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Selling Bitcoin for Cash in Canada

05/25/2023/in Articles, Bitcoin, Cryptocurrency, International Business/by Christian Reeves

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

Introduction:

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

Cash Transactions Over the Limit

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

What to Do If You Are Selling Bitcoin for Cash

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

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

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

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

Review:

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

Regulations Around Selling Bitcoin for Cash

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

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

Cash Transaction Limits

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

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

Implications and Considerations

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

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

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

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

Exchanging Bitcoin for Physical Cash in Switzerland

04/24/2023/in Articles, Bitcoin, Cryptocurrency/by Christian Reeves

As the popularity of cryptocurrencies like Bitcoin continues to grow, so does the demand for methods to exchange them for physical cash. While licensed exchanges are a common and regulated way to conduct these transactions, many people wonder if it is legal to exchange Bitcoin for physical cash in Switzerland without using a licensed exchange. In this article, we will explore the legal landscape surrounding this topic and the potential risks and considerations involved in such transactions.

Is it legal to sell cryptocurrency for physical cash in Switzerland?

Yes, it is legal to sell cryptocurrency for physical cash in Switzerland. Switzerland has a relatively friendly regulatory environment for cryptocurrencies and has been proactive in creating a legal framework for their use and exchange. The Swiss Financial Market Supervisory Authority (FINMA) has issued guidelines on how to handle cryptocurrencies and comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.

As long as the parties involved in the transaction comply with the relevant laws and regulations, selling cryptocurrency for physical cash is allowed. However, it is essential to ensure that proper AML and KYC procedures are followed, as well as adhering to any other applicable regulations. This may include registering with FINMA if the transaction volume exceeds a certain threshold or if the business is operating as a financial intermediary.

It is recommended to consult with legal professionals or experts in Swiss cryptocurrency regulations to ensure full compliance with the law when conducting such transactions.

Understanding the Swiss Regulatory Framework:

Switzerland has established itself as a hub for blockchain and cryptocurrency businesses, thanks to its progressive approach to regulation. The Swiss Financial Market Supervisory Authority (FINMA) is responsible for overseeing financial services providers, including those dealing with cryptocurrencies.

According to FINMA guidelines, businesses that exchange cryptocurrencies for fiat currencies may be considered financial intermediaries and subject to Anti-Money Laundering (AML) regulations. However, this classification depends on the nature and scale of the transactions. If a person engages in occasional transactions for personal use or as a hobby, they may not be considered a financial intermediary and may not be subject to licensing requirements.

Peer-to-Peer Transactions and Legal Considerations:

Exchanging Bitcoin for physical cash through peer-to-peer (P2P) transactions, such as private sales or trades with friends, may not require licensing, provided the transactions are infrequent and not part of a business activity. However, engaging in regular or large-scale transactions may be considered financial intermediation and subject to Swiss AML regulations.

There are several risks and considerations associated with P2P transactions, including:

Legal liability: If you inadvertently engage in unlicensed financial intermediation, you may face legal consequences, including fines or penalties.
Fraud and security risks: P2P transactions may expose you to fraud, theft, or other security risks, as you may be dealing with unknown parties without the protection of a licensed exchange.
Tax implications: Regardless of whether you use a licensed exchange, it is essential to report any gains or losses from Bitcoin transactions to the Swiss Federal Tax Administration (FTA) or to your appropriate tax authority, such as the IRS in the United States, and pay any applicable taxes.

Conclusion:

While it may be possible to exchange Bitcoin for physical cash in Switzerland without using a licensed exchange under certain circumstances, it is essential to understand the legal landscape and the potential risks involved. Engaging in occasional P2P transactions for personal use may be permissible, but regular or large-scale transactions may require compliance with Swiss AML regulations. Therefore, if you are a seller of Bitcoin, be sure to only engage in such transactions with a firm in Switzerland that will follow these laws.

If you are interested in selling Bitcoin or another cryptocurrency for cash, please contact us at info@premieroffshore.com and we can connect you will a firm in Switzerland. Please note that we do not work with people who wish to sell in the United States where such a transaction is likely to be illegal.

Exchanging Bitcoin for Physical Cash in the United States

04/24/2023/in Articles, Bitcoin, Cryptocurrency/by Christian Reeves

The growing popularity of cryptocurrencies, such as Bitcoin, has led to an increase in demand for various methods to exchange them for physical cash. While licensed exchanges are a common and regulated way to conduct these transactions, many people wonder if it is legal to exchange Bitcoin for physical cash in the United States without using a licensed exchange. In this article, we will explore the legal landscape surrounding this topic and the potential risks and considerations involved in such transactions.

Understanding the Regulatory Framework:

In the United States, the regulatory framework governing cryptocurrencies is complex and varies across different federal and state agencies. The Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of the Treasury, is responsible for enforcing anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations for virtual currency businesses.

According to FinCEN guidance, individuals who exchange virtual currency, such as Bitcoin, for real currency (including physical cash) may be considered money transmitters and subject to federal registration and licensing requirements. However, this classification depends on the nature and frequency of the transactions. If a person is merely engaging in occasional transactions for personal use or as a hobby, they may not be considered a money transmitter.

State-Level Regulations:

In addition to federal regulations, some states have implemented their own licensing and regulatory requirements for cryptocurrency businesses. For example, New York State requires a “BitLicense” for businesses engaged in virtual currency activities, while other states have different licensing requirements or exemptions. It is crucial to understand and comply with any applicable state-level regulations when exchanging Bitcoin for physical cash.

Peer-to-Peer Transactions and Legal Considerations:

Exchanging Bitcoin for physical cash through peer-to-peer (P2P) transactions, such as private sales or trades with friends, may not require licensing, provided that the transactions are infrequent and not part of a business activity. However, engaging in regular or large-scale transactions may be considered money transmission and subject to federal and state regulations.

