The IRS will end the Offshore Voluntary Disclosure Program
Christian Reeves

The IRS will end the Offshore Voluntary Disclosure Program

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The IRS will end the Offshore Voluntary Disclosure Program on September 28, 2018. If you haven’t come forward by that time, you’re out of luck. In fact, the IRS has already begun to ramp down the 2014 Offshore Voluntary Disclosure Program and it’s becoming more difficult to get cases through.

From the IRS website, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

And the Offshore Voluntary Disclosure Program has been a real cash cow for the Service. Since 2009, more than 56,000 Americans have used the program, paying $11.1 billion in back taxes, interest and penalties to keep the IRS from pressing criminal charges.

Of this number, about 18,000 people came forward in 2011. The number of taxpayers using the Offshore Voluntary Disclosure Program has steadily declined with only 600 applications in 2017.

What I call the Mini Offshore Voluntary Disclosure Program brought in another 65,000 Americans living abroad. Properly termed the Streamlined Filing Compliance Program was focused on American expats. Those who might not have known of their US filing obligations and want to get back into the US system.

It appears that most Americans have fallen in line and paid over to Caesar what he claims as his. This, and Foreign Account Tax Compliance Act (FATCA) have made the Offshore Voluntary Disclosure Program obsolete. The government has taken all it can from Americans and is now looking to new sources.

The Offshore Voluntary Disclosure Program, like the attack on crypto traders, was based on fear. The US IRS charged a few people in each big city and each state with crimes for having an unreported account. These criminal prosecutions got the Service all the free press they wanted and, as a result, thousands of people came forward voluntarily.

The Offshore Voluntary Disclosure Program was the most efficient and cost-effective marketing campaign in history. And it seems that the IRS is going to deploy the same army against crypto traders in 2018.

See Top two max privacy options to plant your flag offshore

The bottom line is, if you have an unreported offshore bank account or undisclosed assets, you must file for the Offshore Voluntary Disclosure Program now. Time’s up… no more delay and no more debate. It’s time to come clean or accept the risks.

From the IRS website: “Complete offshore voluntary disclosures conforming to the requirements of 2014 OVDP FAQ 24 must be received or postmarked by September 28, 2018, and may not be partial, incomplete, or placeholder submissions. Practitioners and taxpayers must ensure complete submissions by the deadline to request to participate in the 2014 OVDP.”

Note that, US expats and citizens living abroad should probably use the Streamlined Program and not the Offshore Voluntary Disclosure Program. This article considers ONLY the Offshore Voluntary Disclosure Program.

The purpose of the Offshore Voluntary Disclosure Program is to allow US resident taxpayers to come forward, report their foreign accounts, avoid criminal penalties, and reduce civil fines. Those who come forward will pay the tax plus interest on unreported foreign income.

In addition, they’ll pay an accuracy penalty of 20% and a 27.5% offshore penalty. See IRS FAQ 8 for a detailed calculation. In the example, coming forward cost the taxpayer $553,000 vs being liable for well over $4 million had the IRS been forced to track him down.

These taxes and penalties are calculated on the last 8 tax years for which the filing date of the return has passed. For example, if you were to file an OVDP in July 2018, you would amend and pay taxes for 2017, 2016, 2015, 2014, 2013, 2012, 2011, and 2010.

This is to say, you are to amend your personal income tax returns for these years. You will add on to the return any foreign income, such as interest, rental, business, etc. You will also add on any missing foreign entity forms, such as the Form 5471 and 3520. Finally, you will prepare an FBAR form reporting ALL foreign accounts.

Once all of this is ready, your tax preparer and a representative will prepare an OVDP application that includes a letter of explanation of the facts and circumstances of your situation. Again, all of this must be mailed by September 28, 2018.

I hope you’ve found this article on the ending of the Offshore Voluntary Disclosure Program to be helpful. For more information and to be introduced to an expert who can assist you with an OVDP or Streamlined Program, please contact us at info@premieroffshore.com or call us at (619) 483-1708  for a confidential consultation.

Ready to take your IRA offshore?
Christian Reeves

Ready to take your IRA offshore?

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Are you ready to take your IRA offshore? Do you want to invest your retirement savings outside of the United States? Do you want to protect your savings by moving it out of the reach of civil creditors? Do you want to trade crypto on foreign exchanges? Here’s what you need to know to take your IRA offshore.

You can move an IRA offshore once the account has vested. A vested retirement account is generally one from a previous employer. Each time you change jobs, you take your IRA with you and it vests. These accounts can be moved offshore at any time.

In some cases, an IRA with a current employer can be moved offshore. If you’ve been at the same job for many years, some of your retirement accounts may have vested. You should discuss this with your HR department.

Finally, certain types of Defined Benefit Plans can be converted to IRAs. If this was written into your DB plan, you can make the conversion and then take the resulting IRA offshore. You’ll need to discuss this with your plan administrator.

There are two ways to take a vested IRA offshore. You can make international investments through a US custodian or you can transfer your retirement account into an offshore IRA LLC.

Investing your IRA offshore through a US custodian is referred to as creating a self directed retirement account. You tell the custodian what to invest in and they generally agree to make those investments.

Most US custodians do not allow offshore investments. If you want to invest your IRA offshore through a self directed account, you need to search out those custodians that support international transfers.

Because of the low costs of moving to a self directed account, these are best suited to the following: 1) those with less than $80,000 they want to move abroad or protect, 2) those who don’t mind having a US custodian incharge of their account, 3) clients that will make one or two investments offshore, and 4) persons who will not actively trade the international component of their retirement account.

The second option to take your IRA offshore is to form an offshore IRA LLC. In this case, you move your entire retirement account out of the United States and in to the Limited Liability Company. That is, your custodian makes one and only one investment – they invest your IRA into your LLC. From here, what happens to the account is totally on you.

When you set up an offshore IRA LLC, you become the investment manager of your account. You make the investments and all of the decisions for the account. You become responsible to ensure all IRA rules are followed and you must always act in the best interest of the account.

Because it costs about $3,500 to setup an offshore IRA LLC, I suggest that only those with at least $80,000 should go this route. Of course, this is not a rule, just a suggestion. I’ve had many clients over the years setup LLCs for $25,000 or so because they had multiple reasons to invest abroad.

Note that a husband and wife can use the same LLC. Also, all of your IRA accounts can be combined in to the same LLC structure.

In addition to the amount to invest, an offshore IRA LLC is best suited to those who will 1) actively trade their accounts, 2) make multiple investments, 3) will invest in crypto or other advanced products where time to trade is important, and 4) those seeking asset protection and to control their own accounts.

Again, when you setup a self directed account, the custodian is the ultimate authority. They make the final investment decision. They are also the ones who sign documents and they can reverse or revoke the transaction when possible.

An offshore LLC puts the account totally under your control. You write the checks and you make the wire transfers. 100% of the gains and losses are on you and you alone.

The process to move to a self directed custodian is simple enough. You just need to find one that allows for international investments and fill in the paperwork. There should be no tax issues around a transfer (you don’t need to do a roll-over with all that complexity). I can connect you with an international custodian if you drop me a note to info@premieroffshore.com

Creating an offshore IRA is more complex and should only be undertaken by those willing to put in the time to manage their account. You can form an offshore IRA in the following steps:

  1. Move your account to a US custodian that allows for offshore IRA LLCs, which is not necessarily the same as a custodian that allows for self directed foreign transfers.
  2. Incorporate an international LLC in a zero tax country such as Belize, Nevis, Cook Islands, etc.
  3. Make yourself, the beneficial owner of the IRA, the manager of the LLC.
  4. Open an offshore bank account in the name of the LLC and set you up as the signatory on the account.
  5. Instruct the custodian to transfer the balance of your IRA account(s) into the LLC bank account.

From here, you’re in total control of the account. You make the transfers and sign any agreements on behalf of the LLC. Note that the LLC is owned by your retirement account and you‘re the manager of the LLC. This is a structure very specific to offshore IRA accounts and must be incorporated by someone experienced in these formations.  

I hope you’ve found this article on taking your IRA offshore to be helpful. For more information on setting up this structure, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Best IRA Investments for 2018
Christian Reeves

Best IRA Investments for 2018

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The best IRA investments for 2018 are all offshore. If you want higher returns in your retirement account, you need to invest offshore. If you want to move some of your IRA out of the United States, you need to invest your account offshore. With that in mind, here are the best IRA investments for 2018.

To start, let me note that you can only place a vested retirement account offshore. A vested account is usually one from a previous employer. If you can move the account from one custodian to another, it’s vested. If you can’t move the account because it’s held at your current employer’s custodian, it’s not vested.

Second, keep in mind that most custodians don’t want you to invest your IRA offshore. They want you to buy their mutual funds, annuities, and whatever else they make a nice commission on. When you invest offshore, your custodian makes zero on the buy/sell. They make nada on your gains and get no management fees.

With that in mind, here are the best IRA investments for 2018:

  1. Foreign real estate in countries with low capital gains rates,
  2. International ICOs,
  3. Crypto trades at foreign exchanges with better rates (difference in bid /ask),
  4. Investments that lead to foreign residency, and
  5. Leveraged investments no available in the United States.

The most popular international IRA investment for 2018 is real estate. Foreign real estate offers a higher yield compared to the United States and is a relatively low-risk investment. While other offshore IRA investments are higher risk with massive upsides (such as crypto below), real estate is true to the IRA mantra of steady and conservative.

Foreign real estate is the best IRA investment in 2018 for those willing to put in the time, effort, and expense to find deals. Yes, returns are higher abroad if you find the right area and the correct tax structure. But, finding these deals means hitting the streets to learn the target country, the city, and finally the neighborhood.

And the best IRA investment for 2018 will usually be in a country with a low capital gains rate. Because you won’t pay tax on the gain in the United States, you don’t care about the foreign tax credit. Therefore, you want to invest in a country that will minimize your worldwide tax costs.

When you invest non-IRA funds, you pay 20% to the US on long-term gains. If you invest in a country with a 20% capital gains rate, you pay zero to the US because the Foreign tax credit gives you a dollar for dollar credit on your US return. When you invest in a country with a 10% rate, you pay 10% to that country and 10% to the US.

