reasons to move your business to Mexico in 2020. The current government is focused on bringing in new jobs and new businesses to the country. If you’re looking to set up a lower-cost international operation, an outsourcing team, call center, financial services or Fintech company, Mexico should be at the top of your list. 

By way of background, I have operated this business from Panama, San Diego, CA, and Tijuana Mexico. We now have offices in Puerto Rico and Mexico City (in addition to TJ). I’ve been in the offshore industry since 2003 and can tell you from experience that Mexico has become a top tier offshore business jurisdiction. 

If you ignore the political hype between the US and Mexico, you’ll find that the new President is pro-business and cutting red tape right and left to facilitate business in Mexico. This is especially true in Baja California, the state where Tijuana is located and where I chose as my home base. I like to say that we’re on the hard-working and fun side of Trump’s wall. 

Here are the 10 reasons to move your business to Mexico in 2020

Cheap Cost of Labor

Mexico is a top tier business jurisdiction because of the availability of cheap labor. Costs are a fraction of the United States and English is readily available, especially in Baja California. The further south you go, the more difficult it becomes to find low-cost English speakers. 

Note that I say, “low-cost” English speakers are more available in Baja. This is because English is common in the border region. However, if you’re looking for high-level English speakers, such as engineers and PhDs, they are more likely to live in Mexico City and Monterrey than Tijuana. 

The average annual salary for an engineer in the United States is $85,663 dollars. The average annual salary for a mechanical engineer in Mexico is $298,500 pesos or the equivalent of $15,514 US dollars. 

This means that an engineer without a specialty makes almost five times more than an engineer with a specialty degree in Mexico. This is just one of the many professions were salaries are substantially lower. 

You can save a lot of money if you move your business from the United States to Mexico, and thanks to the excellent universities that they have in the country you won’t struggle in finding quality employees for your business. 

Cheap Cost of Living

Living in the United States has become increasingly expensive in the past few years, especially in California. Americans are dropping their dreams of living in a big house with a big garden for living in a small crowded apartment. 

Mexico is a very cheap country to live in. The cost of rent in Mexico is nothing compared to one you can find in the United States. You can live in an excellent apartment for less than $800 dollars a month. I am talking about a two bed and two bathroom place. 

For this reason, it might come as no surprise that many Americans are choosing to live in Mexico, bringing their portable businesses with them or commuting to the United States as necessary. In fact, thousands of Americans live in Mexico and commute to the United States every day. 

This is what I do… live in Tijuana and drive into San Diego or Los Angeles for meetings. If you have a Sentri pass, border wait will be about 15 minutes. If you don’t have Senri, the wait will be hours if you drive. But, you can walk across and take a trolly into the city in a few minutes. 

You’ll find that the number of Americans in Mexico has pushed up the costs of living in cities like Tijuana, but it remains a fraction of San Diego. If you don’t need to commute to the US, the cost of housing and the quality of life is better further south. 

Strength of the US Dollar in the Country 

As I mentioned before, Mexico offers American entrepreneurs the cheap cost of labor, living, and rent, and all of this is very accessible to American entrepreneurs because the US Dollar has been going upwards in the country. 

One US Dollar equals approximately 18.50 pesos and this is probably going to go up. Because of the proximity between both countries, and the economic relationship, movement in the dollar has an impact on the peso. 

Luckily, the American economy has been doing great, meaning that the US Dollar has been very stable in Mexico. The US Dollar is accepted in most businesses around the country and sometimes they will even set their prices in dollars. 

Investing using American currency in Mexico is a great benefit that you won’t be able to find in many countries. What better way to manage your portfolio than to do so with the currency of your own country.

Entry into the Latin American Market 

Mexico is the largest Spanish speaking country in the world and the second biggest country in Latin America. By investing in Mexico you building a base from which you can sell into the Latin American market. 

There are many different treaties between Mexico and many countries in Latin America that are not shared by the United States. If you decide to open a company in Mexico you can use those treaties to your advantage. 

Latin America is a large and great place for an American to expand their portfolio. There are so many opportunities in that market that you won’t be able to find in the United States such as the vast natural resources found here among many other things. 

Similarities Between the US and Mexico

Culturally, Mexico and the United States could not be more different. Despite this, the way that business is done in Mexico is very similar to how it works in the United States as Mexico adopted many of its practices from the American economy.

It is a blessing for many American investors when they come to Mexico and realize that they do not have to make any changes in their business plan as the business and market strategy tend to be the same. 

The Mexican stock market also works quite similar to how the American does. Even to the point where if there is a drastic drop in Wall Street the whole Mexican stock market will feel the impact. 

Vast Natural Resources

One of the many attractive things about investing in Mexico that you will find is that there are a huge number of vast natural resources in the country. Meaning that you can establish a company in Mexico with the sole purpose of exporting natural resources back to the United States or anywhere else in the world. 

Thousands of American companies are already doing this and are thriving in great ways by doing so. Mexico might have a big number of natural resources, but they lack the machinery to exploit all of these. 

American investment is widely accepted because of this reason, as the country and the company benefit hugely. Just like in the United States a good proposal needs to be approved in order for you to continue operating in the country. 

There are 31 states in Mexico and every one of them has something different to offer depending on your needs. I would recommend a great deal of research before you decide to invest in Mexico’s vast natural resources. 

Promising New Presidency

Two years ago Mexico had a very polarizing presidential election, quite similar to the one that happened in the United States. A great number of Mexicans support the new president and hail him as a hero of change, and others loathe him and consider him the worst thing to happen to the country. As I said, very similar to the United States. 

Mexico’s new president is promoting innovation and the creation of new jobs in the country by cutting red tape and inviting foreign investors to consider Mexico. This has not had the quick reaction that his political party might have hoped for, but it is slowly gaining traction.

Many of the changes will apply to small businesses, new and more efficient structures, and great opportunities for FinTech businesses under the Mexican SOFOM. In my opinion, the best changes are related to financial services, crypto exchanges, money transfer and remittance businesses, etc. 

His presidency is still very young and we will have to wait to see if he fulfills his promises, but right now things are looking bright. His political party does not want to be a one-trick pony so they are doing whatever it takes to please the people of Mexico. Creating new jobs through foreign investment is a great way to have voters on your side. 

Growing Economy

Mexico’s economy continues to grow despite its change in the presidency and the impact that the American economy has on the country. Mexico has been growing at a rate of 0.3% for the past decade. 

That number might seem small, but it gives an insight into what is happening in the country. Small nonrisk investments govern the market at this moment and will continue to do so in the long run. 

Financial institutions all over the country have benefited greatly over the growth of their sector and will continue to do so. If your idea is to start a financial institution outside of the United States I recommend doing it so in Mexico. 

Proximity to the United States

The main reason why you are probably considering to invest in Mexico is because of its location. Mexico is attached to the southern part of the United States share one of the biggest borders in the world. 

Even though the United States has another neighbor, Canada, Mexico is very different in many respects to both of those countries to make it a very interesting and promising option for investment. 

All of the major American Airlines have direct flights to Mexico City so you can be in the country in less than 5 hours, depending on your location. Also, thanks to its proximity to the United States residents of Mexico already know how business is done in America so you will not have to alter your business plan in the slightest. 

From my office in Tijuana, I can walk to the border and be across in 15 minutes. The wait time and the pedestrian crossing is less than 5 minutes on weekdays and less than 30 minutes on weekends. The line to drive across is a different story unless you have a Sentri pass

The proximity is a great advantage as you can take care of your business without leaving the United States. It’s also excellent for nearshore outsourcing and those, like me, who need to go to meetings in San Diego and Los Angeles regularly. 

Complete Control 

The tenth reason to do business in Mexico is that you can now have complete control over your operations. In most industries (not including banking or financial services), you no longer need a Mexican partner. Likewise, you don’t need a “bankers trust’ fideicomiso to hold real estate investments. 

For Fintechs and financial services companies operating through a SOFOM, all you need is a local representative. You give them a few non-voting shares and give up no control. This is a great improvement from when a Mexican person had to own 25% to 50% of these businesses. 

It’s become much easier to set up and control businesses in the country. Back in the day, doing business in this country was a real challenge. Ease of business has improved greatly in the last two years and every sign is that this will continue throughout 2020. 

For more on setting up a company in Mexico, see Step by Step Guide to Incorporating a Business in Mexico

For these reasons, and improved quality of life, I have chosen Mexico for my business. I plan to continue to expand and invest in Mexico. I highly recommend this country as an efficient option for international expansion. 

I hope you’ve found this article on reasons to move your business to Mexico to be helpful. For more information, or for assistance on investing in Mexico, contact us at or call us at (619) 483-1708

Guide to doing Business in Mexico

Guide to Doing Business in Mexico

As an American investor, you have a ton of opportunities to make a number of investments in many countries around the world. Europe and Asia have had a rise of foreign investment going into the country, but there is another country closer to the United States that has been in the eyes of investors and financial institutions. 

I am talking about the southern neighbor of the United States, Mexico. Although Mexico is very close to the United States and it shares many similarities in how they do business. There are still a lot of things you must know about the country before you decide to invest in it. 

Even though both countries are connected and share the world’s largest and most traveled border, culturally they could not be more different. Mexico is a country full of tradition and history and its population loves to embrace it and celebrate. 

Mexico is the largest Spanish speaking country in the world and has the second largest population in South America. It’s where I moved my business a few years ago and I suggest you consider doing the same. 

A couple of years ago Mexico’s Secretary of Education made it mandatory for college graduates to learn a certain level of English before they graduate. For this reason, many of the younger Mexican workforces speaks a decent amount of English. Thus, there is a great deal of English speaking labor, especially in Northern Mexico and Tijuana. 

Education in the country has also been on an upward swing as many of its public institutions have been placed in top lists of higher education especially in the fields of medicine and engineering. 

Mexico has one of the vastest amounts of natural resources of any country around the world. Many of these natural resources are not being exploited to gain as much as they could be because there is not enough infrastructure in the country to do so. 

American and foreign investment in the country has for the most part been responsible for managing these natural resources. Thanks to these investments Mexico has emerged as one of the top emerging markets.

American companies, banks, and other financial institutions have taken advantage of Mexico’s relatively low labor costs and the cost of living to open subsidiaries inside of the country. Do not be surprised when you see the same companies that manage your portfolio in Mexico. 

How cheap it is to live in Mexico is also one of the countries selling points. Mexico is in many ways cheaper than the United States. Americans are taking advantage of this and are coming into the country in packs to commute back to the US or retire and spend their years enjoying the beach, weather, and many other benefits they could never afford in the United States. 

Mexico has a population of 128 million people living inside the country which is 1,964,375 square kilometers. Its major cities include Mexico City, Guadalajara, Monterrey, Tijuana, Queretaro, and Juarez. 

Their currency is the Mexico peso, but dollars are widely accepted in the country, especially in Northern Mexico. In fact, the US dollar has had a substantial rise in value in the country over the past few years. Making it an excellent moment to invest in the country as an American. 