There are several risks and considerations associated with P2P transactions, including:

Legal liability: If you inadvertently engage in unlicensed money transmission, you may face legal consequences, including fines, penalties, or even criminal charges.
Fraud and security risks: P2P transactions may expose you to fraud, theft, or other security risks, as you may be dealing with unknown parties without the protection of a licensed exchange.
Tax implications: Regardless of whether you use a licensed exchange, it is essential to report any gains or losses from Bitcoin transactions to the Internal Revenue Service (IRS) and pay any applicable taxes.

US Person Charged with a Crime

There have been instances where people have been charged with crimes in the United States for selling Bitcoin in private transactions without using an exchange. These cases usually involve violations of money transmission laws, anti-money laundering (AML) regulations, or other financial crimes.

One example is the case of LocalBitcoins trader “Bitcoin Maven,” whose real name is Theresa Lynn Tetley. In 2018, she was sentenced to 12 months in federal prison, forfeited 40 Bitcoins, $292,264 in cash, and 25 gold bars for operating an illegal money transmission business and laundering funds using Bitcoin. Tetley conducted her transactions without registering as a money services business (MSB) with the Financial Crimes Enforcement Network (FinCEN) and failed to implement anti-money laundering procedures, thus violating federal laws.

Another example is the case of Sal Mansy, who was charged in 2016 for operating an unlicensed money-transmitting business by trading Bitcoin without a license. Mansy conducted over $2.4 million worth of Bitcoin transactions without registering with FinCEN and was sentenced to a year in federal prison.

These cases highlight the importance of understanding and complying with federal and state regulations when conducting private Bitcoin transactions in the United States. Failure to follow these regulations can result in criminal charges, fines, and even imprisonment.

Conclusion:

Engaging in occasional P2P transactions for personal use may be permissible, but regular or large-scale transactions will require compliance with US federal and state regulations. Therefore, if you wish to sell Bitcoin in a private transaction, you must do so in a country where this is legal… and you must follow all applicable laws in the transaction.

Here is an article on selling crypto in a private transaction in Switzerland where it is legal: Exchanging Bitcoin for Physical Cash in Switzerland.

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

01/28/2018/0 Comments/in Articles, Banking Offshore, Bitcoin, Cryptocurrency, Offshore Banking, Offshore Company, Offshore IRA/by Christian Reeves

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.

Take your IRA offshore and invest in cryptocurrency

01/14/2018/0 Comments/in Articles, Bitcoin, Cryptocurrency, Initial Coin Offering, Offshore IRA/by Christian Reeves

I expect cryptocurrency to remain a hot IRA investment in 2018. Almost every call we get these days is about investing in cryptocurrency offshore. Clients want to manage their crypto offshore in private and avoid the IRS audits we all know are coming. So, here’s how to take your IRA offshore and invest in cryptocurrency.

When I talk about cryptocurrency, I don’t mean only bitcoin and ethereum. What’s hot are all the altcoins and forks. Altcoins like AAC, ACT, Bitcoin Cash, Monero, Ardor, sia coin, and others. And, we see about 20 forks coming in 2018. A few exchanges, such as OurDax.com, guarantee that they’ll pass along all of these forks to their users.

The best way to avoid IRS audits of your crypto account, and the coming war in the United States, is to setup your account offshore. The way to gain access to the best trading platforms is through an offshore company. The best way to gain access to altcoins and forks is to take your IRA offshore and invest in cryptocurrency. The way to participate in top ICOs is to invest through an offshore structure.

So, here’s how to take your IRA offshore.

The first step is to move your account(s) to a custodian that allows for international investments. This is usually a US custodian that supports offshore LLCs like Midland IRA or Entrust. The most popular custodian for crypto investors is Midland, but there are several which offer this service. Neither of these companies is associated with Premier.

The reason I say you’ll probably need to move to a new custodian is that none of the big firms support offshore investments. The big guys, like Fidelity and Merrill Lynch, make their money by selling you their investments. When you go offshore, the custodian no longer is in control and doesn’t earn a commission on your trades.

And not all self-directed custodians allow for international investments. Firms like IRA Services in California allow US LLCs but not offshore LLCs. In order to move your retirement account out of the United States, you need a US custodian that is experienced in offshore structures.

Once your account is with the right custodian, we can form your offshore IRA LLC. We will work with you to select the best jurisdiction, form the company, draft the operating agreement and other documents, and open your bank and/or crypto accounts.

In most cases, we’ll open both a bank account and a crypto account. You will sell your US investments and transfer cash offshore. It’s rare that a US custodian allows for like-kind exchanges. Though, we have seen some with self-directed accounts move offshore by transferring crypto, thereby avoiding tax on the sale.

Once your IRA LLC is set up and funded, you can trade cryptocurrency in private. You’ll also have access to a number of smaller altcoins that are not available in the United States.

The same goes for ICOs. The US SEC has pushed most ICOs out of the country. Only the very largest and best-funded companies can issue a US compliant ICO. This means that US ICOs will be from companies that have already gone through many rounds of funding, with venture capitalists taking big bites of the pie.

If you want to invest in a true startup, then you need to do so offshore. If you want to invest as a VC, and get in on the ground floor, you need to invest offshore using an IRA LLC.

And, of course, you’re not limited to investing in cryptocurrency. You can buy gold, hold multiple currencies, invest in foreign real estate, and just about anything else you wish. You must follow all US IRA rules, but you’re in control and you select the investments that fit your risk tolerance.

Note that you can’t buy a house and live in it with retirement money. You can invest in rental properties, with the rental profits and gains flowing back into your retirement account. For more on this, see: Can I buy foreign real estate with my IRA?