When you invest using your IRA, your US rate is basically zero and the foreign tax credit doesn’t apply (in most cases). Thus, you want to buy in a zero tax country like Belize or a low tax country like Colombia (capital gains rate is 10% but the tax on rental income is 33%). For more, see: Where to Buy International Real Estate.

See also: Which Countries Tax Worldwide Income?

The second most popular category of foreign IRA investments for 2018 is cryptocurrency and ICOs. The United States has forced US exchanges to report all sales, creating a tax nightmare for many. Also, the US SEC is pushing the majority of ICOs offshore. If you want to get in on the ground floor of an ICO, before all the vulture capitalists have picked it clean, then you need to invest offshore.

For these reasons, the best IRA investments for those looking to get into crypto, smaller coins, and most ICOs, are offshore in 2018. For more see: Take your IRA offshore and invest in cryptocurrency.

The third most popular investment for your IRA is one that can be paired with residency or citizenship. In some countries, you can gain residency with an investment. If that investment can be held by your IRA, you can use retirement funds to secure residency.

However, you need to be careful. You can make the investment using IRA money. Then you need to pay all costs associated with the residency application with personal savings (not IRA money). If you were to pay for residency with IRA funds, this would be an improper benefit.

For example, you can get residency in Panama with a real estate investment of at least $350,000 or an investment in an authorized reforestation plantation of $20,000. For more on this, see Best Panama Residency by Investment Program.

The fourth best IRA investment for 2018 is only for very sophisticated IRA investors. It is any leveraged purchase or foreign real estate with a mortgage. This is because these investments are only possible outside of the United States.

When you invest your IRA in the US using leverage or a mortgage, you must pay Unrelated Business Income Tax at about 35%. That is to say, all gains from leverage or a mortgage are taxed at 35% before being passed through to your retirement account.

For example, you buy a house in California using your IRA. 50% of the money comes from your IRA and 50% from a non-recourse loan (the only type of loan an IRA can accept). When you sell that home, half the capital gain will be taxed at 35% and half will flow into your IRA tax-free.

When you invest using a mortgage or leverage (maybe in a crypto account) outside of the United States, you can block and avoid this tax. Set up a UBIT blocker corporation along with an offshore IRA LLC and eliminate UBIT in your international IRA transactions.

I hope you’ve found this article on why the best IRA investments for 2018 are all offshore to be helpful. For more on converting your retirement account to a self-directed IRA or forming an offshore IRA LLC, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

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Filme sexuale

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Filmele sexuale au fost de multă vreme un element de bază al industriei americane de divertisment, dar nu toate filmele sexuale sunt egale. Unele sunt pur și simplu mai riscante decât altele, dar cu siguranță există unele grozave care merită vizionate. Să aruncăm o privire la unele dintre preferatele noastre. Probabil că vă veți bucura de acestea la fel de mult ca și mine. Fie că sunteți în căutarea unui clasic sau ceva care este puțin diferit, aceste filme cu siguranță vă vor face să întorci paginile romanelor tale de dragoste preferate.

Majoritatea filmelor sexuale nu recunosc faptul că sexul are partea lui de umor, iar cele mai bune recunosc acest lucru și îl fac mai amuzant. Dacă ai de gând să faci un film despre sex, atunci ar trebui să-l iei în serios, dar nu-l lua prea în serios. În schimb, încercați să găsiți echilibrul potrivit între un subiect serios și ceva umor. Până la urmă, este alegerea ta.

Un film sexual bun are un nivel ridicat de tensiune sexuală. Sexul dintr-un film sexual poate fi foarte întunecat, răsucit sau chiar foarte bizar. S-ar putea să găsiți chiar scene care sunt incredibil de obscene și șocante. Aceste scene sunt adesea foarte provocatoare și pot face spectatorii să-și dorească să arunce o a doua privire. Cu toate acestea, nu ar trebui să vă așteptați să vizionați un film sexual dacă nu vă place violența.

Istoria  https://filmeporno.tube are multe exemple. De exemplu, în epoca pre-Cod, femeile erau adesea arătate în fotografii publicitare și au provocat indignarea publicului. În Baby Face, Barbara Stanwyck a dormit până în vârful unei bănci din New York. Și nu este de mirare că femeile par să fie publicul principal al filmelor senzaționale. Pe lângă filmele sexuale, ei sunt, de asemenea, principalii cititori ai tabloidelor, a foilor de scandal, a revistelor strălucitoare și a cărților erotice. Femeile sunt atât de fierbinți, încât fac un bărbat să pară sănătos prin comparație.

Real Sex Films examinează o mișcare cinematografică internațională controversată. Aceste filme prezintă violență sexuală de mare impact și au generat controverse aprinse. Diverse țări au interzis filmul pentru cenzură. Arhiepiscopul portughezului a condamnat filmul. De atunci, filmul a fost interzis în Portugalia. Cu toate acestea, controversa în jurul acestuia nu și-a diminuat impactul. Este încă un film important în lume. Următoarele sunt doar câteva dintre cele mai controversate filme de sex.

American Pie este un alt clasic care a deschis calea pentru filme sexuale mai realiste. Deși filmul nu a fost inovator, a reînviat genul comediei sexuale. Nu a fost primul film care a abordat acest subiect, dar a devenit mainstream. În timp ce bugetul lui American Pie a fost relativ scăzut – aproximativ 100 de milioane de dolari – nu a făcut confuzie între gustul nebun și moralitatea. De fapt, a făcut un profit de douăzeci de ori la box office, o dovadă a calității materialului.

Una dintre cele mai sublimate scene de sex din istoria filmului este în Casino Royale. Aș spune că această secvență este mai bună decât trenul în tunelul din North by Northwest sau scena de șah din The Thomas Crown Affair. În timp ce Bond abia este conștient, el se aruncă prin scaunul scaunului fără scaun. Într-un fel, este simbolul sexului în filme. Sublimarea din acest film este atât de puternică încât a schimbat felul în care bărbații văd sexul.

Un alt clasic este In the Realm of the Senses. Este un alt film japonez care tratează industria sexului într-un mod foarte diferit. Intriga sa este un thriller întortocheat, din epoca Freud, care explorează partea psihosexuală a înaltei societăți. Îi joacă pe Nicole Kidman și Tom Cruise în rolul unor showgirls. Are loc într-o piscină din Sin City. În timp ce apa era elegantă, palmierii adevărați erau falși și iluminați de lumini de neon.

Haiducul este un bun exemplu de film sexual cu un subtext extrem de întunecat. Printre numeroasele sale genuri, acest film este un clasic pentru că are o gamă atât de largă de conținut. Este un film extrem de erotic și unul dintre puținele care exprimă un subtext suspect și decadent. Nu lipsesc filmele din genul sexual și este important să vizionați câteva filme diferite pentru a înțelege nuanțele lor.

Există câteva diferențe între filmele sexuale și filmele pornografice.

Filmele pornografice, pe de altă parte, sunt de obicei mai explicite și descriu scene de sex. În timp ce filmele sexuale softcore sunt mai puțin explicite decât filmele pornografice, ele prezintă de obicei scene de sex. În mod similar, filmele erotice sunt clasificate drept „erotice”, deși este posibil să nu aibă merit artistic. Unele dintre aceste filme pot conține nuditate sau o lipsă de conținut sexual.

Where to Start a Cryptocurrency Exchange
Christian Reeves

Where to Start a Cryptocurrency Exchange – Crypto Friendly Countries

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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

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.

Chile

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: www.Xenia.com.

Belize

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

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.

Malta

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.

Switzerland

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 info@premieroffshore.com or call us at (619) 550-2743.

Luxembourg

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

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

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).

Philippines

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.

Thailand

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

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

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

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.

Conclusion

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 info@premieroffshore.com 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
Christian Reeves

How to Build an International Cryptocurrency Exchange

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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.

Jurisdiction

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: Xenia.ky

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.

Capitalization

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.

Conclusion

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 info@premieroffshore.com 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.

Banking for a Cryptocurrency Exchange
Christian Reeves

Banking for a Cryptocurrency Exchange

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In this article, I’ll look at where to form an international bank for a cryptocurrency exchange or FinTech group. That is, where to license and operate a new bank to provide FIAT to crypto exchange. Where to form a new bank for the cryptocurrency industry. Where to set up an offshore bank for the FinTech industry.

Puerto Rico is quickly becoming the center of the banking for cryptocurrency world. If you want to form a bank for the cryptocurrency industry, you have two options: 1) Puerto Rico with $550,000 in capital top-tier jurisdictions like Switzerland and Panama with $24 million or more.

So, it’s easy to see why so many new banks are setting up in Puerto Rico. This is also why the existing international banks on the island are growing incredibly quickly.

Per the  data published by the Puerto Rico Financial Institutions Commissioner’s Office indicate that bank deposits by international finance entities (IFE) category jumped by 248 percent to $3.3 billion in the fourth quarter, while total assets for these grew by 161 percent.

From Caribbean Business, “As BitMEX noted, the surge in deposits correlated with the cryptocurrency markets dramatic upswell, and Tether’s market cap grew by 215 percent during the same period.”

This growth is staggering, especially in an industry that has been contracting over the last couple of years. For example, the number of offshore banks operating from the Cayman Islands has decreased from 250 to 150 over the last 24 months. This is due to the increasing costs of compliance, higher capital requirements ($10 million, up from $1 million), difficulties finding and maintaining correspondent partners, and increased regulatory oversight.

At the same time, Puerto Rico issued 24 permits in 2017 and we expect the same number or more this year. This, combined with lower operating costs, relatively easier access to correspondent banks (because Puerto Rico is a US territory, and the fact that Puerto Rico is the only significant jurisdiction not a party to FATCA and Common Reporting Standards, are driving this significant growth.

Note that, when I say lower operating costs, I do not mean less regulation. I mean that the cost of labor and legal expertise is significantly lower in Puerto Rico than the Cayman Islands. As a US territory, it’s financial entities must comply with all US laws, anti money laundering rules, and know your customer rules.

As such, Puerto Rico is the place for a well run, well funded, compliant and professionally managed offshore bank or international financial entity. For more on compliance in Puerto Rico, see: Act 273 Compliance Requirements.

If you don’t want US oversite, then look to a lesser jurisdiction such as Dominica… but good luck getting a correspondent bank. For more information in the various offshore bank licenses, see: Top International Banking Jurisdictions in 2018.