Major exports include manufactured goods which are made in maquiladoras, vehicles and automobile parts, oil, oil and energy products, silver and metal, a wide variety of fruits and vegetables, coffee, and cotton. 

Major imports include machines for the manufacturing of metal and metal products, steel mill products, machinery for agriculture, electrical equipment, automobile parts, aircraft parts, and many products designed for repair or assembly in the country.

As you can see by its major imports and exports, Mexico has a vast amount of resources inside of the country but they do not have the machinery to exploit the full potential that these resources can provide. 

In the past few years, Mexico has had consistent economic growth. The growth has been slow but steady. This is despite the new presidency that is making many changes and reforms to the country. 

The main reason behind Mexico’s steady growth is its focus on innovation. Innovation has been a key platform on how the Mexican economy will grow in the next few years and it has succeeded with that promise. 

Guadalajara has been considered by many as the Mexican Silicon Valley thanks to its huge number of startups and a lot of American tech companies setting shop there. This is a prime place for foreign investment if you are interested in tech.

Mexico also has the benefit of being in a ton of partnership agreements with other countries. Meaning that investing in Mexico will get you a front-row seat to the economy of multiple countries. 

An agreement between Mexico, the United States, and Canada that has been extremely beneficial for Mexico’s manufacturing industry is the USMCA (formerly known as the North American Free Trade Agreement). 

There is a lot that you need to know before investing in Mexico. Although it is the closest country to the United States and a great window into the Latin American market, you should definitely take a crash course and learn about the country’s culture and identity before investing in it. We will happily guide you through that process. 

I hope you’ve found this article on how to do business in Mexico to be helpful. For more information, or for assistance on investing in Mexico, contact us at or call us at (619) 483-1708

setting up a business in Mexico

Step by Step Guide to Incorporating a Business in Mexico

Step One: You Must First Reserve the Name of Your Company

Your name must be authorized by the Secretaria de Economía in Mexico. You should provide 5 options in order of preference. The Secretaria de Economia will eliminate those that have already been taken and you will receive the name of your company based on your preferences. In some cases, this process can be done online. Your Mexican lawyer or Notario can do this step for you. It should be noted that this step is completely free, can be done online.

Step Two: The Deed of Incorporation 

For this process, we will use a Notario. A Notario is much different than it is in the United States. Anybody can be a Notary in the United States (I know because I was one), but there are only a few Notarios in Mexico and they are chosen by the Governor of the state. Before this process, you must already know what type of business structure you want to operate from. There are a number of types of business entities in Mexico and I suggest you review them or listen to your lawyer before you can make a decision. I suggest Sociedad de Responsabilidad Limitada as it gives control to the person that provides the most capital. Each Notario is different and they charge approximately $10,000 to $15,000 pesos to do this.

Step Three: The Signing of the Deed of Incorporation

A Notario must be present when you sign the deed of incorporation. You will need the following: 

  • Every owner mentioned in the deed present
  • Identification documents of each member
  • Every owner that is foreign to Mexico must present his passport and proof of legal presence in the country
  • CURP (Mexican equivalent to a Social Security Number)
  • RFC Number (Tax ID)
  • Proof of address (Must be from Mexico)

Included in the deed of incorporation must be the person whom you give power of attorney to. This person will represent you in litigation and will act under your name. The cost of giving power of attorney to someone ranges from $5,000 to $9,000 pesos.

Step Four: Registering the Business Address

You must register the address of your business. This can either be in the place where you are doing business or where you desire to receive notifications at. 

Step Five: Registering the Business with the Mexican Tax Authorities

You must register the business for Tax Purposes with SAT, the Mexican equivalent to the IRS. I highly recommend that you make an appointment online before visiting SAT as lines can be extreme at times. They are going to ask for the same documents that you presented to the Notario when he drafted the deed of incorporation including the deed itself. If the deed is not yet finished you need a letter from the Notario stating that the deed is in process. 

Step Six: Only Applicable to Businesses that are Open to the Public 

This step only applies to businesses that are going to be open to the public like a restaurant or a retail store, if you are opening an office, a call center, or a manufacturing business then you don’t have to worry about this step. Before you open your business to the public you are going to have to notify the government in order to obtain a municipal business license. At this step, you must also secure any other type of license that you might need in order to start operating. For example, if you are opening a business that is going to be making hazardous materials like chemicals you are going to have to apply for a number of distinct licenses. The same goes if you are opening a restaurant.  

Step Seven: Registering Employees 

You will register all of your employees with the IMSS (Mexican Social Security Institute) and with INFONAVIT (Mexican Housing Fund). You must show in their paycheck the amount of money that is going to these two funds along with the local state taxes. This process can be either fast or slow depending on the amount of employees and the complexity of their contract

Step Eight: Foreign Investment Registry if Applicable

This step only applies if one of the owners is a foreigner who does not have a permanent resident status. If this is the case then you must also register the business with the Registro Nacional de Inversión Extranjera. The government office that keeps track of all foreign investment coming into Mexico. This can be done by the Mexican national who you gave power of attorney to. 

I hope this article on setting up a business in Mexico has been helpful. Once you have your entity, you will be able to open a bank account and will need a local accountant to handle payroll and related filings. We can help you to set up a business in Mexico. We are focused on Baja California (Tijuana, etc.), Mexico City, and Monterrey. For more information, and a detailed quote, you can reach me directly at

Changes to the Mexican SOFOM in 2020

Changes to the Mexican SOFOM in 2020

Mexican reform is in full stride as the new president implements his programs. Some of these changes affect the Mexican SOFOM. Here’s what you need to know about setting up a SOFOM in 2020. 

Reform regarding SOFOMs in Mexico is likely to pass as most banks and financial institutions have already felt the wave of change coming their way. Whether it is good or bad is for you to decide about changes to the SOFOM in 2020. 

The agency in charge of creating new reforms in the country is called CONDUSEF. The CONDUSEF has in its power the ability to review and to make modifications to contracts involving SOFOMs. 

This is not limited to the way SOFOMs works as a whole, the modifications this government institutions make can even alter the way SOFOMs deal with clients and realize their service among other things. 

Think of CONDUSEF as the constitution of how SOFOMs operate in the country. These 2020 reforms, rules, and regulations only apply to regulated SOFOMs. If your SOFOM is not regulated then you won’t have to worry about this. 

In order for a regulated SOFOM to remain in business in 2020 and beyond, 70% or more of its assets must come from the allowed activities that it is authorized to perform as stated in the bylaws. Such authorized activities will usually include mortgages, financing, factoring, and the approval and issuance of credit. 

If your SOFOM does not generate 70% of its assets from this manner, then the same percentage needs to come from the administration of its portfolio as a way to be considered part of the financial system. That is to say, 70% of its income should come from the management of its assets (such as is the case with an investment advisor or fund. 

When a regulated SOFOM is considered part of the financial system, it can receive tax advantages. An important tax advantage that comes with the SOFOM being part of the financial system is that its credit portfolio will not be included in the calculation of the tax on its assets. 

Another tax advantage that you and your clients can take advantage of if you form a SOFOM is that the interest that you charge to your clients shall not be subject to a value-added tax. VAT is 16% in Mexico, so this is a big deal. 

SOFOMs are one of the preferred ways for foreign investors to begin capitalizing in the Mexican and Latin American markets. These structures have fewer restrictions on how they can operate compared to the US and Europe and are very powerful financial entities within Mexico.

All of the previous restrictions on investments by foreign investors associated with the capital stock of the SOFOMs have been eliminated. One of the many benefits of the reforms whose one of its main goals is to promote foreign investment. 

This is great news as before, foreign investors needed to do a ton of due diligence before they could invest in Mexico, and even when everything was in order their investment was limited. The red tape on SOFOMs was intense and intended to keep foreigners out. 

As of today, a SOFOM can be formed entirely with foreign investments as long as they follow the same protocol a Mexican entity needs to follow to be structured and that they register with the proper government institutions. 

This presents a great opportunity for foreign investors to take advantage of the situation and set up a SOFOM to operate within Mexico. This structure might provide financial services or investment management throughout Latin America. The SOFOM might also operate as a cryptocurrency exchange or money transmission business.

When you establish a SOFOM, you are given the opportunity to register it as a regulated or nonregulated entity. As a foreign investor, you have the advantage of using the nonregulated version as a low-cost financial services entity. The setup costs and operational costs for this entity in Mexico are a fraction of those associated with an international bank in Puerto Rico, for example. 

For the same reason, financial institutions who own a SOFOM or individual foreign investors have the opportunity to offer their clients a lower interest rate on credit and loans. Also, the costs of labor and other expenses will be significantly lower than in competing jurisdictions. For example, see Sample Operating Expenses for an Offshore Bank in Puerto Rico.

SOFOMs are becoming extremely popular in Mexico and I expect this popularity to continue in 2020 as the regime of the new president continues to implement his reforms The CONDUSEF is already preparing for an influx of foreign investment associated with the registry of SOFOMs. 

I hope you’ve found this article on what is a SOFOM to be helpful. For more information, or for assistance in establishing a SOFOM on Mexico, contact us at or call us at (619) 483-1708

How to Open a Maquiladora in Mexico

How to Open a Maquiladora in Mexico

My previous post was on how to start a general business in Mexico. In this section, I’ll focus on how to open a Maquiladora in Mexico. These Maquiladoras have huge economic importance for Mexico and the United States. Maquiladoras provide for hundreds of thousands of jobs for residents of border cities (on both sides of the border) and throughout Mexico. At one point in time, they helped to stabilize Mexico-USA relations.

Because of the massive deportations that occurred at the end of the Bracero Program in 1964 and Operation Wetback, a large number of factories were established along the US-Mexico border called maquiladoras to provide jobs for these newly relocated Mexicans.

The maquiladoras functioned as American assembly plants set up in Mexico’s border towns to provide jobs and a steady income for the deported. At the same time, they increased Mexico’s global exports and cemented the United States as its most important trading ally.

Maquiladoras made American companies competitive in global trade because Mexico’s wages were substantially lower than in the United States. The Maquiladora program strengthened the relationship between the United States and Mexico which at this point in time was quite strained.

Even though Maquiladoras have become ingrained in the lives of many Mexican and American citizens, many Americans fail to understand the economic advantage that opening an “offshore” assembly or repair plant in Mexico. 

  • Some refer to these plants as being offshore, as outside of the United States. The more modern definition is “near short” to leverage their proximity and ease of operation compared to more distant competitors like China and India. 

The IMMEX program allows US Companies to temporary import raw materials into Mexico for the preparation, repair, transformation of goods to be later exported to the United States as a final product. With this program, you make imports without paying the general import tax, value-added tax, and other compensatory payments. Then you export those finished products to the United States with no import duties or red tape.