One popular hedge offshore is to purchase physical gold in your IRA. You can buy gold through a bank, such as Caye Bank in Belize, and hold it as a hedge against crypto and fiat currencies.

And some banks, such as Caye, allow you to borrow against your physical gold. We have clients purchasing gold and borrowing against it to trade crypto. For more on the rules around buying gold with your retirement account, see: IRA Gold Rules.

But, watch out for IRA lending rules and UBIT. When you borrow in an IRA, you must use a non-recourse loan. Also, Unrelated Business Income Tax can apply if you don’t have a UBIT blocker corporation in place. For these reasons, I recommend that only the most sophisticated IRA investors use leverage in their account.

The bottom line is that taking your IRA offshore will give you access to the best altcoins, ICOs, forks (IFOs), exchanges, and high yield investments. Add to this the max privacy and asset protection you get, and you see why offshore IRA LLCs are so hot in 2018.

I hope you’ve found this article on why you should take your IRA offshore to invest in cryptocurrency to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 483-1708 for a confidential consultation.

International Bank Accounts for a Cryptocurrency Exchange

01/08/2018/0 Comments/in Articles, Banking Offshore, Bitcoin, Cryptocurrency, Initial Coin Offering, Offshore Bank Accounts/by Christian Reeves

International banking is the most challenging issue when setting up a cryptocurrency exchange. If you’re in a highly regulated environment, such as the US or UK, and have a lot of startup cash, then you’ll get a bank account. If you’re in a less regulated environment, best of luck to you. In this post, I’ll look at international bank accounts for cryptocurrency exchanges.

There are two types of international bank accounts for a cryptocurrency exchange:

a correspondent bank account, and
client accounts with or without a POA.

A correspondent account is one where the bank allows you to hold client funds and send and receive wires on behalf of those clients. The bank does due diligence on you, the exchange, but not much on your clients.

Client accounts are bank accounts opened by each and every client of the exchange. Then the exchange opens an account and is allowed to transfer interbank between its account and accounts registered to its customers.

Correspondent accounts are becoming extremely difficult for offshore cryptocurrency exchanges to get. Unless the bank can get comfortable with your KYC and AML procedures, and that you won’t accept deposits from any undesirables, they won’t open a correspondent account for you.

When a cryptocurrency exchange has received its license from US and UK regulators, banks are more willing to take a risk. Even then, they often hedge this risk by holding a large deposit in case of fines.

When the cryptocurrency exchange is from a lesser jurisdiction, such as Panama or a Caribbean country, their banking options will be limited. You’ll be forced to open with a local bank or search out a correspondent partner and put up millions in capital.

The other option for a startup exchange is to ask every customer to open a bank account at your selected international bank. This way, the bank does due diligence on your customers and the risk in a correspondent account is eliminated.

Don’t dismiss the separate accounts option out of hand. Sure, it puts up barriers to customer acquisition. But, separate accounts greatly reduces transaction costs, capital required for the exchange, and allows your customers to get set up offshore. You can have your clients open an account online and play around a bit. Then, when they’re ready to get a real bank account, your exchange could handle the paperwork.

And think about international bank accounts for cryptocurrency exchanges. How much will it cost to send wires? If you don’t have a correspondent account in the US, UK or EU, how will you send wires? Will your customers accept an $80+ wire fee? I doubt it.

If you and your customers are all at the same bank, there’s no charge to transfer between accounts. Customers can instantly move from crypto to FIAT to gold at zero cost.

Quality international banks typically offer physical gold accounts. Some even allow you to borrow against that account. Such a loan could be used to buy crypto, with the gold acting as a hedge.

Finally, operating a cryptocurrency exchange offshore provides you and your clients’ privacy and asset protection. The US IRS is going to war with Coindesk. A good number of US customers would be willing to make the effort to set up an offshore account if it could be linked to a cryptocurrency exchange.

Your customers might decide to form an offshore corporation or trust to hold their international bank account and cryptocurrency account. That would provide additional asset protection and possibly tax benefits.

For example, a US customer could take their IRA offshore and move it into an Offshore IRA LLC. Trades in the IRA account would be tax-free because gains would flow back to the retirement account. Plus, because the IRA is offshore, you could provide a non-recourse loan if you wanted to give them trading leverage.

For larger customers, with $2 million or more, they could set up an international life insurance policy to hold their account. Trades in the account would be tax-deferred or tax-free. Tax-deferred if they canceled the policy and tax-free if they hold the policy until death and transfer to their heirs.

And it’s possible to set up these accounts with a Power of Attorney to the cryptocurrency exchange. This is a new concept in crypto, but something we’ve been doing for years for investment advisory firms.

Each customer opens an international bank account and gives a Power of Attorney to the cryptocurrency exchange. The exchange is thereby allowed to manage and invest the account on behalf of the customer.

This would be especially helpful in a situation where the international cryptocurrency exchange is providing fund management or needed access to the account for a margin call.

As I said above, if you have a major license and capital, we can assist you to secure international correspondent bank accounts for your cryptocurrency exchange. If you’re just getting started, you might offer international bank accounts to your customers as a solution to both yours and their desire to be offshore.

For more information, please contact us at info@premieroffshore.com or (619) 483-1708. We’ll be happy to work with you to structure a cryptocurrency exchange offshore.

Fintech and Cryptocurrency Law in Mexico

01/01/2018/0 Comments/in Articles, Bitcoin, Cryptocurrency, Initial Coin Offering/by Christian Reeves

As other countries wait for government officials to dictate what happens with cryptocurrency and Fintech Companies, Mexico just took a big step forward. After making several adjustments to the proposed bill, Mexican senators finally approved with 102 votes in favor and none against a law that regulates financial technology companies in Mexico. Delegates still need to vote to approve the measure, but this is a major step forward.