I should also note that this article is focused on banks operating as FinTech businesses, blockchain financial entities, and cryptocurrency to FIAT facilitators. I am not talking about ICOs here. As a US territory, IFEs should avoid ICOs as they are subject to US oversite. The US government has been very hostile to ICOs of late.

As stated above, an offshore bank structured in Puerto Rico under Act 273 will pay only 4% in tax. Run the same bank from New York and you might pay 35%, even after Trump’s tax break. Move to Puerto Rico and swap that rate for a real tax break.

You’ll find that Puerto Rico doesn’t tax dividends to residents from the IFE. So, if the owners move to Puerto Rico under Act 22, they pay zero on capital gains and zero on dividends from their offshore bank. For a list of all of Puerto Rico’s tax incentives, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

In order to form an offshore bank in Puerto Rico to manage cryptocurrency, you’ll start with the permit to organize. This first step can take 4 months and the average cost is $130,000. Once you have your permit to organize or preliminary license, you have the regulator’s approval to build out your business on the island. See: Here’s the process to start a bank in Puerto Rico.

Your permit to organize allows you to use the word “bank” in your materials. For example, you might issue a US compliant ICO, a Reg D offering, or raise money under the $50 million crowdfunding exemption. It’s only after you have your permit to organize that you should raise money and are allowed use the word bank in your name.  

I hope you’ve found this article on banking for a cryptocurrency exchange to be helpful. For more on forming a bank in the US territory of Puerto Rico, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to negotiate an International Financial Entity License.

You might also like to read through my 300 page book on this topic. For the kindle version, see: Offshore Bank License Guide.

Crowdfunding a Cryptocurrency Exchange
Christian Reeves

Crowdfunding a Cryptocurrency Exchange

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Cryptocurrency exchanges are now starting to raise money under the SEC’s crowdfunding rules. The US crowdfunding rules allow a cryptocurrency exchange to raise up to $50 million with various disclosures. Also, the solicitation rules for a crowdfunding campaign offer a lot more room to maneuver than a Reg D offering. In this post, I will explain how to raise money for a cryptocurrency exchange through a crowdfunding offering.

There are two types of crowdfunding permitted under the SEC rules. The first is limited to $1 million and focused and small businesses. The second allows you to raise up to $50 million and is being used by cryptocurrency exchanges in 2018.

In 2016 and 2017, cryptocurrency exchanges were self-funding through ICOs. Those days are gone and the SEC is targeting those who raised money without sufficient consumer protections and without registering their offerings with the agency.

In 2018, cryptocurrency exchanges are focusing on the $50 million crowdfunding exemption, sometimes referred to as a “mini IPO.” Here are the basic rules for a $1 million crowdfunding campaign and a $50 million crowdfunding campaign for a cryptocurrency exchange.

Section 4(a)(6) of the Securities Act, the “crowdfunding exemption”

Offers of securities to the public (which includes offers made over the internet) must be registered with the SEC under the Securities Act of 1933, unless an exemption from registration is available. In 2018, basically all ICOs are considered security offerings by the SEC.

The JOBS Act added a new exemption to the Securities Act, Section 4(a)(6), commonly referred to as the $1 million crowdfunding exemption.

This small crowdfunding exemption allows you to raise up to $1 million over a 12 month period without registration. As you will see below, this exemption is meant to allow you to raise small amounts from many different investors.

The $ million exemption can be combined with any other available exemption or offering. So, you could raise a seed round of $1 million under the crowdfunding exemption and then a traditional Reg D offering of any size.

An investor is limited in the amount he or she may invest in a crowdfunding offering in any 12-month period:

  • If either the annual income or the net worth of the investor is less than $100,000, the investor is limited to the greater of $2,000 or 5% of the lesser of his or her annual income or net worth.
  • If the annual income and net worth of the investor are both greater than $100,000, the investor is limited to 10% of the lesser of his or her annual income or net worth, to a maximum of $100,000.

That is to say, anyone, no matter their net worth, is allowed to invest in these offerings. What is limited is the amount that they can invest. But, you can market to everyone, not just accredited investors.

These small crowdfunding offerings may be made by any business corporation organized in the United States or a US territory. Thus, the offering can be made by a corporation in Puerto Rico using one of this islands tax incentive programs.

Regulation A Crowdfunding or Mini IPO

Regulation A is broken into two tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period. An issuer of $20 million or less can elect to proceed under either Tier 1 or Tier 2.

Tier 2 issuers are required to include audited financial statements in their offering documents and to file annual, semiannual, and current reports with the Commission on an ongoing basis.

And investor protections are more strict under the Mini IPO than the small crowdfunding exemption. Regulation A+ only allows investors to invest 10 percent of the greater of their annual income or net worth in these securities. The SEC has also implemented other strong investor protections such as background checks on the companies offering the securities, and disclosure of the company’s financial information as part of the offering.

That is to say, purchasers in Tier 2 offerings must either be accredited investors, as that term is defined in Rule 501(a) of Regulation D, or they are limited to the 10% limit above.

You are allowed to “test the waters” under Reg A. You may solicit interest in a potential offering from the general public either before or after the filing of the offering statement with the SEC, so long as your materials include the appropriate disclosures and statements.

Tier 1 issuers usually file once with the SEC after the sale. Tier 2 issuers must file annual and semiannual reports, as well as current reports and, in certain circumstances, an exit report on Form 1-Z, with the Commission.

Conclusion

I hope you’ve found this article on crowdfunding for a cryptocurrency exchange to be helpful. To read the SEC’s statements on these exemptions, see: Jumpstart Our Business Startups (JOBS) Act. Get ready, these laws are hundreds of pages long!

For more information on building, licensing, and funding a cryptocurrency exchange, please contact us at info@premieroffshore.com or call (619) 483-1708.  We’ll be happy to assist you to build a cryptocurrency exchange.

ICOs are abandoning US investors
Christian Reeves

ICOs are abandoning US investors

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FinTech companies are abandoning US investors. As the US government moves to eliminate ICOs to protect the financial status quo, companies that would issue an ICO in the US are falling in line. The vast majority of quality ICOs have moved offshore in 2018.

Issuers are now filing their initial coin offerings in the Cayman Islands, Switzerland, or elsewhere. Those who want to sell to US investors, are selling to accredited investors only under Reg D.

Reg D is an SEC regulation governing private placement exemptions. Reg D allows smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC. As of 2018, nearly all ICOs are considered a security under US law.

To be an accredited investor, a person must demonstrate an annual income of $200,000 single or $300,000 married for the last three years with expectation of earning the same or higher income in the future.

The purpose of the US accredited investor system is to prevent the sale of high risk securities to those who can’t afford the loss should things go badly. Considering all the scams out there, this is a worthy goal.

However, Reg D also comes with a holding period. When a US accredited investor buys into an ICO, they must hold the token for at least one year before they sell. This puts them at a great disadvantage to foreign investors who don’t have such a limitation.

What’s an ICO issuer to do? Tell everyone they must hold for a year? That won’t sell. Non-US persons will never agree to such a lock up period.

For these reasons, plus the fact that legal and compliance costs for a Reg D offering can be very high, most ICO issuers are abandoning US investors. It’s neither cost-effective nor fair to combine US and non-US investors in an ICO.

These actions by the United States have chilled the ICO market. The amount of money raised by ICO fell by 43% to $726 million in January and February of 2018 compared to November and December of 2017.

Examples of companies blocking US investors include Estonia-based iOlite, Scotland-based CaskCoin, UK-based Celsius Network and Auctus. Even US companies like portfolio platform CoinSeed are blocking US investors.

And the SEC is taking these limits on US investors very seriously. The government has initiated “dozens” of investigations of previous ICOs and is targeting anyone doing business in the United States.

As a result, foreign ICO issuers must actively screen out US investors. It’s not sufficient to have a form and check the box saying you’re not a US person. Investors must affirmatively prove that they are not living in the United States and money must be sent from an international bank account.

The takeaways from this are:

  1. Any company wanting to issue and ICO should do so offshore.
  2. Any US citizen that wants to invest in a foreign ICO should set up a foreign company.

The most popular jurisdictions for large ICOs are Caymans and Switzerland. While compliance (KYC, AML, etc.) are strict in these countries, they are the top choices for quality offerings. While expensive, these are the most respectable options for 2018.

However, you’ll find a lot of junk on the internet about issuing an offshore ICO. For more, see: The Offshore ICO Scam and Cayman Islands Corporations.

As for US citizens, some ICOs will accept your money if it’s sent from an offshore company and an offshore account. Their logic is that the foreign company is making the investment and not you, the ultimate beneficial owner.

These international ICOs won’t be marketing in the United States. So, if you want to find them, you will need to do your homework. For this reason, many ICO conferences are now being held offshore.

You can set up an offshore company for your personal savings or for your US retirement account. If you have a vested IRA or 401-K, you can move that into an offshore IRA LLC and invest in crypto. For more, see: Take your IRA offshore to invest in ICOs and Bitcoin.

I hope you’ve found this article on how ICOs are abandoning US investors to be helpful. For more information on setting up your company offshore, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you with all aspects of structuring your business or your investments offshore.

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أين يمكنك العثور على توصيات الأفلام الإباحية للنساء

/in /by

على مدى السنوات القليلة الماضية ، ازدادت كمية بذيء xnxx على الإنترنت بشكل كبير. هذا على الأرجح بسبب حقيقة أن هناك عددًا أكبر بكثير من الأشخاص يشاهدون المواد الإباحية أكثر من أي وقت مضى. هناك مواقع تخدم صنمًا معينًا وفي كثير من الأحيان تحتوي هذه المواقع على أقسام مخصصة لأفلام بذيئة. لذلك ، من نافلة القول أنه إذا كنت تستمتع بمشاهدة الأفلام الإباحية ، فمن المحتمل جدًا أن تضيف بعضًا من الأشياء المفضلة لديك إلى قائمة المواد الإباحية التي يمكنك الاطلاع عليها وأنت مرتاح في منزلك.