To obtain the IMMEX program it is necessary to perform certain procedures fulfilling certain requirements, the applicant must have:

  • Advanced electronic signature certificate (SAT)
  • Federal taxpayer registration
  • Your tax domicile must be active and registered in the federal taxpayer registry.

In addition, the following documentation must be attached to the application for the procedure:

  1. Certified copy of the articles of incorporation of the company and, where appropriate, the modifications to it.
  2. Copy of the document that legally certifies the possession of the property where the operation of the IMMEX Program intends to take place, indicating the location of the property, attaching photographs of it. In the case of a lease or loan agreement, it must be proved that the contract establishes a minimum term of one year.
  3. Contract of maquila, orders of purchase that prove the existence of the project.
  4. Power of attorney (original or certified copy and simple copy); or exhibit a copy of the Unique Registry of Accredited Persons (RUPA).
  5. A written document by means of which the production process or the services which will fall under the guidelines of the program are detailed.
  6. A written document in which the detailed description of the production process or service is provided that includes the installed capacity of the plant to process the goods to be imported or to perform the objectives of the program. 
  7. Letter of conformity from the company or companies that will carry out the sub-manufacturing process where they express, under penalty of perjury and agree to joint and several liabilities for tax on temporarily imported goods (original).
  8. Additionally, for the IMMEX Business Controller Program modality, you must show:
  • Acts of Assembly stating the shareholding of the controlling company and the controlled companies (original and copy).
  • Certified entries in the shareholders’ registry book (copy)
  • The documentation referred to in points 1, 2 and 5 of this section, in addition to presenting a copy of the tax identification card. This documentation must be submitted to the controller and to each of the controlled companies.
  • The maquila contracts that each controlled company has with the controlling company or a maquila contract in which the obligations contracted must be established, both by the controlling company and by the controlled companies in relation to the objectives of the requested program, duly recorded before a Notary (original and copy)
  • Authorization as a certified company (copy), granted by the Ministry of Finance and Public Credit.
  1. Additionally for the modality of IMMEX Program for the use of a Third Party:
  • Letter of conformity from the company or companies that will carry out the process of tertiarization, where they manifest under protest, to tell the truth, the joint and several liability on temporarily imported goods (original).
  • The company or companies requesting the program under the Tertiarization modality must have the authorization as a certified company granted by the Ministry of Finance and Public Credit.
  1. If your maquiladora will operate in the textile sector other requests have to be met.
Setting up a business in Mexico

How to Open a Business in Mexico

After the Panama Papers, and because it became impossible to deal with banks in Panama, I moved Premier to Tijuana, Mexico in 2017. While the move was challenging, both from a quality of life and a business perspective, things are now running smoothly. 

Costs are down significantly compared in Panama, the availability of English speaking and well-educated workers is much better here, and our proximity to the United States and the ability to take meetings in Los Angeles and San Diego has improved sales. Our bottom line has grown significantly since the move and it was well worth the learning curve.

There are two groups that set up shop in Mexico. First, those who will open a physical office with employees in Mexico. Second, those that need a Mexican company and virtual office because they’re selling into Mexico. 

The second group is mostly US and Chinese companies selling through Amazon and other online platforms in Mexico. All of these websites now require a Mexican tax ID or RFC & SAT. To get these numbers you will need a Mexican corporation, a physical address (virtual office), and a local representative (local director / legal representative of the company). 

The first group covers a very wide range of clients. For example, entrepreneurs such as myself who moved to Mexico for lower costs and a better quality of life (to be on the fun side of the wall). Then there are the manufacturers or maquiladoras that move to Mexico for the trade benefits available when importing into the United States. Also, we get calls from all manner of business, such as tourism agencies, restaurants, clubs, service businesses, etc. 

So, without any more ado, here is how to set up a company or other business structure in Mexico. 

Opening a business is quite different in Mexico than it is in the United States. For instance, you rely entirely on a Notario to get the process started. A Notario in Mexico is not comparable to a Notary in the United States. The main difference being the importance and the power that a Notario held in Mexico. You will need to know this and other crucial details of you want to open a Corporation in Mexico. 

Opening a business in Mexico can be a complicated task. Even though in recent years Mexican Legislation has fastened the process, there is still a lot that needs to be done. Your company needs to have a stable planned structure before any of the governmental permits are requested. 

To register a business before the corresponding instances in Mexico it is necessary to carry out 7 or 8 procedures in different government institutions, which will take an approximate period of 8 days. The cost of making this record is 17.8% of the per capita income in Mexico, around 8,200 pesos.

In Mexico, as in many countries in Latin America, you will need the intervention of a Public Notary or Notario. The Notario is in charge of creating the Acta Constitutiva or Constitutive Act.
Basically, through this notarial act, the name and business of the new commercial entity is established, and at the same time, the business model is defined. There are a number of different business models in Mexico. 

The six types of companies or mercantile organizations in Mexico, to be analyzed are: Sociedad en nombre colectivo, Sociedad en Comandita Simple (S. en C.), Sociedad en Comandita por Acciones (S. en C. por A.), Sociedad de Limited Liability (S. de RL), Sociedad Anónima (SA), and Sociedad Cooperativa (SC). We will give a detailed description of each one in a different article. 

The steps you need to follow to open a business in Mexico are as follows: 

  1. Present a Request to the Ministry of Economicos (SE). The first step in creating a corporation is to submit a request to the Ministry of Economics where five possible corporate names in order of preference for the company. This is done to ensure that there is no company already established in the country or abroad with the same corporate name.
  2. Creation of the Acta Constitutiva (Constitutive Act). Once the Ministry of Economics gives the approval or delivers the proposals of available company names, the Constitutive Act must be drafted. This document is the one that gives life and which stipulates all the general and basic aspects of the company: company name, objective, type of company, administration, and control thereof, duration, etc. Once the company is created, the Constitutive Certificate must be notarized before a Notario.
  3. Registering the Business Address. You must register the address of your business. This can either be in the place where you are doing business and not just a registered agent for service of process. This address can be a full office or a virtual office. 
  4. Register before the Tax Administration Service (SAT). When the Constitutive Act is completely created and certified, the next step is a registration with the Tax Administration Service. The Tax Administration service is the equivalent of the IRS in the United States. From this register, the Tax Identification Number is obtained, which contains the Federal Taxpayer Identification Number (RFC).
  5. Register before the Public Registry of Property and Commerce. The next step is to appear before the Public Registry of Property and Commerce where the company and the location where the business will operate will be registered, as well as its purposes, objectives and commercial goals. For this process, the presentation of the Constitutive Act, the RFC, and the power of attorney that allows the legal representative to carry out the procedures of the company will be required. The power of attorney is also given by the Notario.
  6. Register before the Mexican Institute of Social Security (IMSS). When all of the above has been completed, the next step is to register before the Mexican Institute of Social Security. Even if it is a company in which only the employer exists as the only worker, it will be necessary for him to make his personal contributions to his Social Security accounts. Also, if you do not complete this process in time, you may be given a fine by the IMSS. 
  7. Only Applicable to Businesses that are Open to the Public. This step only applies to businesses that are going to be open to the public like a restaurant or a retail store, if you are opening an office, a call center, or a manufacturing business then you don’t have to worry about this step. Before you open your business to the public you are going to have to notify the government in order to obtain a municipal business license. At this step, you must also secure any other type of license that you might need in order to start operating. For example, if you are opening a business that is going to be making hazardous materials like chemicals you are going to have to apply for a number of distinct licenses. The same goes if you are opening a restaurant.
  8. Registering Employees. You must register all of your employees with the IMSS (Mexican Social Security Institute) and with INFONAVIT (Mexican Housing Fund). This is required by law. You must show in their paycheck the amount of money that is going to these two funds along with the local state taxes.
  9. Foreign Investment Registry if Applicable. This step only applies if one of the owners is a foreigner who does not have a permanent resident status. If this is the case then you must also register the business with the Registro Nacional de Inversión Extranjera. The government office that keeps track of all foreign investment coming into Mexico. This can be done by the Mexican national who you gave power of attorney to.
  10. Registration before any other applicable governmental institutions. Depending on the commercial activity that your corporation will be participating in, it may be required to register before different organisms, the most common being: Ministry of Health, Secretariat of Ecology and Environment, Mexican Institute of Intellectual Property, etc. 

It is highly advisable that when opening a corporation in Mexico you hire a group of experts. The process might seem long, but we can help you cut through the red tape and get up and running in the most efficient manner possible. 

How to Live Tax Free as an American

How to Live Tax Free as an American

Here’s how to live tax-free as an American. If you’re willing to live, work, and invest abroad, it’s possible to live tax-free as an American – legally and without watching over your shoulder for the tax man.

First, note that this article is for US persons willing to live and work outside of the United States. It’s definitely NOT for those living in the US that have offshore accounts. If you want to live tax free as an American, you must move you and your business out of the United States!

Second, this article is focused on US persons. That is, US citizens and green card holders. Only the United States taxes its citizens on our worldwide income. Thus, only US persons need to go to these extremes to live tax free.

For example, a Canadian citizen can move to Panama, establish residency there, and live tax free. Simple enough. No need for complex structures or advanced planning described here.

If a US citizen does the same, they will pay US tax on capital gains and business income. Unless that US person follows the suggestions of this article, they’ll be stuck paying US tax while living in Panama.

Third, this post is about how to legally live tax free as an American. To accomplish this will require a lot of work and commitment on your part. It will also require you to hire a CPA or an international tax expert to prepare a plethora of tax forms required to keep you, the US expat, in compliance. For more, see: Offshore Filing Requirements.

Finally, unlike most articles on the web, this post takes President Trump’s tax plan into account. Trump did away with retained earnings in a foreign corporation, which really hurts medium sized businesses operated by US citizens abroad. For more on this, see: Use of an offshore corporation in 2018.

So, with all of that said, here’s how to live tax free as an American.

The premise of the US tax code is that US persons (citizens and green card holders) pay US tax on their worldwide income. No matter where you live, Uncle Sam wants his cut.

The first exception to this is the Foreign Tax Credit. You get a dollar for dollar credit for tax payments to foreign countries.

If you’re living in France with a 45% rate, and your US rate is 35%, you won’t pay tax to the United States. The Foreign Tax Credit eliminates double tax on your income, and, because France’s personal income tax rate is higher than the US rate, you pay zero to Uncle Sam.

If you were living in Argentina rather than France, you would pay a 9% rate to your local government. Thus, the amount owed to the United States would be 35% – 9% = 26%. If no other exception applies, you’ll pay the US 26% of your ordinary income to Uncle Sam for the right to hold a US passport or green card.

The only remaining exception to this after Trump did away with retained earnings is the Foreign Earned Income Exclusion.

If you qualify for the Foreign Earned Income Exclusion, you can exclude up to $104,100 of salary or business income from your US return in 2018. If a husband and wife are both working in the business, you can exclude a combined $208,200 from Federal income tax.