Mexico has a lot to gain with the approval of the Fintech and Cryptocurrency Law and the mainstream adoption of bitcoin. About 44% of the Mexican population doesn’t have a bank account due to the mistrust that exists between citizens and financial institutions. That’s 29 million Mexicans that don’t have a bank account and live on cash.

The transparency that comes with cryptocurrency transactions might fix this problem. If the bill becomes law, and it’s not there yet, it will create a Fintech solution for the unbankable. Let’s take a moment to take a look at some of the most interesting key aspects of Mexico’s Fintech Law.

One of the main points of the Fintech Law is to increase the level of financial inclusion throughout the country, promote competition and provide legal certainty to participants in the sector, contributing to the improvement of the national financial system. There are over 158 Fintech companies in Mexico that will benefit from having an established framework from which to operate.

This is especially true for cryptocurrency exchanges. They require specific laws and quality regulation. In order to maintain banking and other relationships, cryptocurrency exchanges need to be in a regulated environment where their business partners know what to expect and that the exchange is operating within a specific legal framework.

When cryptocurrency exchanges began offshore a few years back, most were looking for countries with no regulation. Exchanges thought they could operate outside of the KYC, AML and compliance systems.

These exchanges quickly found it was impossible to get correspondent banking relationships. Also, it was difficult to transfer crypto from an unregulated exchange to a regulated exchange in a quality jurisdiction such as the United States.

As a result, international cryptocurrency exchanges began seeking countries with specific cryptocurrency laws and regulations. When operating from within these boundaries, the exchange has access to banks and other providers. Outside of the system, clients have no way to convert their bitcoin to FIAT money.

Today, these countries are Mexico in the Latin American region and Switzerland in the European region.

Article 36 of the Fintech and Cryptocurrency Law details the requirements that will be needed for a cryptocurrency exchange to be granted authorization to operate. The exchange will have to set a minimum capital to perform their activities in agreement with the provisions issued by the Comisión Nacional Bancaria y de Valores (CNBV). The minimum capital may vary depending on the type of activities they perform and the financial risk they face can be read in the Fintech Law bill that was approved by Senate. The amount of capital has not yet been determined.

In order for a Fintech or Cryptocurrency Exchange to start operating, they must be authorized by the CNBV, be a Limited Liability Company, and have a domicile in Mexico. They must also have a corporate governance structure, operating systems, keep their accounting logs up to date, have a strong security system, as well as offices and operating and compliance manuals.

The bill permits banks and cryptocurrency exchanges to share their applications or technological interfaces, called API (Application Programming Interface), without violating the financial secrecy that is key for its function.

CNBV must receive authorization from the Bank of Mexico to approve a Fintech company, to give legality to its operations. A Fintech company in Mexico must inform their clients about the volatility and unpredictability of virtual assets, the risks of fraud, and that transactions may be reversed by governing bodies.

The Fintech Companies must inform their clients of the risk involved receive a signed contract from their clients indicating they understand. The law specifies that the government will not be responsible for any sort of financial reimbursement to users in the event of fraud, so businesses will be required to communicate this on their website and disclose this before entering into a contract with them.

A Financial Technology Council will be created that consists of 12 members, which will include representatives of the CNBV, the tax authority, and Banxico. Their goal will be to encourage the exchange of opinions and solve any problems that occur with the Fintech and Cryptocurrency Exchange Companies. They will meet at least once a year.

Article 44 of the Fintech Law, which refers to the limits that the authorities should set for this type of platform, states that limits in which these companies may operate will differ based on the type of client, type of project, type of transaction and when established by the CNBV or the Bank of Mexico will have to take into consideration at least the regulation of other figures of the financial system subject to compliance with established principles in this Law and the protection of the interests of investors.

So, like Switzerland, Mexico is building an efficient cryptocurrency law that will protect investors and allow the business to grow. The negative with Mexico is their corporate tax rate of 30%. With changes to the US system, Mexico now has one of the highest tax rates in the region.

In order to reduce tax in Mexico, you might set up an offshore division and minimize income into the country. However, international transfer pricing and audit rules are very strict in Mexico, so be careful where you incorporate.

For example, it’s nearly impossible to get a deduction approved for a payment to a tax haven such as Panama. While the US treats all counties the same, Mexico is known to disallow expenses to tax havens.

Possibly the best option for a large exchange is a license in Mexico and your primary operations in the US territory of Puerto Rico. The Mexican office would handle marketing and support, and operations would be done from Puerto Rico.

Income sourced to Puerto Rico will be taxed at 4%. If the owners of the exchange are foreign persons (not US persons), dividends paid from Puerto Rico will be tax free. If the owners are US citizens and residents of Puerto Rico, dividends will be tax free under Act 22.

For more on Puerto Rico for cryptocurrency, see: Tax efficient structure for US cryptocurrency exchange.

For more on Puerto Rico’s many tax incentives, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

I hope you’ve found this article on fintech and cryptocurrency law in Mexico to be helpful. For more information on setting up an exchange, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Tax efficient structure for US cryptocurrency exchange

12/30/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Puerto Rico Tax Incentives/by Christian Reeves

Here’s how to cut your corporate tax rate for a US cryptocurrency exchange to 4%. If you’re operating a licensed exchange in the United States, and you’re willing to move some or all of your employees, we can get your corporate tax rate down to 4%.

This article considers a tax efficient structure for US cryptocurrency exchange and is meant for larger exchanges licensed in the United States. It can also apply to international exchanges that require a US presence and US banking services. The 4% rate is a great offer compared to Switzerland and 12.43% in Zug and higher in other cantons.