في أنبوب الإباحية على وجه الخصوص ، لا يمكنك فقط التسامح مع xnxx  في HQ ولكن أيضًا مقاطع الفيديو الإباحية الشائعة الأخرى على القطط: الشرج ، المؤخرة الكبيرة ، الملابس المتقاطعة ، الرجل الأسود ، النساء المشعرات ، بين الأعراق ، السحاقيات ، نجمة إباحية ، أميرة إباحية ، دمية طفل قذرة ، طقوس العربدة ، في سن المراهقة. بالنسبة لأولئك الرجال الذين يحبون نسائهم الساخنة وعلى الحافة ، قد تسعد بمعرفة أن HQ porn بها المئات منهم. تحتوي العديد من هذه المواقع على أقسام أرشيفية حتى تتمكن من مشاهدة الأفلام القديمة على الموقع. تتضمن العديد من هذه المواقع نسخًا غير خاضعة للرقابة من أفلامهم ، لذلك لا داعي للقلق بشأن مشاهدة شيء مسيء عن طريق الخطأ.

إذا كنت بالفعل عضوًا في أحد المواقع الإباحية العديدة على الإنترنت ، فمن المحتمل أن يكون لديهم قسم للأرشيف حيث يمكنك تصفح xnxx القديم. قد تضطر إلى البحث عنها بالرغم من ذلك. وحتى إذا كان لديهم قسم للأرشيف ، فكيف تعرف إذا كان لديهم أي مقاطع فيديو قد ترغب في إضافتها؟ هذا هو المكان الذي أتيت فيه.

من المقبول تمامًا أن تكون فضوليًا بعض الشيء بشأن xnxx الذي تريد مشاهدته ، فقط لا تكن زاحفًا وانظر في غرف السيدات. أنا متأكد من أن هناك بعض السيدات اللطيفات هناك ، لكن هل من الممكن أن تكتشف ما يمكن أن تعرفه عن بعض الأشخاص “اللطفاء” في حياتهم. شاهد القليل من مقاطع الفيديو الخاصة بهم وقم بتدوين ملاحظات عليها. قد تتفاجأ مما تتعلمه. ثم قد ترغب في تجربة بعض الأفلام الإباحية “اللطيفة”.

بينما قد تجد أن xnxx المفضل لديك موجود على هذه المواقع ، فإن هذا لا يعني أنه يتعين عليك زيارتها بانتظام. قد يرغب بعض الأشخاص في العودة من حين لآخر لمعرفة ما إذا كان نجمهم المفضل لديه بعض الأفلام الجديدة. يمكنهم حتى حفظ هذه الأفلام وتخزينها على القرص الصلب الخاص بهم.

يحب بعض الرجال ممارسة النشاط في خصوصية منازلهم ، لذا قد يختارون التردد على المواقع التي تقدم الترفيه للبالغين. سيخبر الآخرون أصدقائهم عن xnxx الجيد الذي وجدوه عبر الإنترنت. تقدم بعض هذه المواقع مجموعة كبيرة ومتنوعة من الخيارات ، لذلك سيجد الرجال من جميع الأعمار والأحجام ما يبحثون عنه. هناك شيء للجميع.

مع كل التطورات الجديدة في التكنولوجيا ، هناك المزيد من التطورات في xnxx. هم الآن يطلقون النار بدقة عالية. تم تحسين التأثيرات الخاصة أيضًا. سترى أشياء مثل الدماء تتناثر في كل مكان وانفجارات تحدث في بعض المشاهد. يتم اختراق النساء في الأفلام الإباحية من قبل عدة رجال ، بينما يتم اختراق بعض النساء مرة واحدة فقط. بعض الأفلام الإباحية تصويرية للغاية والبعض الآخر ليس كذلك.

عندما يشارك الرجال في هذه الأفلام ، فإنهم عادةً ما يشبهون أنفسهم في الأفلام. كما أن معظم الممثلين وسيمون ولديهم أجساد تروق للنساء. إذا كنت ترغب في رؤية المزيد من هذه xxnx ، فيمكنك دائمًا التسجيل للحصول على حساب عبر الإنترنت. هناك العديد من المواقع التي تقدم لهم. أفضلها عادة ما تقدم أفلامًا مجانية أيضًا.

Top International Banking Jurisdictions in 2018
Christian Reeves

Top International Banking Jurisdictions in 2018

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In this article, I’ll consider the top international banking jurisdictions for 2018. More specifically, I’ll look at international banks in North, Central and South American, as well as the Caribbean region. These are the areas where I have experience, and not Europe (Switzerland, Andorra, Jersey, Guernsey, etc.)

When we talk about international banking jurisdictions in 2018 or an offshore banking license, we generally mean a license issued by a low or now tax country. The intended purpose of an international bank is to serve clients outside of its country of licensure.

For example, a Class A bank in Panama can do business with locals (Panamanians) and persons living outside of Panama. In most cases, Class A banks do not accept foreign persons.

In contrast, an international banking license generally referred to as a Class B bank, may only accept foreign persons. An international bank licensed in Panama may not do business with people living in Panama and companies based in Panama.

My ranking of top international banking jurisdictions in 2018 is as follows:

  1. The United States,
  2. Canada,
  3. Mexico,
  4. Panama,
  5. The Cayman Islands,
  6. Puerto Rico,
  7. Costa Rica,
  8. Argentina,
  9. St. Lucia,
  10. St. Vincent,
  11. Belize, and
  12. Dominica.

I don’t include Colombia or Brazil on this list because these countries have currency controls and most are trying to move money out of these nation rather than start new international banks there.

Many will think it’s strange that the United States tops the list of international banking jurisdictions. In fact, the US has been the world’s largest tax haven for decades. We incarcerate our citizens that dodge the tax man but welcome billions of dollars from abroad. Doubt this? Have a read through The U.S. Is Becoming the World’s New Tax Haven and The United States Is a Tax Haven for Global Investors.

The traditional international banking jurisdictions in 2018 begin with Panama and end with Dominica. These are the most popular international bank licenses for 2018. As you move down the list, the capital required goes down, which is to say, those on the top of the list require a significant investment.

Of the international bank jurisdictions, a license from Panama is the most difficult to secure. If you already have a general license from a major jurisdiction (the EU, USA, Canada, and Mexico), you can apply for an international license in Panama. In that case, the capital required might be about $10 million. This bank would act as a subsidiary or booking bank for its parent bank.

If you don’t have a major license, you will need to apply for a Class A license in Panama. This is true even if you will accept only foreign clients. A Class A license is likely to require $40 million in the capital and take about 18 months for approval.

The most well known international banking jurisdiction is the Cayman Islands. Cayman has been the go-to country for offshore banking for decades now and has a very advanced financial services sector.

However, Cayman’s international banking license business has been in a tailspin. The number of active offshore banks on the island has decreased from about 250 to 150 in the last 24 months. That’s an incredible contraction.

Basically, all of the smaller banks have been pushed out as compliance costs have increased. As a result, the remaining banks are capitalized with $10 to $50 million depending on their business model. This is up from about $1 million a few years ago.

At the other end of the “active” spectrum is the US territory of Puerto Rico. This island passed an international banking statute in 2012 and has been very active since 2014. There were 24 international banks approved in Puerto Rico in 2017 and I expect the same number, or more, to be issued in 2018. See: International Financial Entities Licenses in Puerto Rico.

The capital required for an international bank license from Puerto Rico is $550,000. You must hire a minimum of 5 employees and run the business from the territory. If you do this, your tax rate will be 4%.

Two of the reasons Puerto Rico is so popular in 2018 are:

  • CRS does not apply to the US territory. Even though the US signed this agreement, it does not carry over to Puerto Rico. As far as I know, PR is the only significant jurisdiction where CRS does not apply.
  • The relative ease of correspondent banking.

These are balanced against an employee requirement, US oversight, and a 4% tax rate.

For a general article on the various tax incentives available in Puerto Rico, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

Those who don’t want to be to close to the United States, and don’t want the incredible regulation / costs of Cayman, look to St. Lucia and Dominica. I don’t include Belize or St. Vincent in this list because, while these islands have an international banking sector, they haven’t issued a new license in several years. See: Top 5 Offshore Bank License Jurisdictions for 2017.

St. Lucia and Dominica are actively seeking quality bank operators. Dominica has a reputation of being more “active” while St. Lucia is more conservative. Personally, I prefer the slower and more conservative approach. For more on Dominica, see: How to get an Offshore Bank License in Dominica.

The capital required for St. Lucia or Dominica is $1 million. This will get you a permit to incorporate. Then you will need to secure a correspondent banking partner. This will require anywhere from $5 to $12 million in capital, plus a volume guarantee.

I hope you’ve found this article on top international banking jurisdictions for 2018 to be helpful. For more information on setting up an international bank, please contact me at info@premieroffshiore.com or call us at (619) 483-1708. We’ll be happy to assist you to build an international bank in any of the jurisdictions listed above.

You might also find my 300-page book on this topic helpful. You can download it from Amazon here: Offshore Bank License Guide.

Here’s the process to start a bank in Puerto Rico
Christian Reeves

Here’s the process to start a bank in Puerto Rico

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In order to form a new offshore bank in Puerto Rico, also referred to as an International Financial Entity (IFE), you will need to submit a number of documents to government regulators. Here’s a brief summary of the process to start a bank in Puerto Rico.

The process to start a bank in Puerto Rico can be broken down into 4 steps.

First, is the writing of a business plan.

In my experience, the most important step in securing and offshore banking license from Puerto Rico is a quality business plan. I suggest that drafting a quality business plan is 80% of the work that goes into an IFE application.

The introduction section of the business plan should match the Federal Reserve Bank of New York Business Plan guidelines. This is a summary of the business with financials and supporting information.

Then the business plan of an offshore bank in Puerto Rico should tell the story of the IFE. Who is building the bank, what market is it intended to serve, and what niche will it fill.

Writing the business plan can be a long and painful process. It just depends how long it takes me to learn your business and how many holes we need to fill in your plan and on your team. By the time the business plan is complete, all “risks” or areas of concern should have been dealt with and a solid image presented to government regulators.

To be honest, we look at the business plan for an IFE in Puerto Rico as a loss leader. Yes, we charge a flat fee to write the plan. But, the amount of effort that goes into most business plans far exceeds our hourly rate, thus we generally “lose” money on this stage of the project.

Second, file your permit to organize.

Once your business plan is complete, we prepare the application for a permit to organize (or preliminary license for an IFE). This submission will include the plan, financial reports on each shareholder, officer, and director, and police clearance reports from each shareholder, officer, and director.