To qualify for the FEIE you must be 1) out of the United States for 330 out of any 365 day period, or 2) a legal resident of a foreign country for a calendar year.

Of these, the 330 day test is the easiest to qualify for but the most problematic in practice. Everyone tries to maximize their days in the US and the IRS loves to audit those using this version of the FEIE. Because the FEIE is all or nothing, if you miss the 330 days by even one day, you lose the entire exclusion.

Thus, I recommend the residency test whenever possible. Build a “home base” in a foreign country and get a residency visa to qualify for the FEIE without worrying about your US days so much. Of course, this means you must move to a country that will give you residency.

While selecting a country for residency is a very personal decision, I suggest you look for one with a zero tax rate and an eazy residency program. For example, Panama doesn’t tax foreign sourced income (income earned from abroad). Also, you can get residency in Panama with an investment of only $22,000. Finally, you can use your US IRA or other retirement account to get residency in Panama. For more on this, see: Best Panama Residency by Investment Program.

So, with the FEIE, you can earn $100,000 (single) or $200,000 (combined) from a business or in salary tax free. Capital gains are still taxable as earned with only the Foreign Tax Credit available to avoid double tax.

What if your business nets well over $200,000 and/or you have significant capital gains? What if your business nets $1 million? Then the only way to live tax free as an American is to move to the US territory of Puerto Rico.

If you move to Puerto Rico, spend at least 183 days a year on the island, and qualify for Act 20 and 22, you can live nearly tax free. Yes, you can net $1 million or more from a business operated from Puerto Rico, and pay very little in tax. To make it better, you’ll pay zero in capital gains.

Here’s how to live tax free as an American in Puerto Rico.

Because Puerto Rico is a US territory, it has unique tax laws. US tax laws apply to all US citizens living abroad. The ONLY exception to this are US citizens living in the US territories. Puerto Rico can create whatever tax laws it wants for its residents and these laws supersede US tax law.

A resident of Puerto Rico is a US citizen or green card holder that moves to the island, makes it their home base, and spends at least 183 days a year there. Only those legally allowed to live and work in the United States can move to Puerto Rico and qualify for these programs. All US immigration laws apply in the territories.

Under Act 22, a resident of Puerto Rico will pay zero tax on capital gains from assets purchased after you move to the island. If you buy and sell cryptocurrencies and stocks while a resident of Puerto Rico, you pay ZERO in tax to the United States.

Note that his tax holiday applies ONLY to assets acquired after you move to the island. No, you don’t get buy stocks and crypto while in the US, hold them for a few years, move to Puerto Rico for a few months, and sell them at zero tax. Those gains would be taxable in the United States and would not qualify for Act 22.

Then there’s Act 20. This is basically the inverse of the Foreign Earned Income Exclusion. Move to Puerto Rico and pay 4% corporate tax on business profits. Dividends from an Act 20 business to a resident of Puerto Rico are tax free… so, this 4% rate is all you will ever pay.

And you will never pay US tax on these capital gains or these business profits. Even if you move back to the United States in a few years, you will not pay US tax on the earnings taxed in Puerto Rico while you were a resident of the island. The only tax a resident of Puerto Rico pays on net business profits from an Act 20 business is 4% in Puerto Rico (and zero on capital gains and dividends).

Business profits is income after you take out a fair market salary. If you would ordinarily earn $100,000 for the work you’re doing, then you must take a salary of $100,000 from your Act 20 business. You’ll pay ordinary rates on this salary and then the excess will be taxed at 4%. This is why I call Puerto Rico’s Act 20 the inverse of the Foreign Earned Income Exclusion.

Let’s say your reasonable salary is $100,000 and your net profits are $1 million. You pay 30% on $100,000 in personal income tax to Puerto Rico and 4% on $900,000 under Act 20 for a total of $66,000 in tax. Of course, this is an oversimplification, but you get the idea.

Now consider the FEIE. Earn $1 million offshore while qualifying for the Foreign Earned Income Exclusion and pay zero US tax on your salary of $100,000. Then you’ll pay about 30% on $900,000 because Trump did away with the ability to retain earnings offshore. Total tax paid using the FEIE is about $270,000 on $1 million in net business profits.

For those earning in excess of the Foreign Earned Income Exclusion, or active traders with significant capital gains, Puerto Rico’s Act 20 and 22 are far better tax deals than the Foreign Earned Income Exclusion.

For those netting $100,000 (single) to $200,000 (joint) from a business, living abroad in a country like Panama is the best tax choice. You probably need to reach about $500,000 net before Puerto Rico makes sense.

I hope you’ve found this article on how to live tax-free as an American helpful. For more on setting up an offshore business or qualifying for Puerto Rico’s Act 20 and 22, please contact us at or call us at (619) 483-1708.

Where to Start a Cryptocurrency Exchange

Where to Start a Cryptocurrency Exchange – Crypto Friendly Countries

In this article, I will focus on where to start a cryptocurrency exchange in 2018. That is, where to incorporate a new cryptocurrency exchange. Which countries are friendly to startup cryptocurrency exchanges and why you should consider each based on your business model.

Countries are not listed in any particular order. You should select your jurisdiction of operation based on your long-term objectives, business model, and target markets. You should also consider whether you wish to have a formal license or not.

I’m starting from the position that regulation is good for cryptocurrency in 2018. Banks are pushing out crypto exchanges and crypto investors because of concerns about compliance. If a bank is confident that an exchange is will run a clean and compliant business, and follow the same AML and KYC procedures as an FX or brokerage firm, they are more likely to open accounts for you.

It may be possible to start a crypto exchange in 2018 without a license. But, by 2019 or 2020, I expect everyone will be licensed and regulated. Some software vendors include licensing in their turnkey package. I suggest you buy your core software from a company that can provide this service if and when it becomes necessary.

Some of my comments below are speculative. They come from meeting with experts in various countries and with regulators around the world. But, in some cases, no licenses have been issued and thus the government’s resolve has not been tested.

For example, the lowest cost jurisdiction for a licensed exchange appears to be Belize. However, no licenses have yet been issued. I am hopeful that these will be made available. But, until one is approved, I’m just speculating.

Estonia is also low cost. Plus, this country is a very tech savvy with their e-residency program. The problem is that the banks in Estonia won’t open an account for an Estonia licensed exchange if that exchange is owned by foreigners. So, how valuable is the license?

For more information on how to start an international or offshore cryptocurrency exchange, please see: How to Build an International Cryptocurrency Exchange.

Without any more adieu, here are my thoughts on where to start a cryptocurrency exchange and the best countries from which to operate that exchange.


Mexico is one of the more interesting jurisdictions to start a cryptocurrency exchange in 2018. This country of 140,000 million has a few exchanges in operation and is just beginning to regulate.

The exchanges in Mexico are currently self-regulating with reasonable KYC and AML procedures in place. The more a client deposits into their account, the more the exchange will want to know about them.

A client can play around with the system with a few dollars. This usually required a Mexican phone number. Once they connect to a local bank account or begin making sizable withdrawals, they will need to prove their identity.

And Mexico has the most efficient cash transaction system in the world for cryptocurrency… yes, in the world!

Users can walk into any of 140,000 convenience stores in Mexico and make a cash withdrawal or deposit into their cryptocurrency account. Take cash and a code to the cashier and your deposit will show on your account in minutes. Buy a debit card from the store, convert your BTC to Pesos, and transfer those pesos into your card. You can then take a cash withdrawal or use the card just about anywhere.

We expect this period of self-regulation of cryptocurrency exchanges to last 6 to 12 months. It might be longer depending on what happens in the Presidential elections this year. Legislation to regulate exchanges has been passed but not implemented yet.

Like many countries, the Mexican Central Bank announced that bitcoin and cryptocurrencies are not considered currencies and are not backed by the government nor laws. However, the government also said that crypto is not illegal and that they’ll allow self-regulated exchanges to operate while laws are being implemented.

The government also said they won’t step in to regulate ICOs. They warned consumers to avoid high-risk investments, but haven’t yet taken steps to protect consumers. The government hinted that ICOs could be regulated and only available only to accredited investors in the future.

When new laws and regulations are implemented, which they will be, expect formal compliance and some level of corporate capital to be required. New firms should be working closely with local counsel to build up reserves and put AML and KYC systems in place before applying for a license.


Everyone’s been talking about Chile as a great cryptocurrency center… as the next chilecon valley. And, that was true until April of 2018. Over the last few days, all the banks in Chile have closed the accounts of exchanges, ICOs, and anyone doing business in crypto. Both commercial banks and government banks have closed the accounts of exchanges.

Most blame the loss of banking services on a lack of clear regulation of cryptocurrency exchanges in Chile. If and when regulations are passed, as they have been in Mexico, look for business to return and banking to be made available.

  • Regulations have been passed in Mexico. They have not been implemented by the regulators yet. Thus, exchanges are in a period of self-regulation.

In my opinion, much of these problems come from a lack of regulation. The banks and government regulators don’t know what to do, so they take extreme steps to reduce their risks. Banks close accounts because the risk to the bank exceeds the value of the account. Risk comes from uncertainty. So, regulation in Chile will reduce or eliminate the risk.

Cayman Islands

The Cayman Islands are the jurisdiction for cryptocurrency investment funds. Cayman has long been a leader in large sophisticated hedge funds and it continues in that reputation today. If you plan to raise a $100 million dollar fund, Cayman is the place to do it.

Cayman has also been the country of choice for some of the largest ICOs. However, this has lead to a glut of ICOs and underfunded low-quality projects hoping to take root in the islands. I suggest that only the very best funded and highest quality ICOs should consider Cayman. See: The Offshore ICO Scam and Cayman Islands Corporations.

The same can be said for anyone attempting to launch an exchange in Cayman. The licensing process will be intense and you must have a solid compliance program and a team on the island. I estimate this license will cost $150,000 and take 6 to 12 months.

Some will find it easier to operate in Cayman as a crypto brokerage rather than a crypto exchange. Exchanges exchange money from one currency to another, as in exchanging a Bitcoin for $7,000 USD. Brokerages enable traders to place long or short bets on the BTC/USD price. For an example of such a brokerage, see:


It appears that regulators in Belize might allow an exchange to operate under a money management license. This license is issued by the International Financial Services Commission in Belize or the IFSC.  

Corporate capital for this license is $50,000 and the cost is between $18,000 and $25,000 with filing fees. Annual fees, including the local agent, are about $5,000.

You will also need a 5-year business plan, resumes and police reports for all shareholders, officers and directors, and proper KYC and AML procedural manuals. The applicant must prove to the regulators that they have the experience and expertise to run a clean and compliant cryptocurrency exchange from Belize.

No exchange has been approved in Belize yet, but this could become the path forward. Then again, regulators might shut this door in the next few months.

Costa Rica

Historically, Costa Rica has been open to new high tech businesses. For example, Costa Rica was the center of the online gaming industry in the early 2000s. Just about every sportsbook and casino was based in Costa Rica for a time.