Note that this tax-efficient structure for crypto exchange doesn’t replace your US licenses. It’s an add-on to your current structure that allows you to pay only 4% tax on corporate profits. Nor does it change any of your compliance or regulatory requirements.

This 4% tax rate applies to corporate tax reportable in your state of operation. For example, let’s say your headquarters is in California and this is where all of your employees are located. Move this headquarters, including all the employees, and you can exchange the combined Federal and state rates of 30%+ (21% federal and 8.84% for a c-corp or 10.84% for a financial c-corp in California) for 4%.

If you’re paying tax in the states where you’re licensed but don’t have employees, these taxes will remain the same. They’re based on being licensed in the state and not corporate income from work performed in California (your state of operation).

Without any more ado, here’s how to create a tax efficient structure for a US cryptocurrency exchange and pay only 4% in corporate income tax:

Move your business to the US territory of Puerto Rico and operate under the International Financial Entity license, or Act 273. Your corporate profits sourced to Puerto Rico will be taxed at 4% and not taxed in the United States. This is not corporate tax deferral available offshore… this is a corporate tax rate of 4% replacing a US rate of 30%.

Income is “sourced to Puerto Rico” if it’s earned from work performed in the territory. Likewise, income is sourced to the United States, and taxable there, if earned from work performed in the US.

For example, if half of your workforce is in California and half is in Puerto Rico, about half of your income might be attributable to Puerto Rico. Thus, 50% would be taxable at 4% and 50% at 30%.

If you move your business and all employees to Puerto Rico, sourcing is a simple matter… all corporate profits will be sourced to the island and taxed at 4%. When you split work between the US and PR, a transfer pricing study and in-depth analysis are required.

In practice, sourcing of income will look and the quality of work performed in CA vs PR and is much more complex than this example.
For more on sourcing, see: What is Puerto Rico Sourced Income for an Act 20 Business. This post is about Act 20 and not 273, but the sourcing concept is the same.

The corporate profits of your cryptocurrency exchange operated from Puerto Rico will be taxed at 4%. Dividends from the Puerto Rico company to a foreign corporation or non-US person are tax-free. Likewise, dividends from your Act 273 business to a resident of Puerto Rico who qualifies for Act 22 are tax-free. Dividends from the International Financial Entity to persons in the United States will be taxed in the United States.

That is to say, US persons can move to Puerto Rico, qualify under Act 22, and pay zero US tax on dividends from an Act 273 cryptocurrency exchange. You will pay PR tax on the salary you take out of the business and zero on dividend distributions. Shareholders that live in the US will pay US tax on dividend distributions.

For more on Puerto Rico’s various tax incentives, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

To set up in Puerto Rico under Act 273, you will need the following:

Puerto Rico corporation with $250,000 paid-in capital and a CD for $300,000, for a total of $550,000 in capital.
Minimum of 5 employees on the island.
Detailed business plan with projections, operating manuals, and KYC, BSA and AML documentation.
Resumes and financial reports on all key employees.

With this documentation, we can apply for an International Financial Entity license for your cryptocurrency exchange. You will be granted a permit to organize and given time to build out an office, IT systems, hire your employees, etc.

When you’re ready to go live, you will give notice to government regulators. They’ll come out and review your systems and documents. When you pass the audit, you’ll be given a permit to operate.

An Act 273 license will allow you to move the operation of your cryptocurrency exchange to Puerto Rico and exchange your 30% tax rate for a 4% tax rate.

I hope you’ve found this article on a tax-efficient structure for US cryptocurrency exchange to be helpful. For more on International Financial Entities, see my 300-page book on Amazon.

An IFE license can be used to set up many different businesses. In addition to a tax-efficient cryptocurrency exchange, an IFE license could be used to operate an international bank, family office, brokerage and FX firm, etc. My book is focused on the international banking components of the IFE, but you will find it useful for a cryptocurrency exchange.

For more on building an International Financial Entity in Puerto Rico, you can reach me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to redomicile your exchange to Puerto Rico and offer a turn-key solution for Act 273 exchange.

Take your IRA offshore to invest in ICOs and Bitcoin

12/10/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Initial Coin Offering, Offshore IRA/by Christian Reeves

The United States has forced most ICOs out and will launch an all out attack on Bitcoin in 2018. If you want to hold Bitcoin in your IRA, you should first move your retirement account offshore. Here’s how and why to take your IRA offshore and invest in ICOs and Bitcoin in 2018.

In 2017, the US Securities and Exchange Commission ruled that ICOs were investments akin to traditional Initial Public Offerings. This determination means that the SEC has authority over ICOs and that ICOs must follow the same rules as an IPO.

This also means that the legal and compliance costs to issue an ICO are about the same as they are for an IPO. While a boon for lawyers and CPAs, these costs mean that smaller high value, and early stage ICOs will never see the light of day in the United States.

ICOs have two options in 2018: 1) go through several rounds of funding (angel plus 2 or 3 rounds of VC) before going public, or 2) move offshore and don’t market in the United States.

VCs are sure to have stripped out most of the pure “startup value” from these ICOs by the time of the offering. Plus, adding hundreds of thousands of dollars, or even a million or more, to the startup costs, means only the largest ICOs will get to market.

Of course, coming into a deal in the late rounds is safer, but most ICO investors are looking for looking for a clean deal. One of the primary objectives of the ICO model was to avoid the costs and greed of angels and VCs.

The SEC will push early stage ICOs out of the United States in 2018. Look for the best ICOs to be offered in Mexico and offshore in jurisdictions like St. Lucia, Dominica, Cayman, Jersey and Guernsey.