Note that these police clearance reports can take time. If you’re from a foreign country, you’ll also need to have them notarized and apostilled (if from a treaty country).  For information on US reports, see the FBI website.

Please see the list below from OCIF on the steps to negotiate a permit to organize. For another of my articles on forming an offshore bank, see: Four Steps to Build an Offshore Bank.

Third, form your corporation or LLC, hire your employees and build out your bank.

A permit to organize is the authorization from government regulators to incorporate your banking entity and to set up an IFE on the island. You must have the permission to organize in hand before you can form a company that has the word “bank” in its name.

Now you need to build out your business. Set up an office, hire 5 people, buy and implement a core banking software and hardware system, contract with a correspondent banking partner, and do all of those things necessary to get ready to operate a bank from the island of Puerto Rico.

  • The statute says you need 4 employees. I always recommend 5 in case you lose one.

Note that your IFE must operate from Puerto Rico to receive the 4% tax rate. Any income generated in the US is US source and taxable by the IRS. That is to say, only income generated from work performed on Puerto Rico is PR source and taxable at the discounted rate. For more on this topic, see: What is Puerto Rico Sourced Income for an Act 20 Business.

Fourth, we file your permit to operate and complete an audit with government regulators.

When you’re ready to go live, and you’ve run test transactions with your correspondent partner, you can file your permit to operate. Once filed, regulators will send a team to audit your computer systems and ensure they’re secure. If you’ve used US core banking software and traditional hardware, this should be relatively easy.

Note that you’re not required to set up your own IT system. You can outsource this, along with many KYC and AML processes, to an outside vendor. Most IFEs use one of Puerto Rico based IT platforms.

Your lawyers will also need to file a number of documents and sworn statements from the President / CEO. These basically confirm that you’ve hired the correct people and will abide by the KYC, AML, operational manuals, and compliance documents you’ve provided.

Conclusion

I hope you’ve found this article on the steps to build an offshore bank or IFE in Puerto Rico to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 550-2743. We’ll be happy to assist you with an international financial entity in Puerto Rico.

Below is the process to negotiate a permit to organize from OCIF. You might also find my 300-page book on this topic to be helpful. See: Offshore Bank License Guide, available on Amazon Kindle.

Process for IFE permit to organize

Here is the process to negotiate a permit to organize with government regulators in Puerto Rico. This is a loose translation from the official Spanish version.

(1) The proposed articles of incorporation, partnership agreement or other written document establishing the international financial institution, or the certification required by § 3084 of this title;

(2) a nonrefundable application fee of five thousand dollars ($5,000) to defray the costs of the initial investigation, and

(3) such other documents as may be specified or required by the regulations of the Commissioner.

(a) Every application shall include:

(1) The identity and business history of the applicants;

(2) the city or town in Puerto Rico and the street and number or any other address where its principal   place of business in Puerto Rico shall be maintained;

(3) the identity and business and credit history of any person who, directly or indirectly, possesses or  controls or intends to possess or control ten percent (10%) or more in the capital of the proposed international financial institution;

(4) a statement of the assets and liabilities of any applicant and of any person who possesses or controls or intends to possess or control ten percent (10% ) or more of the interest in the capital of the international financial institution, or of the person of which the proposed international financial institution shall be a unit, for each of the three (3) years preceding the application;

(5) the identity and background of all proposed directors, and officials or persons who intend to act in a similar capacity in the international financial institution, and

(6) such additional information as may be required by the regulations of the Commissioner.

(b) Upon receipt of the sworn application, all the required documents, and the application fee, the Commissioner shall carry out any and all investigations of the applicants and the application, including a review of:

(1) The financial solvency, credit, banking experience and business integrity of the applicants, their directors and officers, or persons who intend to act in a similar capacity in the proposed international financial institution;

(2) the adequacy of the capital available for the operations of the proposed international financial institution;

(3) the adequacy of the articles of incorporation, partnership agreement or other written document belonging to any applicant and, when appropriate, of the articles of incorporation, partnership agreement or other written document establishing the proposed international financial institution, and

(4) the impact that the proposed international financial institution shall have on the economy of Puerto Rico.

(c) Expenses, in excess of the aforementioned five thousand dollars ($5,000), incurred by the Commissioner for the purpose of conducting the initial investigation, shall be defrayed by the applicants by means of a previous deposit made in accordance with the estimate. The Commissioner shall claim said investigation expenses from the applicants.

(d) Should the Commissioner determine that the results of his/her investigation are favorable, he/she may, at his/her sole and exclusive discretion, issue to the applicants a permit to organize an international financial institution, subject to such conditions as the Commissioner may establish.

(e) When the Commissioner issues a permit pursuant to the provisions of this section, the interested party shall file with the Department of State of Puerto Rico the articles of incorporation, partnership agreement, or other written document establishing the proposed international financial institution, or those of the person of which the international financial institution shall be a unit, as well as the certification provided for in § 3084(c) of this title in the case of a unit, and the permit issued by the Commissioner. The Department of State shall issue under its official seal a certification of the filing of the stipulated documents.

The Offshore ICO Scam and Cayman Islands Corporations
Christian Reeves

The Offshore ICO Scam and Cayman Islands Corporations

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There’s an offshore ICO scam going on and it’s focused on Cayman Islands Corporations. If you’re planning an ICO, here’s what you need to know to avoid the offshore ICO scam and Cayman Islands Corporations.

First, note that I use the term “scam” very carefully and intentionally here. I truly believe there is an offshore ICO scam going on and it’s being perpetrated by lawyers and incorporation agents, many of them in the Cayman Islands.

Second, this article is about an offshore ICO scam that affects those issuing ICOs out of the Cayman Islands and most other offshore jurisdictions. I’ve seen this ICO scam in Belize, Nevis, Cook Islands, and in a number of offshore countries.

Third, this article is for those who are looking to fund their businesses with an “offshore” ICO. I’m not talking about ICOs in regulated jurisdictions such as the United States. Also, this scam does not generally affect ICO investors. I’m speaking only to those who wish to issue an ICO.

With all of that said, here’s the offshore ICO scam often found in the Cayman Islands:

Those hoping to issue an ICO call up a lawyer or an incorporator and say, “hey, I need an offshore corporation in the Cayman Islands to issue an ICO for my new business.”

The sales agent say, “sure, no problem. Send us $9,500 and we’ll set up your corporation.”

Buyer pays and gets his or her Cayman Islands corporation. Scam complete.

Now, you’re thinking, what the heck? The buyer got exactly what they paid for. How is this an ICO scam perpetrated by the lawyer or incorporator?

This is an ICO scam because the agent knows full well that the buyer won’t be able to get a bank account. They know that the buyer doesn’t have the legal structure or documents necessary to issue an ICO. They know that it will be a cold day in hell before this client gets a bank account opened for his ICO.

They know the Cayman Islands corporation can’t be used as intended. These lawyers are intentionally selling a useless structure to make a buck. They’re taking advantage of a buyer who has no idea what they’re doing and doesn’t have the financial backing to issue a proper ICO.

Even if the buyer could get a bank account opened, it would be closed after the first few deposits… and the ICO would probably be blacklisted by the industry.

The only way to open an account would be to lie to the bank about how you intend to use that Cayman Islands corporation. You say that the company will sell a service such as internet marketing or whatever. You won’t get an account in the Cayman Islands, but you’ll get one in a smaller offshore jurisdiction.

Now you issue the token and deposits start coming in. You’re converting bitcoin into FIAT and transferring that to your offshore account to fund your business.

Do this a few times and the bank will get suspicious. Send a large transfer, and the bank will get suspicious. They’ll want to know the source of funds and to see your sales agreements if you’re saying these are business transfers.

Let’s say you skirt past the bank’s KYC, AML and compliance systems (this won’t happen), what are the Cayman regulators going to say? If in some alternate universe, you somehow manage to raise a few million bucks, regulators will be all over you.

The bottom line is that these Cayman Islands corporations are useless for an ICO. At least, they’re useless without all of the legal and planning work that goes into a proper ICO.  

Sure, Cayman Islands is a top-tier jurisdiction for offshore ICOs and crypto funds. I recommend Cayman to clients all the time… clients who can afford the high costs associated with issuing a proper ICO from the Cayman Islands.

Back in the early days if ICOs, you might have been able to start in Cayman for $10,000. Today, you can’t get anywhere spending less than $50,000 on the front-end, and with most spending $100,000 on the back-end (success fees). Even low cost lesser jurisdictions are $35,000 in 2018.

The typical components of an offshore corporation in Caymans that will issue an ICO are as follows:

  1. Corporate entity,
  2. Financial Services Entity,
  3. Anti Money Laundering Manual (AML),
  4. Know Your Customers (KYC) procedures and systems,
  5. Dedicated Money Laundering Reporting Officer or Chief Compliance Officer with several years experience, and
  6. Sufficient capital to entice a correspondent bank to take you on as a client.

Setting up an ICO in 2018 is not cheap and any shortcuts will likely wind up causing massive headaches down the line.

Unfortunately, there are a lot of folks offering services in this area who haven’t got a clue or who know that what they’re selling is worthless. Sure, I can set up an offshore corporation for you in Cayman for less than $10,000, but it won’t be good for anything.

The choke points are the banks and international correspondent banks. They simply won’t accept anything that is not whiter than white in‎ the crypto arena.  That means proper licensing, approvals, and conformity with laws and regulations, especially US Securities laws if US persons are involved.

You’ll need to also address issues such as utility token or security coin right from the start. If a security, we’ll need to start as an exempt offering under 506(D) if any US persons are involved. Otherwise, we will still need a proper offering document wherever you want to set up shop that’s compliant with whichever countries you plan to sell into.

If you’re currently speaking with a promoter offering to form a cheap Cayman Islands company for your ICO, here’s what to do. Simply ask them to guarantee in writing that they’ll open a bank account in Caymans that will be allowed to receive ICO funds. Also, let them know you plan to visit the bank to discuss your ICO. This will shut them down very quickly.

I hope you’ve found this article on the offshore ICO scam and the Cayman Islands corporations. If you would like assistance with a proper and legal ICO out of Cayman, please contact me at info@premieroffshore.com or call me at (619) 483-1708  for a consultation.