Also, San Jose, Costa Rica has a number of Bitcoin ATM machines and vendors that accept crypto. And Costa Rica has its own cryptocurrency, Pura.

The primary exchange selling to residents of Costa Rica is SatoshiTango. They have banking Portugal and provide services throughout Latin America.

Like Mexico, the Costa Rican Central Bank issued a statement that bitcoin and cryptocurrencies are not considered currencies and are not backed by the government. However, cryptocurrencies are not illegal.

Costa Rica does not offer a cryptocurrency license and no legislation is pending. San Jose would be an interesting low-cost city from which to operate a self-regulated exchange. You might combine operations in Costa Rica with a license from Estonia and use 3rd party providers or OTC / CTC systems to fund accounts and trade currencies until you can negotiate a correspondent bank account.


Estonia is one of the lower cost licensing jurisdictions. You should expect to pay 10,000 to 20,000 euros for a cryptocurrency exchange license from Estonia.

An application can be in English or Russian. Criminal history reports and background information must be provided by all officers, shareholders, and directors. Also, you must provide a detailed business plan, KYC documents, AML system, and financial statements.

Also, Estonia is a member of the European Union. This means that businesses incorporated and operated from Estonia are portable throughout the Union. Note that I’m talking about business operated from Estonia, not those operated abroad through the e-residency program.

If the business is to be operated from outside of Estonia, and most of the owners are foreigners, it will be impossible to get a bank account in Estonia. While you will get a license from Estonia, you won’t get a bank account.


Like Luxembourg, Malta made a splash by issuing a license to a big name, Binance. Malta has been working hard to bring stability to the industry ever since.

Malta’s government launched the Malta Digital Innovation Authority in February 2018 in order to provide legal clarity for companies developing Blockchain technologies, cryptocurrencies, and Initial Coin Offerings (ICO). Whenever the government is working to facilitate an industry, it’s a country you should consider.

That is to say, Malta’s government is reportedly developing a broad national strategy that will see the government embrace bitcoin and blockchain innovation to promote and adopt the technology.

Like Costa Rica, Malta was a leader in online gambling. They passed the first legislation in 2004 and have been a major player in Europe since then. Malta hopes to duplicate this success in crypto by offering the most efficient legal framework in the region.

At this time, and because Bitcoin is not deemed to be a regulated instrument under MiFID, companies dealing in Bitcoin are not required to apply for a license with the Malta Financial Services Authority (MFSA). However, the rapid growth of the industry will likely to necessitate greater regulatory oversight in the mid to near term. Expect Malta to issue licensing procedures soon.

For pending and planned legislation in Malta, see Malta Becoming a Crypto Hub.


The bottom line is that Switzerland is the best cryptocurrency jurisdiction in Europe. If you have an unlimited budget, and you don’t mind paying about 12 to 18% in corporate tax, you want to be in Switzerland. If you want to run a top tier exchange that markets into the European Union, you should be in Switzerland or Malta.

Switzerland and the United States dominated ICOs in 2017. Swiss ICOs raised $550 million vs the United States at $580 million from January to October of 2017. The next largest was Singapore at $184 million.

Switzerland has two popular coins. The Swisscoin, which is a token focused on Swiss investors and SwissRealCoin, which is a token based on Swiss real estate. There have also been crypto banks and crypto wealth management firms opening in Switzerland.

Bottom line, Switzerland is dominating financial services in and around cryptocurrencies and blockchain.

If you wish to set up in Switzerland, I suggest you open in Crypto Valley, which is in the city of Zug. This canton has the lowest taxes in the country and has been a bastion for offshore corporations for decades.

The Crypto Valley Association is an independent, government-supported association much like LHoFT in Luxembourg. It was “established to take full advantage of Switzerland’s strengths to build the world’s leading blockchain and cryptographic technologies ecosystem.”

As a general rule, all companies in Switzerland performing financial activities are required to receive an authorization for their operations from the Swiss Financial Market Supervisory Authority (FINMA). However, cryptocurrency businesses are not currently required to register with FINMA because crypto is not seen as a “currency.” We expect companies to be required to register soon.

Companies performing bitcoin transactions must still comply with specific regulations provided by the Swiss Anti-Money Laundering Act. Therefore, exchanges in Switzerland are self-regulating much like those in Mexico awaiting formal regulation, but failure to follow AML rules can result in major penalties.

Most exchanges are seeking banking relationships in Europe these days. Even those focused on Latin America and Asia are banking in the EU. In order to get a quality bank account, crypto exchanges are forming Swiss corporations in Zug, setting up an office there, complying with Swiss rules, and then applying for banking in Europe.

Keep in mind that these Swiss companies will need to continue to comply with Swiss laws to keep their bank accounts. This means they’ll need to keep up with new laws and secure a license if one becomes available.

Some ICOs are regulated in Switzerland and must register. Those  who sell an asset token, and not a utility or payment token, are regulated. This is because an asset token is considered a security in Switzerland. See: Guidelines for initial coin offerings (ICOs) Published 16 February 2018, a PDF download from the Swiss regulator finma.

For more on Switzerland, see Switzerland embraces cryptocurrency culture from the Financial Times.

We’ll be happy to assist you with an ICO or to set up a cryptocurrency exchange in Switzerland with banking in Europe. For a quote and more information, please contact us at or call us at (619) 550-2743.


The two international top-tier crypto jurisdictions in Europe are Switzerland and Luxembourg. Exchanges in Luxembourg are governed by the CSSF and must follow the same strict rules as other non-bank financial institutions. Cryptocurrency exchanges in Luxembourg are referred to as electronic money institutions.

With Bitstamp moving to Luxembourg back in 2016, this country cemented its place as a top crypto nation in the European Union. Since then, a number of high profile exchanges, such as BitFlyer, have moved to Luxembourg.

Cryptocurrency exchanges in Luxembourg operate under the payments institutions license and report under the electronic money institutions statutes. In most cases, your minimum capital will be 350,000 euros.

Electronic money” is defined in Luxembourg as something of monetary value representing a claim against the issuer which is:

  • stored in electronic format, including on magnetic media, and
  • issued against the remittance of funds with the goal of making payments, and
  • accepted by an individual or organization other than the issuer of the electronic money.

In addition to issuing electronic money, these companies may supply payment services, grant loans (under certain conditions) linked to payment services, supply operational services, and other services closely linked to the issuing of electronic money or to the supply of payment services, manage payment systems, and undertake commercial activity.

In our experience, setting up a licensed exchange in Luxembourg is an expensive endeavor requiring many months. Typical legal costs are $150,000, including your promotor / project lead, an attorney in Luxembourg, and securing the support of LHoFT.


Japan has the most advanced crypto laws on the planet. If you want to operate from a top tier country with a strong demand for bitcoin, and the most advanced laws, then consider Japan.

As I said above, I consider regulation a positive force in the industry. It gives crypto exchanges and, possibly, more importantly, banks, confidence in how to deal with the industry. It creates a level playing field on which everyone can compete. It ensures only compliant and well-run cryptocurrency exchanges are allowed to operate in the country.

The Revised Payment Services Act took effect on April 1, 2017. Since that time, Japan has had the most complete regulations for cryptocurrency transactions. These laws are administered by the Financial Services Authority (FSA).

The minimal capital amount is JPY 10 million ($93,500 USD), but more than JPY 50 million (about $500,000 USD) is recommended. Strict KYC and AML policies must be in place, you must have an external auditor, and a physical office is required.

And, keep in mind that these regulations apply to anyone running an exchange from Japan and anyone selling into Japan. Firms selling into Japan without a license have been shut down and sanctioned. For example, Binance secured a license in Malta after being warned by Japan for operating without a license.

Expect Japan to be used as a model by major markets as compliance and regulation rolls through the industry.


Australia licensed three cryptocurrency exchanges since new regulations came into effect April 3, 2018. All exchanges operating in the country have until May 14, 2018, to get in compliance and be approved for a license.

After spending several years battling a confusing and at times contradictory regulatory landscape, exchanges doing business in Australia can now take advantage of an official program like those available in Japan and South Korea. A formal licensing scheme should make banking easier and eliminates the risk of inadvertently running afoul of government KYC and AML policies.

Exchanges operating in Australia now must comply with the following:=

  • customer identification and due diligence
  • adopting and maintaining an AML/CTF program—this includes identifying, managing and lessening money laundering and terrorism financing risk
  • suspicious matter reporting
  • reporting of cash transactions of $10,000 or more.
  • record keeping

In order to apply for a license, applicants must have an office in Australia, an auditor, business plan, and complete compliance systems in place. Only those with a solid team and expert compliance systems will be granted a cryptocurrency license in Australia.

The license required to operate a crypto exchange in Australia is the Financial Services License. In most cases, capital required will be $50,000 plus a 5% reserve based on the size of your exchange. Various ratios apply after $100 million in assets and capital reserves shall not exceed $100 million. It appears that most applicants should have $10 million before they file an application. See Pro Forma PF 209 (a PDF file).


The Philippines issued two cryptocurrency exchange licenses in August of 2017 and has been active in the industry since that time. Exchanges wanting to offer services throughout Southeast Asia are usually setting up shop in the Philippines or Thailand. The more advanced regulations are in the Philippines.

Cryptocurrency exchanges in the Philippines are governed by Circular 944, 2017. There are currently 29 applications pending with the central bank. How many actually want to sell into the Philippines is unclear.

BSP Governor Nestor Espenilla, Jr. suggested they “have an open-minded approach to fintech (financial technology). This means that we take a very active role in ensuring that our policies provide opportunities for innovation.”

“Today, there are two virtual currency exchangers registered with the BSP and several more are under evaluation,” the central banker emphasized.

Many of the exchanges moving to the Philippines are from China. They’re not focused on the local market, which is only about $8.8 million per month. They’re looking at the region, possibly including Chinese clients who have found a way to get around the great firewall.


Bangkok was shaping up to be a cryptocurrency center of Southeast Asia. Exchanges were opening there and being welcomed by the banks.

Then it all went south. Banks turned against cryptocurrency and began stuttering accounts. This began with the government bank and the rest followed suit.

My guess is that the fragile government of Thailand saw risk in allowing a means of exchange which they didn’t control. For this reason, I expect the exchanges to be forced out of Thailand.


Singapore is one of the last major banking centers that allow for unregulated or self-regulated cryptocurrency exchanges. As of February 2018, the government warned of the risks of cryptocurrency but said it would not regulate the industry.

Then, in March, the government indicated they might take steps to protect investors. Experts think that Singapore will go the way of Switzerland and require KYC, AML and compliance standards for cryptocurrency exchanges. They might not require a license, but they will require record keeping and standards of care.

Of the exchanges opening in Asia, those looking for a low cost and low overhead solution are focusing on the Philippines. Those looking for better banking and to be within a major financial center, are opening in Singapore.