At the same time, the IRS is doing it’s best to push high net worth investors offshore. The Service is planning all out assault on Bitcoin in 2018, with most of the early targets coming from Coinbase. This site will be turning over more than 14,000 clients to the IRS in 2018 and the audits will begin.

Because the best way to eliminate US tax on your Bitcoin trades is to buy in your IRA, a lot of investors are creating digital IRAs. I expect this trend to hold and increase in 2018.

There are two ways to create a digital IRA. You can setup a self directed account in the US with a custodian that allows you to invest in Bitcoin, or you can setup an offshore IRA LLC. With a self directed account, you’re limited to US investments and the account is under the control of the custodian. With an offshore IRA LLC, the account is out of the US and is under your control.

There is one way to protect your IRA from government overreach – move your retirement account offshore and into an offshore IRA LLC. For more on buying Bitcoin in an IRA, see: Protect your IRA by moving it onto the blockchain.

As I said above, to buy crypto in the United States, you need a self directed IRA. To take your retirement account offshore, you need to add an offshore IRA LLC to this self directed account. Your custodian invests your IRA into an LLC incorporated in Belize, Cook Islands, Nevis, or some other tax free jurisdiction, and appoints you as the manager of this LLC.

With a self directed account, your custodian follows your investment instructions, but he or she has the ultimate say on how the account is invested. Most custodians don’t allow for offshore investments in a self directed account because they can’t or won’t do the due diligence necessary to review those transactions.

Because a US custodian can be held liable if your investments go south, they avoid risk. To eliminate this liability, you form an LLC and the custodian transfers funds to that structure. What happens from here is totally up to you. The liability and decision making is transferred from the custodian to you, the account owner, with an offshore IRA LLC.

The steps to take your IRA offshore are as follows:

First, you can only move a vested account offshore. A vested account is usually one from a previous employer. When you change jobs, or retire, your IRA account vests and you can move it to a new custodian… one that allows for the offshore IRA LLC structure.

Once you’re account is with a friendly custodian, we can form your offshore IRA LLC. This is a single member LLC where the member of the LLC is your retirement account. That is to say, the owner of the LLC is your IRA.

Note that a husband and wife can use the same LLC. You can move multiple accounts into a single LLC structure.

Next, the LLC appoints you as the manager of the structure. Again, the IRA is the owner of the LLC and you are the manager. In this capacity, you have total control over the bank accounts, crypto wallets, and investments.

Once the LLC and bank accounts are in place, the US custodian transfers the cash from your IRA to the international bank. You generally can’t transfer stocks or other assets offshore (like kind transfers). You should be moving US dollars into an offshore account.

Finally, you move those dollars into an international crypto trading platform. Now you have control over the account and are the investment manager of the LLC. As such, you must follow all US IRA rules and always act in the best interest of the account, just as a professional investment advisor would.

I hope you’ve found this article on taking your IRA offshore to invest in ICOs and Bitcoin to be helpful. For more information on moving your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

How to Trade Bitcoin Tax Free

12/02/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Offshore Tax, Puerto Rico Tax Incentives/by Christian Reeves

Each and every Bitcoin transaction is taxable. If you sell Bitcoin and buy Ethereum, that’s a taxable trade. If you use Bitcoin to buy a laptop on Amazon, that’s a taxable transaction. If you sell bitcoin, hold dollars in your wallet for a week, and then re-buy Bitcoin, that’s a taxable transaction. Here’s how to trade Bitcoin and pay zero capital gains tax.

Basically, anything that you do with Bitcoin is taxable. The IRS has determined that Bitcoin is a capital asset and not a currency. Thus, when you use that asset, you’re exchanging it and not spending it under our tax laws.

Even if you were to buy a Subway sandwich using Bitcoin, that would be a taxable transaction. You would be exchanging a fraction of a Bitcoin for the sandwich.

You would report your sandwich purchase on Schedule D of your personal income tax return. Your basis would be the price you paid for that fraction of a coin and your taxable gain would be the appreciation that occurred from when you bought the coin and when you exchanged it for lunch.

If you’re using a US wallet or cryptocurrency exchange, each and every trade is being tracked for tax purposes. Transfers out of your exchange to another wallet are being recorded as sales.

For example, you send $30,000 in Bitcoin from your Coinbase account to a desktop wallet. This $30,000 is recorded as a sale and reported to the IRS on Form 1099 at the end of the year. If you return that $30,000 to Coinbase, they’ll likely book it as a new deposit with zero basis. For more on this, see Coinbase Support.

And the IRS is coming after taxpayers hard. A district court just ruled that Coinbase must turn over the trading records of over 14,000 clients who had over $20,000 of cryptocurrency in their accounts.

With the IRS getting ready for an all out war against Bitcoin, many are looking for ways to trade cryptocurrency tax free. Here are the only 3 legal ways to trade Bitcoin tax free.

IRA & Retirement Accounts

Because Bitcoin is an asset, you can trade it in your retirement account or your defined benefit plan. All trades in your IRA will be tax free (ROTH) or tax deferred (traditional).

And, because of the nature of Bitcoin, you can take control of your retirement accounts and move it offshore. Bitcoin can be held and traded anywhere. You’re not required to use a US wallet or a US trading platform connected to the IRS.

To hold Bitcoin in your IRA in the United States, you should set up a self directed IRA. This gives you the ability and authority to manage your own account and eliminate investment advisory fees.

To take your retirement account offshore, you need to add an offshore IRA LLC to that self directed account. Your US custodian invests your retirement savings into your LLC and you take it from there.

Puerto Rico

Residents of Puerto Rico that qualify for Act 22 do not pay tax on their capital gains. As a US territory, Puerto Rico is free to make it’s own tax laws for its residents, which it did with Act 20 and Act 22.