We can also help you clean up your legal structure if you’ve already done some pre-sales. The only thing we can’t fix is sales of tokens or deposits accepted from non-accredited US investors. The only option there is to refund these buyers or face the ire of regulators.

And no, we can’t form an offshore corporation in the Cayman Islands for an ICO, allow you to do some pre-sales, and then get you into compliance. There’s way to much risk in that for you and us. Plus, the costs to fix a mess always outweigh the costs of doing it right the first time. If you’re already in trouble, we can help you get back on track, but we can’t go down that road with you.

US Expats and Retained Earnings in Foreign Corporations for 2018
Christian Reeves

US Expats and Retained Earnings in Foreign Corporations for 2018

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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 info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to work with you to build a new and compliant international structure.

Big Changes Coming for Puerto Rico’s Act 20 Tax Incentive Program
Christian Reeves

Big Changes Coming for Puerto Rico’s Act 20 Tax Incentive Program

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It appears that Trump’s tax plan is bringing big changes to Puerto Rico’s Act 20 tax incentive program. These changes impact Puerto Rico because a PR corporation is treated as a foreign corporation for US purposes. Here are the changes coming to Puerto Rico’s Act 20 tax incentive program.

Note that this article is a compilation of my conversations with various tax experts in Puerto Rico. This is what they think will happen to Puerto Rico’s Act 20 under the Trump tax plan. This is not a statement of the law or tax advice… it’s pure speculation.

The IRS has not issued any guidance on these points. So, we’re left to conjecture and assumptions on how Trump’s tax plan will affect Act 20. We probably won’t have a clear understanding of these laws until November or December. By then, the 2018 tax year will be nearly over and you’ll be left holding the bag.

Here’s the guidance being put out by most of the major firms in Puerto Rico on the tax incentive programs:

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 operations through foreign corporations, including Puerto Rico Act 20 entities.  Some of these changes may have an impact on the tax structure of Act 20 entities operating in Puerto Rico, at least with respect to US owners that do not become PR bona fide residents.  

As a result of the new international tax provisions, US shareholders of Act 20 companies, which are controlled by US persons, who are not PR bona fide residents, 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 derived in Puerto Rico may be lost.

This means that Puerto Rico’s Act 20 is still viable for those living in Puerto Rico. If you qualify for residency in the territory, your income is excluded from US taxation under IRC Section 933. Thus, changes to the US tax code make no difference to you. Your Puerto Rico sourced income, including Act 20 and 22 income, is taxed only in Puerto Rico.

If you’re a resident of Puerto Rico, you pay PR ordinary income tax on your salary. Then you pay corporate tax on your net profits at a rate of 4%. Finally, you take out those profits as a tax-free dividend.

Residents do not retain earnings in their Act 20 company. Residents of Puerto Rico take out their profits as earned as tax-free dividends.

Residents of the United States are in a different boat… and that boat appears to have sprung a leak.

When a US resident sets up an Act 20 company in Puerto Rico, they generate Puerto Rico sourced income based on the work done in PR by their employees. Any income generated from work performed in the United States is US source and taxed in the US. Any income generated by work done in Puerto Rico is PR sourced and taxable in Puerto Rico.

The Puerto Rico corporation pays corporate tax at 4% and retains the remainder within the company. The benefit to the US resident is tax deferral. They’re paying 4% to hold the profits in the corporation without US tax. They only pay the IRS when they distribute those retained earnings years in the future.

It appears that Trump has eliminated retained earnings in foreign corporations that are owned by US residents. If companies can no longer retain profits abroad, the benefit of tax deferral is lost to the US resident shareholder.

If this analysis of Puerto Rico’s Act 20 holds up after regulations are issued, Act 20 will only benefit those willing to relocate to the island. This is what we’re telling all new applicants… to receive the tax benefits of Act 20 you must become a resident and spend 183 days a year on the island.

This change in the ability to retain earnings offshore would also apply to all foreign corporations owned by US residents. If you live in the US, you may have lost the ability to retain earnings in an offshore corporation, even when you have a business abroad.

The offshore rules are even more muddled than Puerto Rico. Companies might be able to retain profits from sales to foreign countries and not sales to the United States. Offshore corporations owned by US shareholders that earn in excess of the Foreign Earned Income Exclusion appear to have also lost the ability to retain earnings abroad.  

Also, if the foreign corporation is owned by a US corporation, you might have more room to maneuver. This is one of the factors limiting Puerto Rico’s Act 20. Act 20 companies must be owned by an individual or individuals. Currently, you can’t own an Act 20 company inside a US corporation.

If Puerto Rico changes the rules for ownership and allows US shareholders to insert a US corporation in between themselves and their Act 20 business, they might cut corporate taxes in half. It appears the US corporation would pay 10.5% tax under Trump’s tax plan minus the 4% tax paid to Puerto Rico (using the foreign tax credit).

However, the value of this maneuver is dubious. The US shareholder would then pay US tax when he or she takes the money out of the US corporation as a dividend. In such a situation, many will decide to move their business back to the United States, as the law intended.

And, what about those who have been operating their Act 20 company for a few years and have accrued retained earnings? You’re screwed.

Retained earnings in foreign corporations must be repatriated to the United States. Retained earnings will be taxed at 15.5% and you have up to 8 years to pay this tax.

I hope you’ve found this article on big changes coming for Puerto Rico’s Act 20 tax incentive program to be helpful. If you already have an Act 20 company with retained earnings and require more information, please contact me at info@premieroffshore.com. I’ll refer you to an experienced attorney on the island who can research your particular situation.

If you wish to move to Puerto Rico under Act 20 and 22, we will be happy to help you set up under the new law.

Cryptocurrency Banks for Sale
Christian Reeves

Cryptocurrency Banks for Sale

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The demand for offshore cryptocurrency accounts has exploded in 2018. Likewise, the demand for offshore bank licenses and correspondent accounts has increased dramatically. In 2016 I got a call a month asking about cryptocurrency banks for sale. Now we get a call a day asking for an international crypto friendly banks for sale. 2018 is shaping up to be the year for offshore bank licensing.

Why the increase in demand? With countries like the United States and China pushing out cryptocurrency exchanges and crypto traders, the demand for offshore banks has increased dramatically. If an offshore bank has US and EU correspondent accounts that allow funds to flow in and from crypto, that bank has a gold mine.

And the same goes for ICOs. They’ve been forced out of the United States, which means an offshore bank is a perfect vehicle to act as the investment bank and issue an international ICO. See: The Best ICOs for 2018.

Wanting to cash in on this new attention, a few of cryptocurrency banks are for sale. If you’re operating a crypto exchange, an ICO platform, or are a bitcoin billionaire, you might consider buying an offshore cryptocurrency bank for sale.

First, let me define what I mean by an “offshore” bank for sale. An offshore bank is a financial institution licensed in a zero or low tax jurisdiction. In most cases, an offshore bank can provide all manner of international banking services to persons and companies outside of its country of licensure. Conversely, it is prohibited from competing with local banks and may not offer services to locals.

The top offshore banking jurisdictions are Belize, Dominica, St. Lucia, Cayman Islands, Puerto Rico, Cook Islands, Gibraltar, and others. Banks that want to focus on the US often set up in Puerto Rico. Those who want to keep their distance from US regulators prefer Dominica and Belize. For more on this, see: The best offshore bank license jurisdictions.

Second, let me define what I mean by a “cryptocurrency” bank for sale. A cryptocurrency bank is one that has the necessary correspondent and other relationships to send and receive wires from cryptocurrency exchanges. The most important component of an offshore bank providing services to crypto clients is its correspondent banking relationships.

A crypto friendly bank is not necessarily a bank that issues its own token or one that operates on a blockchain. In fact, it may not have any FinTech components at all. The FinTech side of the equation is handled by the exchange and the offshore bank is focused on converting coins to FIAT and back again.

Third, let’s consider some of the issues that arise when you buy a cryptocurrency bank. There are two options when you buy a bank: take over an existing bank with an operating history and a book of business or buy an existing license and include correspondent banking services in the purchase.

When you buy an offshore bank that’s been operating for a few years, you buy its industry reputation and its client base. As with any major acquisition, you’ll need to audit its clients and loan portfolio. When buying an offshore bank, you must also look at its FATCA and CRS compliance to ensure you have no risk of fines from your regulators.

When you buy an offshore bank charter with new correspondent accounts, rather than an operating bank, the risk is that the correspondent banking has not been proven. In that case, you must check out the promoter and his or her experience in correspondent banking. And, of course, include such accounts in the transaction.

A few of the cryptocurrency banks for sale will accept bitcoin for 100% of the purchase price. You will need to replace the bank’s corporate capital with dollars, but the purchase can be completed in bitcoin.

Corporate capital for an offshore bank ranges from $550,000 to $10 million depending on the bank and the jurisdiction. New banks typically have $550,000 to $1 million in capital to support their license plus the amount held by their correspondent bank.

Let’s look at one cryptocurrency bank for sale.

The largest cryptocurrency bank I know of for sale has both US and European correspondent accounts which allow funds to flow in and out of crypto exchanges. Thus, it’s “crypto friendly” for multiple currencies. This bank also has a physical gold program which some investors use as a hedge against crypto volatility.

The keys to its value are:

  1. US and EU correspondent accounts which are crypto friendly,
  2. 15-year operating history and audited financials,
  3. Clean FATCA and CRS history,
  4. Relationships built over the years with regulators and correspondent partners,
  5. Diverse account portfolio with thousands of customers not heavy on crypto,
  6. Moderately profitable in 2017,
  7. Sellers are willing to take back the loan book if required,
  8. Supports US Dollar, Canadian Dollar, Euro, Pound Sterling and Swiss Francs,
  9. Gold purchase and loan programs popular with crypto investors, and
  10. Willing to accept bitcoin for the purchase price.

The purchase price of this offshore bank is $100 million or about 12,000 bitcoin at today’s exchange rate.

By comparison, the cost of a new offshore bank for sale is about $10 million or 1,200 bitcoin. Such a bank would include the permit to organize, permit to operate, compliance, AML and KYC documentation, and correspondent relationships. The buyer would need to install his or her core banking software and connect into the correspondent banks.

The purchase of an offshore cryptocurrency bank is essentially the acquisition of a turn-key operation. Once you install your people and systems, you can begin offering services. This will save you 6 to 12 months compared to starting from scratch and eliminates all of the risks and hurdles of building an offshore crypto friendly bank.