Gibraltar is hoping to become the headquarters of all things blockchain. It appears that most legislation is aimed at the technology behind cryptocurrency and ICOs and not the tokens or currencies themselves. Thus, you might say that Gibraltar is taking a longer-term view by focusing on the underlying technology and using its portability into the EU to add value.=

A notification on the regulator’s website states that as from January 1, 2018, any use of distributed ledger technology for storing or transmitting value belonging to others will need to be authorized by the Commission. By the way, the following entries: “Initial Application Assessment Fee”, “Application Fee”, “Supplementary Fees”, “Annual Fees”, “Further Fees”, populate a list tucked in between the “Principles” and the “Frequently Asked Questions” sections.

Gibraltar hopes to take some ICO business away from Switzerland and offers lower cost and more definitive regulation that its much larger neighbor. For more, see it’s Statement on Initial Coin Offerings.


Belarus issued regulations on December 8, 2017 and this law took effect on March 28, 2018. See: Questions and answers on Decree No. 8. This law creates a tax holiday and a FinTech campus called High Technology Park (HTP) for blockchain and crypto businesses.

Any member of the park may run an ICO without restriction. In addition, they may issue ICOs on behalf of others. Most of these ICOs are intended for offshore and EU investors.

A cryptocurrency exchange registered at HTP should have capital of $100,000 to $500,000 in a local bank. The amount will depend on the size of your operation.

Most interesting and unique, HTP companies can act as investment funds and perform cryptocurrency investing legally and with banking support. No need to incorporate your fund in a high-cost jurisdiction such as Cayman if you’re operating from Belarus.

The negative with Belarus compared to Malta is that Belarus is not a member of the European Union. Malta is a member state and its businesses may be “ported” throughout the EU.

The benefit of Belarus over Estonia is that banks in Belarus accept cryptocurrency exchanges. You’ll get an exchange license in Estonia, but not a bank account.  

See also Belarus To Become World’s Best Jurisdiction For Cryptocurrencies, ICOs And Smart Contracts.


I hope you’ve found this article on where to start a cryptocurrency exchange to be helpful. For assistance building a new international exchange, please contact us at or call us at (619) 483-1708. We’ll be happy to assist with licensing, compliance, software, and a turnkey solution for your cryptocurrency exchange.

How to Build an International Cryptocurrency Exchange

How to Build an International Cryptocurrency Exchange

In this article, I’ll look at the steps to build a cryptocurrency exchange. Whether you’re building out a new cryptocurrency exchange or planning on expanding beyond your current country, these are the steps necessary to start an international cryptocurrency exchange.

Note that this article is for those wishing to start an international cryptocurrency exchange. Setting up in the United States is a very challenging process with different issues to consider.

For example, in the United States, the SEC is targeting cryptocurrency exchanges and might require them to register as “exchanges.” Whether this simply means that cryptocurrency exchanges will need to be called cryptocurrency platforms (for example), or that all systems that facilitate trade must spend millions on compliance and registration, is yet to be seen. For more, take a read through US: Cryptocurrency Trading Platforms Must Be Registered With SEC.

Another example of America’s unique attitude is its attack on customers of cryptocurrency exchanges. The United States IRS is waging all out war on cryptocurrency by imposing ever higher taxes on trades and criminalizing trades that occur outside of a regulated exchange.

For these reasons, many cryptocurrency traders are looking to move offshore. Likewise, many cryptocurrency exchanges are expanding beyond the United States and placing ever more emphasis on international markets.

With all of that preamble, here’s how to build an international cryptocurrency exchange.

  1. Select a jurisdiction that fits your needs and your budget.
  2. Form your corporation and open a corporate bank account (for business transactions, not client funds).
  3. Capitalize your cryptocurrency exchange business.
  4. Purchase a core cryptocurrency exchange system.
  5. Create a token or coin that you can trade against BTC, ETH, etc. Support as many crypto and FIAT/crypto pairs as possible.
  6. Document your compliance system and procedures, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.
  7. Hire a staff with a focus on compliance, banking, etc. (in addition to the marketing people I assume you’ve already hired). Begin by self-regulating with an eye towards global licenses in the future.
  8. Negotiate a cryptocurrency license in the jurisdiction from which you will operate. Many of the top exchanges operate without any licenses. However, times are changing.
  9. Setup a loaded card, debit card, or another system to get money out of the exchange that doesn’t require a wire transfer.
  10. Create a USD backed coin that can be used to transact and hold “FIAT” in the wallet. The primary purpose is to reduce wires and outflows by creating a coin which is not volatile. Such a coin should have a 1 to 1 dollar reserve is a US bank.
  11. Negotiate a cryptocurrency license in certain jurisdictions where your clients will be located. That is, if you plan to market in the UK, you will need a UK license.
  12. Open a correspondent account to receive client funds and convert FIAT to and from crypto.

Of the tasks above, the most difficult will your correspondent account. For this reason, tasks 1 to 11 are all building your business to a place where you can successfully negotiate such an account and to prepare for the future. About 80% of the requests for assistance we get from existing exchanges are related to their correspondent accounts.


The first task in building an exchange is to select your jurisdiction of operation. Where do you want to incorporate your business? Under which laws and regulations do you want to operate?

The two top offshore jurisdictions are the Cayman Islands and Switzerland. These are also the most regulated and most expensive. If you have an unlimited budget and want to run a well regulated and compliant cryptocurrency exchange, Switzerland and Cayman are where you want to be.

The demand for Cayman is quite high. And this has lead a few unscrupulous promoters to sell cryptocurrency and ICO structures they know are useless. If you want to operate in Cayman, you’d better be very well capitalized and have your KYC and AML systems in place. For more information on this, see: The Offshore ICO Scam and Cayman Islands Corporations.

Proper cryptocurrency exchanges in Cayman are operating under the islands FX brokerage license. They are not using the currency exchange or money transmitter license as is popular in other countries. For an example, see:

And of course, these jurisdictions are expensive and exclusive. Of course, government regulators are very cautious. The reason everyone wants to be in Cayman is that this jurisdiction has a solid world image. It obtained this image through decades of compliance and a solid regulatory environment. It’s not going to throw away that image by allowing a poorly run cryptocurrency exchange to operate within its borders and leverage its reputation.

Other solid jurisdictions include Canada, Japan, Singapore, Mexico, Liechtenstein, Luxembourg, Gibraltar, Malta, Estonia, Lithuania, and Belarus. The lowest cost license is Belize at about $35,000.=

In my opinion, Mexico is one of the most interesting jurisdictions from which to operate an international cryptocurrency exchange. This country of 130,000 million allows unlicensed self-regulated exchanges as of April 2018. It has great FinTech cities like Mexico City, Monterrey, and Guadalajara. The city of Tijuana borders San Diego, California and has been an outsourcing hub for Silicon Valley for years.

The government recently passed laws regulating cryptocurrency exchanges which will go into effect in the next 6 to 12 months. Now is the time to build a new self-regulated exchange in Mexico to reach sustainability before these laws come in to place.

And Mexico is the only jurisdiction that offers loaded cards on a large scale for withdrawals and cash deposits into its exchanges at 140,000 convenience stores. For more, see: Mexico is a Cryptocurrency Paradise.

Finally, I believe quality international exchanges should embrace licensing requirements or sub-licensing options. These will become the norm in the next year and you want to be in a country with business-friendly statutes and a solid banking system to support those laws. You want to be a key player in a country that will suit your business in the long term.


If you’re going to build an international cryptocurrency exchange from scratch, I suggest you’ll need $500,000 to $1 million in capital to get through steps 1 to 11. You’ll need significantly more capital for step 12, your correspondent banking account if you don’t “outsource” this component.

The $500,000 level assumes you’re buying a turnkey software solution from a partner. One that provides the software, compliance, license consulting services or sub-licenses (if applicable), token and USD coin issuance, and technical support.

If you’re really going to go it alone, and you want to be licensed, then you’ll need $5 to $12 million for a multijurisdictional cryptocurrency exchange. Most of this increase in capital will be attributed to your licenses and correspondent banking partners. Remember that you’ll need one correspondent bank for each FIAT currency you’ll offer.

I should point out that many of the largest international cryptocurrency exchanges do not have global licenses. For example, Bittrex, Bitfinex, Kraken, Binance, do not have global licenses but still, their transaction volumes are among the top exchanges.

This proves that customers are not as concerned with your license as with your reputation and the quality of your platform. However, government regulators and banks are getting concerned. For example, Japan recently sanctioned 7 exchanges and is moving to enforce regulations on anyone selling into this market.

This all means that, while you can operate today without a license, your long-term strategy should include a path to a proper license in your primary markets. Also, you should self-regulate with strict internal KYC and AML procedures.

Core Cryptocurrency Exchange Platforms

We’ve researched the core cryptocurrency exchange platforms and found that most are priced at $300,000, with some as high as $500,000, for the source code. If you want to build an international exchange, and don’t want to spend years coding your own version, expect to spend a minimum of $300,000 for a quality system.

When you price a core cryptocurrency exchange platform, here’s what you should be looking for:

  • Trading platform
    • Support spot, futures, OTC trading
    • Multiple languages support
    • Customizable analytic & charting tools
    • Facilitated background management system
  • Matching engine that provides clustering of asynchronous matching with tens of thousands matches per second.
  • Wallet
    • Cold and hot wallet management (this is the new industry standard)
    • Multi-signature guarantees asset security
    • Multi-coins exchange support
    • Structured wallets and easily listing service
  • Risk Management
    • Data monitored data in real time
    • Sensitive alerts of assets changes
    • Asset flow and retrospective query support
    • Intrusion detection and anti-seepage detection
  • Market Making
    • Actual market volume import and liquidity supply
    • Risk-free hedging strategies
    • Market value management outsourcing
    • 7*24 hours hosting
  • Special Services
    • Global compliance and license application consulting
    • Fiat currency exchange and correspondent banking introduction
    • Token issuing support
    • Advertising and marketing support through trade shows, press releases, and other resources.
    • Supports both cloud-based systems (AWS, etc) and traditional hardware.

As far as I can tell, there’s only one core platform for sale that allows you to issue your own token and a USD coin. There is only one source code available that includes these features. Tokens are valuable tools and permit you to create unique pairs, allow you to differentiate your exchange out of the gate, and offer a variety of benefits.

In my opinion, an anchored currency or coin is a required feature in 2018. You must find ways to reduce outflows and wire fees. You must try to reduce compliance costs from you correspondent banks. And, of course, you’re always looking to increase trading by making it easier and faster. One way to accomplish these goals is to convince your clients to hold more their funds on your platform.

A USD coin allows your clients to keep their non-trading funds on your platform. Those who are attempting to time the market, or want to move in and out of a volatile market, will find a FIAT coin very beneficial.

Of course, an anchored coin has other benefits on a successful international cryptocurrency exchange. For example, they can be sent between users to purchase goods and services at no cost (no wire fees).