Under Act 20, any qualifying business that moves to the territory will pay only 4% in corporate income tax. Act 20 gives a 100% tax exemption for the capital gains and passive income of any qualifying resident.

So, move out of your high tax state to Puerto Rico and pay zero capital gains on your Bitcoin transactions. No state tax and no federal tax on your investment profits.

Warning: the tax benefits of Puerto Rico only apply to assets purchased after you become a resident. No, you can’t move to Puerto Rico and sell the coins you’ve been holding. Assets acquired while you were in the US are taxable in the US and assets acquired after you become a resident of Puerto Rico are taxable in the territory.

Life Insurance Policy

Capital gains are tax free inside a life insurance policy. If you set up an offshore private placement life insurance policy, you can trade cryptocurrency tax free.

If you close the insurance policy during your lifetime, you’ll pay US tax on the gains (you got tax deferral from the policy). If you hold the assets in the policy until your death, they will pass tax free to your heirs (considering the step-up in basis).

Offshore PPLIPs are expensive to set up and maintain. Therefore, they’re usually only available for accounts of $2.5 million or more.

Conclusion

Those are the three legal ways for a US citizen to pay zero US tax on thier Bitcoin trades. Remember that it doesn’t matter where you live in the world. So long as you hold a blue passport, Uncle Sam wants his cut of your capital gains. If you move to a foreign country, you will still pay US tax on your Bitcoin gains.

The ONLY exception to worldwide taxation is found in the US territory of Puerto Rico. As a territory, income of residents is excluded from Federal tax under Section 933 of the US tax code.

I hope you’ve found this article helpful. For more information on setting up an offshore IRA LLC, a PPLIP, or qualifying for Act 22 in Puerto Rico, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

What can I buy with Bitcoin?

11/29/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency/by Christian Reeves

The list of items you can buy with Bitcoin hasn’t changed much since 2014. Yes, there are some good websites in the group of 100,000+ that accept Bitcoin, and there are restaurants that accept crypto, but there have been very few large transactions done in Bitcoin… until now.

To date, Bitcoin has been a buy and hold or trade investment. The practical uses of crypto as a currency have yet to be proven. Sure, as more merchants come on line, and more large dollar transactions are completed in Bitcoin, it may become the alternative means of transacting the founders envisioned. Until then, Bitcoin is primarily an investment.

And this is how the IRS views Bitcoin – as a capital asset and an investment like a share of stock. Whenever you sell Bitcoin or exchange it for another cryptocurrency, you have a capital gain or loss that must be reported. Likewise, whenever you exchange Bitcoin for something, anything, you have a taxable event reportable on Schedule D of your personal tax return.

As I said, there has not been much change to what you can buy with Bitcoin in 2018. Sure, there are a few more merchants, and Coinbase and others have improved their user interfaces, but nothing exciting has gone on in the offshore space… until now.

The motivation for this article is the fact that you can now buy real estate in Belize using Bitcoin. You can complete the entire transaction is Bitcoin, including taxes and fees. I expect Belize to begin allowing purchases in Ethereum in the next few weeks.

The second unique offering of Bitcoin is residency in Panama. If you’re from the US, EU, UK, or any of the top 50 countries, you can get residency with in investment of $20,000 plus fees in crypto. More on this later.

The ability to buy real estate in Belize using Bitcoin is a big deal. It means that, for the first time, you can exchange Bitcoin for real estate in a private offshore transaction. You can use Bitcoin to plant your flag offshore in a country that believes in the values that Bitcoin was founded on – privacy, security, and freedom.

Belize has always embodied these principles. Taxation is minimal and the right to privacy is absolute. You can live, work, and do things your way in Belize without government interference.

The other reason buying real estate in Belize using Bitcoin is a big deal is that this is the first large dollar offshore transaction available to those holding crypto. Many early adopters have a lot of Bitcoin that they don’t want to convert to dollars and don’t know what to do with.

These early adopters are looking for an efficient way to diversify out of Bitcoin in a private transaction. Belize is the first jurisdiction to provide a path to convert relatively large amounts of Bitcoin into an asset like real estate.

Yes, there have been one or two real estate transactions in the US that were completed with Bitcoin. These were one off transactions where the seller agreed to accept Bitcoin from the buyer… and the sale was reportable to the IRS and other US agencies by the exchange / wallet and through the escrow agent.

Belize is the first country where you can easily buy real estate using Bitcoin without all the red tape. Systems are in place to facilitate the transactions and it may even be possible to get a mortgage from a local bank, such as Caye Bank, to support a Bitcoin transaction.

You can also buy residency in Panama using Bitcoin. Invest the equivalent of $20,000, plus legal and government fees, in this country’s reforestation visa program and get permanent residency. After 5 years of residency you can apply for citizenship and a second passport from Panama.

Panama’s residency program is open to citizens of the US, EU, UK and other “friendly nations.” These are basically those from top 50 countries. Some on the list, such as South Africa, are surprising, so click here for more information.

If you’re not from a friendly nation, you can buy residency in Nicaragua with Bitcoin. This program requires an investment of $35,000 and costs are about $10,000 per person. You can complete the entire program using Bitcoin and it’s open to citizens of China, India, and most other countries.

Like Panama, you can apply for citizenship and a second passport from Nicaragua after 5 years of residency. The catch with Nica is that you must spend 180 days a year in country to maintain your residency. Panama does not have a physical presence requirement.

What else can you buy with Bitcoin? Here are the more common options:

Over 100,000 merchants now accept Bitcoin. Click here for a list.
Here’s a list of restaurants throughout the United States that accept Bitcoin.
The most common way to spend Bitcoin today is by transferring crypto to a US dollar gift card. These cards can then be used in hundreds of stores online and in the US. The top crypto to gift card platforms are eGifter and Gyft.
You can spend Bitcoin for travel on Expedia and Cheap Air.