Keep in mind that each and every shareholder will need to be approved by government regulators. We’ll need detailed information on all shareholders, including a clean police or FBI report.

The cost to purchase a new offshore cryptocurrency bank ranges from $10 million to $20 million depending on the jurisdiction. The cost for an offshore bank with an operating history and accounts ranges from $70 million to $100 million. There are very few operating banks sold (I see 1 or 2 per annum). On average, there are 4 new operating crypto banks sold and 30 new licenses (permit to incorporate) issued each year.

Let me end with a comment on starting a new bank with an ICO. This article on cryptocurrency banks for sale is for those who have completed an ICO or have raised the necessary capital. Starting a new bank on a budget is a very different matter and no seller will negotiate with someone pre-ICO (before you can provide a proof of funds).

If you’re pre-ICO and require an offshore bank license, you’ll need to start at the beginning. That means applying for a permit to organize from an offshore jurisdiction like Dominica or Puerto Rico. Once you have the authorization to incorporate a bank in hand, you can raise capital using the term “bank” in your offer documents.

The usual cost of drafting a business plan, preparing basic compliance documents, and negotiating a license from an offshore jurisdiction is $150,000. For more on what it takes to build an offshore bank, see: Four Steps to Build an Offshore Bank.

For an article on funding an offshore bank with an Initial Coin Offering, see: How to start an offshore bank with an ICO.

I hope you’ve found this article on cryptocurrency banks for sale to be helpful. For more information on purchasing an existing offshore bank or setting up a new financial entity, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

The usual process to acquire an international bank is an initial consultation to learn about your requirements and objectives. Then we’ll need a proof of funds for $10 to $100 million and the resumes or background information on each shareholder. And, of course, we’ll need a retainer to represent you in the purchase of an offshore bank. Only when this information is provided will the offshore bank open its books to examination.

How to start an offshore bank with an ICO
Christian Reeves

How to start an offshore bank with an ICO

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Many FinTech startups are seeking offshore banking licenses in 2018. A banking license from a crypto friendly (and hopefully low tax) country is key to many of the initial coin offerings being floated this year. Here’s how to start an offshore bank with an ICO.

Note that this article is focused on those who have not yet raised the capital necessary to launch an offshore bank. It’s intended for pre-ICO firms that are starting out on a budget. If you’ve already raised between $10 and $100 million for this phase of your project, you can purchase an existing bank. For more on this see: Cryptocurrency Banks for Sale.

When you’re pre-ICO, you’ll need to negotiate a permit to organize in a crypto friendly banking jurisdiction before you can market your ICO. Only after you have your permit can you represent to investors that you are in the process of forming an international financial entity.

Countries refer to this license as a permit to organize, preliminary international banking license, permit to incorporate a bank, or something similar. They all mean the same thing – you’ve been approved to form a bank and can begin building your business. No matter the country, the permit to organize is the foundation on which you build an offshore bank with an ICO.

A permit to organize an offshore bank is a license from the government giving you the authorization to incorporate a bank and to begin setting up operations in their country. It’s granted after regulators have reviewed your business plan, financials, and the bios of the founders. When the government is satisfied that your business model is sound and that the people behind the bank have the requisite experience, they’ll grant you a permit to organize.

Once you have this permit, you can incorporate your bank and issue an ICO in the name of that bank. Prior to the permit being issued, you are not allowed to use the word “bank” in any of your marketing materials, white paper, website, or other promotional and sales documents.

After the permit is issued, you have 6 months to raise capital and begin operations. In most countries, you’re allowed to extend the permit for another 6 or 12 months. That means you have 1 or 1.5 years to launch the bank once you have a permit to incorporate in hand.

For a detailed list of the steps to form and launch an international bank, see: The 8 Components of an Offshore Bank License.

The typical cost for legal and other fees to negotiate a permit to organize are $110,000 to $250,000 depending on the jurisdiction. In most cases, this is the only money required to get over the first hurdle and prepare the way for your ICO.

All banks require some amount of corporate capital. For example, a bank in Puerto Rico requires $550,000 ($200,000 paid-in and a CD or bond for $350,000). A bank chartered in Dominica requires $1 million in corporate capital. For more banking jurisdictions, see: Top 5 Offshore Bank License Jurisdictions for 2017.

However, these amounts need not be put up until you file for your permit to operate. That is to say, you can receive your permit to organize without depositing the required corporate capital. You can then use your permit to organize to raise all of the capital necessary to launch and operate the bank. You can use the permit to organize to start an offshore bank with an ICO.

In order to receive the permit to organize, you’ll need to prepare a detailed business plan with financial projections. This plan, and the related compliance documents will be used to convince the regulators that your business model is solid and that you’ll run a clean business.

You will also need to show that your key employees and your board of directors have the necessary experience to launch and run a bank. The plan should include resumes of directors and employees with significant banking experience. We recommend a minimum of 3 directors and 5 is more common. We also recommend that at least one director and one key employee has banking compliance experience (KYC, AML, etc.).

There’s no requirement that you have these employees under contract. Just that they agree to work for the bank once your permit to organize is issued. Thus, it’s possible to build a quality team and business plan without depleting your resources. When you start an offshore bank with an ICO, capital is often at a premium in the early days.

In addition to your compliance personnel, regulators will look closely at your core banking system and your Chief Technology Officer. This person should have the experience necessary to build out the bank’s IT and ensure the security of the data.

The quality of your people and of your business plan are 90% of the work that goes into an application for a permit to organize. If you’ve put in the effort upfront, negotiating the license should be easy for someone with the right connections.

For more on the steps to build out an offshore bank, see: Four Steps to Build an Offshore Bank.

For more on this topic, please see my 300-page book on Amazon Kindle, Offshore Bank License Guide.

I hope you’ve found this article on how to start an offshore bank with an ICO to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to draft the business plan, build a team, issue an ICO, and launch the international bank.

Intergovernmental Agreements (IGAs) and Puerto Rico International Banks
Christian Reeves

Intergovernmental Agreements (IGAs) and Puerto Rico International Banks

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This article considers Intergovernmental Agreements (IGAs) and Puerto Rico international banks. These entities are also referred to as offshore banks in Puerto Rico and International Financial Entities in Puerto Rico. This post does not consider fully licensed local banks, only how IGAs relate to IFEs operating under Act 273 as an offshore or international bank.

An Intergovernmental agreement or IGA is an agreement entered into by the United States and a foreign government to avoid FATCA withholding and related issues. An IGA basically says that the US will share information with the foreign government on US accounts held by citizens of the respective country and the foreign country will do the same regarding accounts and assets held by US citizens.

To put it another way, a government may enter into a bilateral agreement with the U.S. to simplify reporting compliance and avoid FATCA withholding. Under a Model 1 IGA, Foreign Financial institutions in countries with IGAs report information on U.S. account holders to their national tax authorities, which in turn will provide this information to the IRS. Under a Model 2 IGA, FFIs report account information directly to the IRS. In turn, the United States provides the same information to the IGA country on its citizens’ assets in America.

It’s this last bit which makes Puerto Rico IFEs interesting to foreign individuals looking for privacy and asset protection outside of their home country. Puerto Rico provides little or no privacy for US persons. Nearly all the same US tax and reporting requirements apply to US persons. Foreigners are another matter.

If a foreign person wants to avoid IGA reporting, they can open an account at an IFE in Puerto Rico. That IFE will likely have a US correspondent banking partner. Thus, the client’s assets end up in the United States and avoid IGA reporting.

And there are legitimate reasons someone would want to avoid IGA reporting. For example, high net worth citizens of Mexico, Colombia, and Brazil are very concerned about being kidnapped. Many times the source of information that begins a kidnapping is a bank teller or government agent that sees how much cash someone has in their accounts and reports it to the kidnappers.

Most Mexicans have no desire to avoid taxes. But their privacy is a matter of life and death… literally.

I should point out here that Puerto Rico is NOT a bastion of tax evasion or money laundering. In fact, it’s quite the opposite. Government regulators in Puerto Rico follow US FDIC guidelines and impose very strict know your client and anti-money laundering rules. Also, the US Federal Government audits IFEs every few years.

Puerto Rico is not welcoming to criminal activity or tax avoidance. The point of my article is that Puerto Rico is not a party to IGAs and thus CRS and FATCA reporting do not apply, period. This is a matter of privacy only.

Because of Act 273 and the fact that IGAs do not apply, the US territory of Puerto Rico is running circles around the rest of the offshore banking industry. This island is issuing about 25 licenses a year where competitors are issuing 1 or 2, or even losing banks.

The bottom line is that every large and fully compliant offshore bank wants to be in Puerto Rico. I’ve even had requests from governments of offshore banking jurisdictions wanting to open a correspondent bank in Puerto Rico.

This is all to say, three of the many reasons for the popularity of Puerto Rico’s Act 273 International Financial Entity is that US FATCA, Common Reporting Standards (CRS) and Intergovernmental Agreements signed between the United States and a foreign country do not apply to IFEs in Puerto Rico.

  • CRS is a global reporting standard for the automatic exchange of information (AEoI) set forth by the Organization for Economic Cooperation and Development (OECD). More than 96 countries have agreed to share information on residents’ assets and incomes in conformation with reporting standards. It is more wide-reaching than FATCA and requires a unified, cross-team effort to ensure readiness and compliance.

The US territory is expressly excluded from IGAs between the US and foreign countries. And, because Puerto Rico has not entered into any IGAs, there is no sharing of account information required between a bank in Puerto Rico and a foreign government.

Likewise, FATCA does not apply to Banks in PR since they are classified as “Territory Financial Institutions.” Nonetheless, the customers of an International Financial Entity in Puerto Rico must complete forms W8 Ben and W8- Ben- E as part of the account opening process. When completing form W8-Ben-E for Goopal you check “Territory Financial Institution” in Part I (5). This applies to individual and corporate customers.

For example, in Brazil’s IGA:

Page 2 Item (a) – The term “United States” means the United States of America, including the States thereof, but does not include the U.S. Territories.”