Such coins can also be used in cross border transactions at zero cost and with no volatility. Let’s say you have one user in the United States and one user in Mexico (a country with 53 million unbanked persons). Your customer in the United States could send USD coins to Mexico at zero cost.

The user in Mexico could then withdraw these funds in Pesos by having them deposited onto a debit card. As stated above, these cards can be purchased at over 140,000 convenience stores throughout Mexico.

These are just two uses of an anchored coin. As you build your business and your unique client base, you’ll find many more. My point here is that any platform you purchase should have these features.

Turnkey Solutions

When it comes to building an international cryptocurrency exchange, the word “turnkey” is used in two different ways.

First, turnkey can mean a core software platform with all the necessary bells and whistles. Such a platform should provide a turnkey system on which to run your exchange. No custom programming should be required (at least, none from the buyer’s side).

In this case, the seller will have a sizeable team of programmers, developers, and designers to customize the platform for your use. They’ll also handle deploying the system on your hardware or the cloud.

Second, turnkey can mean a complete software, licensing, and compliance solution. This type of turnkey solution truly allows you to launch a new international cryptocurrency exchange in a matter of weeks rather than months or a year.

For example, a large FinTech company has licenses in multiple jurisdictions. They sell the software for a fixed fee and charge a monthly fee that allows you to operate under their license or to issue a sublicense.

The same goes for correspondent banking, AML, KYC, and compliance. The FinTech has all of these components in place, with millions of dollars on deposit at various banks. They allow you to transact through these accounts for a fee.

When the seller offers correspondent banking, they’ll generally also handle account openings, KYC, and AML. The bank trusts their client’s compliance systems, and is holding millions in security should something go wrong, so the seller (which is the bank’s client) will be the one to ensure that all the bank’s rules are followed.

Outsourcing account opening and compliance are relatively new in the cryptocurrency industry. However, it’s been the standard in credit card processing for decades. The vast majority of e-commerce accounts, and most swipe accounts, are handled by agents called Independent Sales Organizations or ISOs. These agents send the account to the bank for approval. Once approved, the bank handles account opening, KYC, AML and chargeback compliance.

In my experience, most clients are looking for self regulated and unlicensed options in the beginning. I expect sub-licensing to become the norm in 2019. Therefore, I suggest you purchase your core software from a firm that offers sub-licenses, even if you don’t make use of them now.


I hope you’ve found this article on how to build an international cryptocurrency exchange to be helpful. For more information on turnkey solutions, software platforms, or to negotiate licenses and correspondent banking, please contact us at or call us at (619) 483-1708. Will be happy to assist you to build a new international cryptocurrency exchange.

I have a 15 years experience planning, structuring, and building regulated entities. For example, I’ve licensed and built international banks around the world in 8 countries. For more on this topic see my 300-page book on Kindle, Offshore Bank License Guide. I bring a unique skill set to the cryptocurrency industry.

For my US expat tax guide, also available on Amazon, see International Tax & Business Guide 2018.

US Expats and Retained Earnings in Foreign Corporations for 2018

US Expats and Retained Earnings in Foreign Corporations for 2018

The days of retained earnings in offshore corporations are officially over. No longer can those of us living and working abroad hold profits in excess of the Foreign Earned Income Exclusion inside of our corporations tax-deferred. Here’s what you need to know about US expats and retained earnings in foreign corporations for 2018.

Please note that this article is focused on offshore corporations owned by US persons in 2018. A US person is a US citizen or green card holder no matter where they live or a US resident. For a more detailed and code focused article on this topic, see: Bloomberg on Controlled Foreign Corporations.

Also, there’s some speculation in this post and things are subject to change. The IRS has not issued guidance on how Trump’s tax plan affects US expats and retained earnings in foreign corporations in 2018. Though, every expert I’ve spoken with agrees that the days of retained earnings in excess of the FEIE are over.

A few short months ago, we expat entrepreneurs were all excited about Trump’s tax plan. He was going to eliminate worldwide taxation and move the United States to a territorial tax system. The US is the only major country on earth that taxes its citizens abroad, so this sounded great.

Well, the final bill fell far short of President Trump’s campaign promises. While multinationals were converted to a territorial tax system, and no longer pay US tax on foreign-sourced profits of their international divisions, the small to medium sized expat entrepreneur got the shaft.

If you’re an American expat operating a business abroad, you’ll want to sit down before reading this post. My buddy Gary said it best, “Trump has cut the legs out from under the American expat in favor of the Apples and Googles of the world.”

Let me start by defining a few terms.

For my purposes here, an American expat is a US citizen or green card holder living outside of the United States. They qualify for the Foreign Earned Income Exclusion by being out of the US for 330 out of 365 days or by becoming a legal resident of a foreign country over a calendar year. A resident of a foreign country might spend a couple of months in the US, but never more than 183 days in a year.

Those who qualify for the FEIE in 2018 get to exclude up to $104,100 in ordinary income from their US tax return. That means they get up to $104,100 in salary or business income tax-free because they’re living abroad. All capital gains and salary in excess of the FEIE is taxable in the United States (I’ll leave the Foreign Tax Credit for another day).

US expat business owners have traditionally held profits in excess of the FEIE inside their foreign corporations as retained earnings. This allowed them to defer US tax on these profits until they took them out as dividends. For more on this, see my 2013 article, How to Manage Retained Earnings in an Offshore Corporation.

Then Trump’s tax plan came along and smashed American expat entrepreneurs. As with any tax overhaul, there are winners and losers. We expats apparently didn’t donate as much as the multinationals, so we’re the big losers.

The Tax Cuts and Jobs Act introduced major changes to the international tax provisions of the United States Internal Revenue Code of 1986, as amended, which generally govern the tax consequences to US persons with foreign corporations.  Some of these changes may have an impact on the tax structure of US expats.  

As a result of the new international tax provisions, the US owners of a foreign corporation, which are controlled by US persons, may be subject to (i) a “toll tax”, (ii) a tax on deemed “global intangible low-taxed income” (GILTI) and a minimum base erosion and anti-abuse tax (BEAT) in the United States, and thus US tax deferral on the income earned abroad in excess of the FEIE may be lost.

To put that into English, The Tax Cuts and Jobs Act hits expats on two fronts:

  1. We must repatriate foreign retained earnings from prior years and pay US tax at 15.5% on those profits. This tax can be spread over 8 years.
  2. The ability of expats to retain profits in a foreign corporation is eliminated. We must now pay US tax on our profits in excess of the Foreign Earned Income Exclusion. A business owner can earn $104,100 tax-free, or a husband and wife both working in the business can take out a combined $208,200 in 2018 free of Federal income tax.

So, an American expat that nets $1 million a year in his or her business will pay US tax on about $897,000, no matter where they live. The ONLY exception and the only place on the planet where Trump’s tax plan can’t reach is the US territory of Puerto Rico. More on that below,

The new tax law eliminated retained earnings in offshore corporations with a very small change to the law. It put just about every income category under the Subpart F of the tax code. Interestingly, oil revenue was the only item removed from Subpart F… I wonder how that happened.

Subpart F income in an offshore corporation is not eligible to be retained tax-deferred. It must be passed through to the shareholders and taxed. Shareholders pay tax on Subpart F income whether or not they actually receive it, much like income in a US LLC.

As a result, if your foreign corporation is a CFC, ordinary business income is now Subpart F income and taxable in the United States as earned.

For an article on the previous definition of Subpart F in a CFC, see: Subpart F Income Defined. If you’re a glutton for punishment, or just nostalgic for the good old days of 2017, see: How to Eliminate Subpart F Foreign Base Company Service Income.

I should also note here that US tax breaks for “pass-through entities,” such as domestic LLCs and S-Corporations are not available to expats. We got all of the bad and none of the good from Trump’s tax plan.

If you’re an American living and working abroad, you have a few options in dealing with Trump’s tax plan and the burden it puts on expats.

The most practical step is to form a US C corporation and start over with a new offshore corporation. Pay the repatriation tax on previous years in your old corporation and start fresh with a structure designed for 2018.

Building out a new structure that includes a US corporation might cut your US corporate tax by 50%. The current US rate is 21% and this can be reduced to 10.5% with a 50% credit in certain situations. In 2026 and beyond, the rate rises to 13.1%. For a detailed article from Harvard, see: Tax Reform Implications for U.S. Businesses and Foreign Investments and scroll down to the section on Low-Taxed Intangibles Income.

This US corporate strategy is much more complex than it sounds. Expat entrepreneurs need to watch out for double taxation. When you take out retained earnings from your US corporation as a divided, you’ll usually pay US tax on the distribution (on your personal return). Careful planning should go into building this structure and a long-term tax plan that minimizes double taxation must be developed.

Another option for businesses with partners abroad is to change their CFC status. The tax laws described here generally apply to Controlled Foreign Corporations. A CFC is a foreign corporation owned by US persons (residents, citizens and green card holders). If US persons own or control more than 50% of the business, it’s a CFC.

If you’re working with non-US persons abroad, you might restructure your business so it’s not a CFC. For example, a US company and a foreign company are working together on deals as separate entities. They might decide to join together in one corporation with each party owning 50% of the shares and having 50% control over the business.

Another option is to buy a second passport from a country like St. Lucia and renounce your US citizenship. Note that it’s not sufficient to buy a second passport to avoid US taxation. You must also renounce your US citizenship and go through the expatriation process. This will take many months and can have a tax cost (exit tax).

In my opinion, every US expat entrepreneur that wants to maintain their citizenship, and is netting $500,000 to $1 million a year in a portable business, should move to the US territory of Puerto Rico. Puerto Rico is the only safe haven on earth not affected by Trump’s tax plan.

If you’re willing to move to Puerto Rico, and spend 183 days a year on the island, you’ll cut your corporate tax rate to 4%. If that’s not enough, you’ll also cut your capital gains rate on assets acquired after you become a resident to 0% (yes, that’s zero, nada, nothing). This zero percent tax rate also applies to dividends from Act 20 companies. ‘

For information on Puerto Rico’s Act 20 and 22, see: Changes to Puerto Rico’s Act 20 and Act 22.

As you read through the many articles on my website about Puerto Rico, note the following changes for 2018:

  1. Act 20 no longer requires you hire 5 employees. You can move to Puerto Rico and be the only employee of your business.
  2. Just like offshore corporations, Puerto Rican corporations can no longer retain earnings. This means that US shareholders of Act 20 companies who are living in the US no longer get tax deferral. To put in another way, after Trump’s tax changes, Puerto Rico’s Act 20 is only available to US citizens and green card holders willing to relocate to the island and spend 183 days a year there.

For an article that compares Puerto Rico’s tax incentives to the FEIE, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion.

I suggest that Puerto Rico is best for portable businesses netting $500,000 to $1 million a year. I get to this number because of the fact that you, the business owner, must pay yourself a fair market salary. This salary is taxed at ordinary income rates in Puerto Rico. Then your corporate profits, which are net business income after you pay yourself a “reasonable” salary, are taxed at 4%.