Page 7 Item (dd) – “does not include a Financial Institution organized or incorporated in a U.S. Territory”

Page 10 Item (b) – “In the case of the United States, with respect to each Brazilian Reportable Account of each Reporting U.S. Financial Institution:”

Page 11 Item (b) number (3) – “the name and identifying number of the Reporting U.S. Financial Institution;”

For more information on setting up an offshore bank or an International Financial Entity in Puerto Rico, please see my 300-page book available on Amazon: Offshore Bank License Guide.

I hope you’ve found this article on Intergovernmental Agreements (IGAs) and Puerto Rico international banks to be helpful. For more information on setting up a fully compliant international bank in the territory, please contact me at info@premieroffhsore.com or call us at (619) 483-1708. We’ll be happy to negotiate the license for you and build out a turn-key international bank.

Four Steps to Building an Offshore Bank
Christian Reeves

Four Steps to Build an Offshore Bank

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When building an offshore bank, there are four steps you must work through. Here’s what you need to plan for and understand when building an offshore bank. These are the four steps to taking an international bank from permit to operational.

First, keep in mind that this article is focused on offshore banks. That is, an international bank formed in a low or zero tax country. One that will do business with people and companies outside of its country of licensure.

Second, these four steps to building an offshore bank are general guidelines. Every jurisdiction has a different set of laws and many use different terminology for these categories. For a complete guide to forming an offshore bank, see my 300-page book, Offshore Bank License Guide, 2017 (Amazon Kindle edition)

The top jurisdictions for an offshore bank are Puerto Rico, Caymans, Belize, Dominica, St. Lucia, Panama, and Switzerland. Puerto Rico issues about 25 licenses a year, while Cayman and the rest issue 1 to 2, depending on the year. Belize hasn’t issued a new license in about 7 years. Puerto Rico’s International Financial Entity license is dominating the industry in 2018.

Because of the popularity of cryptocurrency and ICOs, the value of banks in Switzerland and elsewhere have increased dramatically in the last year. For example, I’m aware of an offshore crypto friendly bank with European and US correspondent accounts that are on the market at $100 million in Bitcoin.  

With that said, here are the four steps to building an offshore bank:

  1. Permit to Organize / Incorporate,
  2. Compliance, AML, IT, Employees, Office, etc.,
  3. Correspondent Bank Account, and
  4. Operating License

The first step in building an offshore bank is your permit to incorporate or permit to organize. We also refer to this as your preliminary license. With this permit, the government is basically saying they will allow you to build and open a bank in their country.

In order to obtain a permit to organize, you must submit a very detailed business plan and financials to your government regulator. You must also file information on each officer, director, and the person involved in the business (including police reports, references and personal, financial data). All of this will be used to judge the group’s banking expertise and ability to run a clean and professional international bank.

This first step is often the most urgent for a startup. Once a government gives you the green light, you can go out and raise money, build out the business, and do those things necessary to launch the bank. It’s during this stage that most offshore banks need the most help to navigate the complex application process.

Once you have your permit to organize, you have the government’s permission to incorporate an international bank. It’s after the permit is issued that you will spend money on building out an office, hiring employees, drafting your detailed operating manuals, building a compliance program, and purchasing hardware and software.

Certain jurisdictions have an employment requirement and some do not. For example, Puerto Rico requires a minimum of 5 employees on the island (the largest IFE has 450 employees). Dominica doesn’t have a fixed number, but you should have account opening and compliance based on the island.

In some countries, you’ll need a secure office environment for your servers and client files. The government will come in to check your facilities before issuing a permit to operate. The same goes for computers and software… the government will come in and test these before allowing you to go live.

The third step in forming an offshore bank is negotiating a correspondent account, is the step that most ignore in the beginning. However, securing a correspondent partner is by far the most difficult task after the permit to organize is issued.

You should be prepared to spend some serious money on consultants and lawyers. You probably spen1 $100,000 to $250,000 to get a permit to organize. Most spend $50,000 to $100,000 on lawyers to negotiate a correspondent account.

Plus, you’ll need capital to fund this account. While you can get a permit to organize in Dominica with $1 million in capital, you’ll need much more than this to secure a quality correspondent partner. Most have $3 to $7 million in funds on top of their corporate capital by the time they go in search of a correspondent bank.

And this is why the government first issues a permit to organize. Then you build out your systems, hire your people, and negotiate your correspondent account. If you need to raise money, you can do so after receiving your permit to organize.

  • Note that you generally don’t need to put up any capital until you’re ready to launch and are applying for your permit to operate.

However, you won’t get your permit to operate unless and until you have a correspondent banking partner. You must have a correspondent bank in place before any government will allow you to go live.

Once you have all of your systems, documents, and people in place, and a signed agreement with a correspondent partner, you can request an operating permit from your regulator.

During this process, government regulators will audit your books, test your security, and meet with your people. They’ll check everything to ensure you’re running a quality bank. One that won’t bring trouble or risk to the island.

Because most of the work with the government was done during the permit to organize stage, the permit to operate should be easy. If you’ve spent money and hired the right people, then this will be a standard audit…. A mechanical process. Regulators will come in and be impressed with your professionalism.

If you’re trying to start an offshore bank on a shoestring budget, the permit to operate will be a challenge. If you don’t have a top-notch compliance person on staff, the government will look at you very closely. If you haven’t purchased a well-known core banking platform, tests will be more in depth.

I hope you’ve found this article on the four steps to build an offshore bank to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you throughout the offshore bank licensing and operating process.

How to trade cryptocurrency and manage investments for others without a license
Christian Reeves

How to trade cryptocurrency and manage investments for others without a license

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I get a number of emails from readers each week asking how they can manage money for friends and family offshore. They want to trade cryptocurrency and make investments for others without going to the expense of setting up a licensed and regulated exchange. So, here’s how to trade cryptocurrency and manage investments for others without a license.

When you want to trade crypto or other assets for anyone other than yourself, you need an account that allows you to hold other people’s money. Banks are very cautious when it comes to those trading on behalf of others or managing investments without a license.

First, banks don’t want to be fined for facilitating money laundering. Banks paid hundreds of millions in the last few years for “allowing” their customers to avoid taxes and launder illicit gains. The bank might not have had any idea what was going on, but their due diligence procedures weren’t stringent enough to catch the wrongdoers, so they were fined big time.

Second, banks and governments don’t want anyone without a license managing other people’s money. Brokerage and investment management licenses and regulation is big business. If you don’t want to pay, you won’t be allowed to play.

Third, banks must follow strict Know Your Client (KYC) rules. When you open an account, the bank checks you out and thereby knows you, their customer. If you then receive friends and family or customer money in your bank account, the bank doesn’t “know” the true beneficial owner of the money. The actual owner is one level removed from the person the bank “knows.”

Setting up an offshore corporation and hoping for the best is not a good idea in today’s world. Banks are watching for the source of funds on most wires. They will check outflows and for anyone using their account to manage OPM. If you try to hide, you’ll be caught and kicked to the curb.

Against that backdrop, here’s how to trade cryptocurrency and manage investments for others without a license.

When you don’t want to set up a regulated exchange, which can cost $35,000 to $250,000, depending on the country, you can use offshore LLCs and a trading corporation to accomplish your goals.

You, the trader form an investment corporation and a management LLC. Then, each and every client forms an offshore LLC. Yes, every single client, friend, or family, must have their own offshore corporation. Only a husband and wife can have a joint LLC.

Next, all of these structures open offshore accounts at the same international bank. In this way, the bank has done its due diligence on you and your customers. Everyone has been reviewed and approved by the bank and transfers will be permitted between the group of companies.

Once everyone has been approved, the client LLCs can issue a Power of Attorney to your management LLC. With this Power of Attorney on file with the bank, you will be allowed to manage the investments of these clients and transfer funds into your investment corporation.

This multi LLC offshore investment management structure ticks all the right boxes. It allows you to manage client funds and for the bank to do its KYC on everyone involved. Because all the accounts are at the same bank, transfer costs are minimized and the source of funds won’t be questioned.

A separate LLC system to trade cryptocurrency and manage investments for others without a license works well with large investors. Because of the setup costs, it’s not efficient for smaller clients or selling investments to the general public.

This practical limitation is positive for banks. They don’t want someone operating an unregulated offshore hedge fund selling to mom and pop investors. This will only bring trouble and litigation to the bank. They like larger accounts, larger deals, and sophisticated investors.

This system also allows sophisticated investors to put more advanced structures in place. For example, they might want to trade within an international trust for estate and asset protection reasons. High net worth investors might want to hold the LLC inside an offshore life insurance company to eliminate US tax on the capital gains.

You can also use this structures to create private entities in countries with public registries. For example, let’s say you want to invest in Panama. That country has a public registry of corporate shareholders and directors and a list of beneficial owners of foundations (their version of a trust).

To keep your name out of the registry, you can set up an offshore LLC in a country like Nevis or Belize that doesn’t have a public registry. Then, this LLC can be the founder of a foundation or the officer and director of a Panama corporation. In this way, the beneficial owner (you) won’t be listed in the registry.

When someone searches the Panama database, all they’ll see is the name of your Belize LLC. When they go to Belize for more information, they’ll hit a brick wall.

Whether this offshore LLC structure is cost-effective will depend on how many clients/friends and family you plan to manage. In most cases, the base corporation might cost $3,500 and each LLC $2,000 to $2,900 to set up (not including bank fees).

The largest structure I’ve seen like this was 3,400 LLCs and two management corporations in Switzerland. Why, you ask, would someone spend that kind of money on LLCs? Because they don’t want to go through all the compliance and regulation that comes with a fully licensed exchange.

Had they decided to operate as an investment manager in Switzerland, they would have had to hire someone with the necessary Swiss licenses and go through a very arduous registration process. The multi LLC model eliminated both of these requirements.

Plus, once you have a license, you have quarterly filing, KYC and AML compliance, and all manner of regulations to contend with. When you use separate offshore LLCs, it’s a private transaction between you and your friend/client.

Finally, this system allows some clients to move their retirement accounts offshore. They could form an offshore IRA LLC and transfer some or all of their vested retirement savings into that entity. Then, that LLC could issue a POA to you, the trader.

As you can see, this multi offshore LLC approach to trading cryptocurrency and managing OPM for others without a license can be a very powerful tool.

I hope you’ve found this article on how to trade cryptocurrency and investments for others without a license to be helpful. For more information on setting up a regulated or unregulated crypto trading business, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you with an offshore structure and banking.