You then distribute these profits to yourself as a tax-free dividend. Even if you move back to the United States, you’ll never pay personal income tax on the dividend. To see this is the US tax code, go to IRC Section 933.

So, Puerto Rico’s tax deal is basically the inverse of the FEIE. With the Exclusion, you get $100,000 tax-free and pay US tax on any excess. With Puerto Rico, you pay tax on your first $100,000 in salary and 4% on any excess.

If you don’t move to Puerto Rico, and remain offshore, your international businesses should be operated through a foreign corporation in a low or zero tax country. Operating your business without a structure or through a US corporation means you’ll also be stuck paying Self Employment tax at 15%. No matter your tax situation, an offshore corporation will almost always reduce your net IRS payment.

All expat business owners should be operating inside an offshore corporation to eliminate Self Employment tax and to maximize the value of the Foreign Earned Income Exclusion. You then report your salary from this company on IRS Form 2555 attached to your personal return, Form 1040.

I hope you’ve found this article on US expats and retained earnings in foreign corporations for 2018 to be helpful. This is sure to be a very hectic and confusing tax year. It’s in your best interest to seek planning advice from an international expert early in the year to minimize the impact of Trump’s tax plan on your bottom line.

For more information on restructuring your business, please contact us at or call us at (619) 483-1708. We’ll be happy to work with you to build a new and compliant international structure.

offshore corporation

Offshore Corporation and Trump’s Tax Plan

There are big changes coming from the Trump administration that will affect your offshore corporation. Republicans have made it clear that they must pass tax reform or they’ll be crushed in the next election cycle. Here’s how Trump’s tax plan is likely to affect offshore corporations and and international taxation.

There are three groups of small business owners that use offshore corporations. They are:

  1. those who live and work in the United States but operate through an offshore company,
  2. those who live abroad and run their business through an international corporation, and
  3. those who run an international division of their US business through an offshore corporation.

Each of these groups of business owners will see different results from Trump’s tax plan. I’ll review each in turn here.

First, keep in mind that this article is for those operating a business through an offshore corporation. Very different rules apply to American’s investing abroad using an offshore trust or an international LLC.

Likewise, not all aspects of this article apply to those operating a business through an international LLC. Nor does it apply to offshore IRA LLCs. Each of these is controlled a different section of the US tax code.

Keep in mind that all of these structures, including the offshore corporation, is governed first and foremost by the US tax code. Certain countries have written laws that help you maximize privacy, protection, and tax savings. However, these laws are intended to work together with US tax laws. Therefore, you should always have a US tax expert in your corner to quarterback your offshore structure.

With that said, here’s how the offshore corporation fits into Trump’s international tax plan.

Live and Work in the United States

If you’re living and working in the United States, and operating through an offshore corporation, you shouldn’t see much change from Trump’s tax plan. You’re already paying US tax on your foreign profits as earned.

In this section, I’m talking about those operating a business through an offshore company that have no office and no employees abroad. You’re operating through an offshore corporation for privacy or asset protection… or any number of other reasons. But, you get no tax benefit from this structure.

Of course, you will get a lower tax rate just like everyone else. If Trump reduces the tax rate on corporate income from 35% to 20%, you’ll receive the same benefit.

Living Abroad and Qualify for the FEIE

There’s some good news in Trump’s tax plan for those living abroad, operating through an offshore corporation, and qualifying for the Foreign Earned Income Exclusion.

Trump will not eliminate or change the Foreign Earned Income Exclusion. If you’re a resident of a foreign country, or out of the US for 330 out of 365 days, you can exclude up to $102,100 of income from your 2017 return.

The 2018 Foreign Earned Income Exclusion amount hasn’t been released yet. I expect it will be around $102,900. The FEIE goes up a few hundred each year to keep up with inflation.

By operating through an offshore corporation, you maximize the benefits of the FEIE, create a an asset protection and privacy barrier, and eliminate Self Employment Tax. SE tax will remain at 15% under Trump’s tax plan.

It will remain difficult to qualify for the FEIE using the 330 day test. In fact, the 330 day test will likely become more difficult, if not eliminated entirely, when Trump institutes his territorial tax plan.

For this reason, I’m recommending all my FEIE clients obtain residency somewhere within the next year. For US purposes, it doesn’t matter where, but you should have legal residency in some country… in the country you will call your “home base.”

Even perpetual travelers need to put down roots somewhere and sign up for residency. Because residency must cover an entire tax year, you should take steps now to be ready by January 1, 2019.

  • The 330 day test can be used over any 12 month period. To use the residency test, you must be a resident for a full calendar year.

Of course, you should try to become a resident of a country that won’t tax your income. For a list of countries that don’t tax foreign sourced profits, see: Which Countries Tax Worldwide Income?

The easiest residency program for US citizens is Panama. Invest $20,000 in Panama’s Friendly Nations Reforestation Visa Program and get residency for you and your family (husband, wife, and dependents 18 year of age and under). For more on this, see: Best Panama Residency by Investment Program.

Note that you can also get residency in Panama using your IRA. Purchase teak or one of the other reforestation programs with your IRA and get residency for free.

Operating a Division Offshore

There are two competing tax plans when it comes to those operating divisions offshore. First, Trump wants to incentevise businesses to bring back retained earnings to the United States. He’s offering a reduced rate (maybe 5%) and expects hundreds of billions of dollars to be repatriated.

One way to force companies to bring their cash hoards back now is to make it more difficult to retain earnings abroad in the future. This would have a long term impact on your ability to operate a foreign division through an offshore corporation.

Competing with this desire to force retained earnings back into the United States is Trump’s territorial tax plan. President Trump want’s to convert the United States from a worldwide tax system to a territorial one.

In a territorial tax system, businesses would be taxed in the United States on income earned in the US. They would not be taxed on income earned abroad in foreign divisions.

So, when it comes to how a foreign division will fair under Trump’s tax plan, there are many factors and moving parts. If the final version includes a change to a territorial system, US businesses may see significant tax savings going forward. If all we get is a repatriation and a tightening of the retained earnings rules, businesses might see an increase in US taxes going forward.


No matter how things shake out with the worldwide or territorial debate, the offshore corporation will remain one of the most important tools in the toolbox for reducing or deferring tax on international business profits.

As I said above, anyone living abroad should work towards residency in a zero tax country in 2018. Be ready for more changes in 2019 and the possibility of a territorial system.

I hope you’ve found this article on offshore corporation and Trump’s tax plan to be helpful. For more on how to setup an offshore company or residency in Panama, please drop me a line at or call us at (619) 483-1708. 

ICOs in the United States

What SEC Regulation Means to ICOs in the United States

The SEC recently issued a ruling that ICOs must be treated as IPOs. This means that ICOs are now fully regulated by the SEC and that all accredited investor rules apply. But, beyond the new compliance costs, what does this mean for the ICO issuer? What does SEC regulation mean to ICOs in the United States?

The SEC’s position on ICOs is simple. If you’re raising money for a business, and the investor is getting something that behaves like a share of stock, then the SEC has the right to regulate the transaction.

Basically, if the transaction bears any resemblance to a security, the SEC says it has a right to control and regulate. If it walks like a duck and quacks like a duck, it is a duck.

Of course this is the SEC’s position. They see billions of dollars being invested without their oversight. A government agency will always try to regulate and interject itself into the industry… they will always choose expand their influence in the name of “protecting investors.” When you’re a hammer, everything looks like a nail.

For more on ICO regulation, and how to tell the difference between a crowdsale which is not regulated and an ICO which is regulated, see: Crowdsale vs ICO.

The first shots in this battle were fired by the SEC in July of 2017. In this ruling, the SEC stated that the DAO token was a security and subject to SEC regulation. When you look at the facts and circumstances of this token, it was an easy case. It operated like a share of stock and was an easy target.

The SEC didn’t file criminal or civil charges against DAO. They just used this company as an example of what a security looks like. As a result, DAO was put out of business with the stroke of the pen.

The SEC was waiting for a much juicier and easier case to charge. They found such a soft target on September 28, 2017. According to a statement released Friday, the US government alleges Maksim Zaslavskiy and his two companies, REcoin Group Foundation and DRC World, defrauded investors and sold unregistered securities in two fake ICOs.

I don’t know anything about REcoin or DRC, and I don’t have to. I know that the SEC looked at a ton of potential targets and found the one they thought would be the easiest prosecution. The government searched all the ICOs and found the one they wanted to make an example of.

The SEC followed this up with the creation of a Cyber Unit… of course they did. We Americans need the protection of the US government in our transactions. Without it, we’d lose everything!

The SEC stated that “the Cyber Unit will focus the Enforcement Division’s substantial cyber-related expertise on targeting cyber-related misconduct, such as:

  • Market manipulation schemes involving false information spread through electronic and social media
  • Hacking to obtain material nonpublic information
  • Violations involving distributed ledger technology and initial coin offerings
  • Misconduct perpetrated using the dark web
  • Intrusions into retail brokerage accounts
  • Cyber-related threats to trading platforms and other critical market infrastructure”

The bottom line is that the SEC is going to regulate ICOs as they do IPOs. Any misstatement in your offering documents, or failing to register when necessary, and the government is coming for you.

What does the SEC’s involvement mean for ICOs in the United States?

First, all ICOs will need to go through serious due diligence by legal and accounting experts. This will greatly increase the cost of issuing a token.

Second, only accredited investors will be allowed to buy US ICOs. I can’t imagine anyone will try to register an ICO in today’s climate, so the pool is limited to accredited investors.

In the United States, to be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one’s primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year. Most estimates claim that about 10.5% of US households qualify as “accredited.”

Third, US investors will need to hold their tokens for at least 1 year before they are allowed to sell. This rule is what will really crush US ICOs. Once liquidity is removed, and the hope of quick bump in the token or currency is lost, I think many who are attracted to Bitcoin will be turned off from ICOs.

Also, this one year rule doesn’t apply to most other investors. This gives foreign buyers a massive advantage over US buyers, especially in such a volatile market.

Here’s a sample of what you might find in a compliant offering document:


This language is for sample purposes in my article and is not intended as legal advice. Don’t copy it into your document!

Fourth, once the SEC is up in your business, they bring with them many different rules. Issuing a token will not be as simple as putting some language in your document and only accepting accredited investors.

These transactions will now involve compliance with Act 33, Advisers Act and the  Investment Company Act. Moreover, the SEC will assert the right to protect investors. If your business doesn’t go as planned, be sure that the government will be looking to put a few more pelts on its wall to assert its dominance.

As a result of these regulations, I expect only the largest and most traditional ICOs to remain in the United States. The more aggressive tokens, with more risk and more upside, will move offshore. Many jurisdictions are crafting new legislation, and most will be easier to navigate than the United States.

I hope you’ve found this article helpful. For more information on moving your business out of the United States, please contact me at or call us at (619) 483-1708.