I hope you’ve found this article on what can you buy with Bitcoin to be helpful. For more on residency in Panama or Nicaragua, or to be connected to a real estate expert in Belize, please contact me at info@premieroffshore.com. We’ll be happy to introduce you to a local expert who can assist you diversify your holdings.

The IRS smells blood in the water over Bitcoin!

11/26/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Taxation/by Christian Reeves

The IRS smells blood in the water over Bitcoin and it’s coming hard for Coinbase users. The war on cryptocurrency is just getting started and it’s going to get ugly fast. Expect US citizens with US crypto accounts to be put in jail to send a message to the rest of us to fall in line.

The IRS says that only 0.2% of Coinbase users reported a gain or a loss from cryptocurrency on their returns. The government reviewed 500,000 accounts and found only 900 of them had properly reported transactions on their US returns.

The IRS has ruled that Bitcoin and cryptocurrencies are property. That means each and every trade of crypto results in a capital gain or loss that must be reported on Schedule D. Cryptocurrency is treated like stock and not as a currency for US tax reporting.

So, if you bought Bitcoin and exchanged it for Ethereum in your wallet, that trade is taxable. Each time you sell Bitcoin, you have a taxable gain. Anyone who’s buying and selling in their wallet has transactions that must be reported. Every time you use Bitcoin to buy something, you have a taxable transaction requiring you to report the conversion of the crypto into dollars.

Even if you have a net loss, each and every trade must show up on your Schedule D at the end of the year. You also need to keep accounting records to prove your purchase price (basis) and any expenses you incur.

The fact that only 0.2% of users are in compliance has the IRS on the hunt. The Service wants to know about each and every transaction and will make examples of many Coinbase users in 2018. Typical IRS modus operandi is to hang a pelt on the wall in each big city and each State for the press release. Expect the first charges and indictments to be announced around April 10, 2018, just in time for tax filings.

Also, keep in mind that all IRS reporting requirements apply to US Bitcoin transactions. If you pay someone a salary in crypto, you must report it on Form W-2 and withhold the employee’s taxes and pay over federal and state payroll taxes. Doing this will require you to convert from crypto to US dollars, which generates a capital gain.

The same goes for payments to independent contractors. You must file a Form 1099 on any payment of $600 in rents, services (including parts and materials), prizes and awards, or other income payments.

And don’t get your hopes up that Bitcoin in exchange for services will be taxed as a capital gain to the recipient. When you receive crypto for personal services, the coins are magically converted from capital assets to ordinary income in the eyes of the IRS. Thus, you will pay ordinary income tax to the IRS and your state on any Bitcoin earned from work or services.

The last time the IRS was so excited about taking money from it’s citizens was 2008. The Service issued a John Doe summons to offshore bank UBS, just as they did to Coinbase in 2016. When the offshore banking battle was over, the IRS had netted over $10 billion in new taxes, interest, and penalties.

The IRS is really pulling out all the stops in this case. They’ve hired Chainalysis, a provider of Anti-Money Laundering software, to search out Bitcoin users. As reported by Fortune, “In a letter to the IRS, the co-founder of Chainalysis says the company has information on 25 percent of all bitcoin addresses and that it deploys millions of tags to help track and identify transactions.”

The IRS says only 0.2% have reported capital gains on their US tax returns. What should the remaining 99.8% do to minimize risk and tax costs?

If you have unreported crypto gains from 2014 to 2017, you should hire an expert to amend your return. Crypto capital gains are treated like stock transactions, but only a CPA or EA experienced in these transactions is qualified to amend your return.

Amending your returns before the IRS targets you will reduce your risks and penalties. If you’re caught in an audit, expect the full weight of the Service to fall on you.

If you want to maintain some semblance of privacy in your crypto transactions, I suggest you move your coins offshore. Form an offshore LLC, corporation or trust, and open a foreign wallet under that entity. If you need asset protection and estate planning, go with a trust. If you operate a business, use a corporation. Casual investors should form an LLC.

If you’re with Coinbase, you should sell and transfer cash offshore through your bank (a taxable event). If you’re with another firm, you might transfer crypto offshore (usually not taxable).

Remember that we’re talking about privacy and asset protection. Moving offshore doesn’t reduce or change your US taxes.

There are two ways to legally avoid US tax on your Bitcoin transactions. You can invest using a retirement account or you can move to the US territory of Puerto Rico and qualify for Act 22.

If you have a US IRA or 401-K that’s vested, you can form an offshore IRA LLC and move that account offshore. If you’re defined benefit plan can be converted into an IRA, you can also move that offshore. From here you can buy cryptocurrency or any other investment allowed for within the IRA rules.

If you move to the US territory of Puerto Rico, and qualify under Act 22, you will pay zero capital gains tax on your Bitcoin transactions. Note that this tax deal is only available in Puerto Rico for assets acquired after you become a resident of the territory. It does not apply to your current crypto portfolio.

For more information on Puerto Rico’s unique tax incentive programs, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs. Keep in mind that US citizens are taxed on our capital gains no matter where we live. Foreign countries can’t match Puerto Rico’s offer.

I hope you’ve found this article on why the IRS smells blood in the water over Bitcoin to be helpful. Please contact me at info@premieroffshore.com to be connected to an expert in amending tax returns with crypto gains or for information on structuring your affairs or your retirement account offshore.

The Best ICOs for 2018

11/22/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Initial Coin Offering/by Christian Reeves

The ICO market went on a wild ride for 2017. Over 75% of the ICOs that were funded blew up and hundreds of millions were lost. Here’s where I see the ICO market going and which will be the best ICOs for 2018.

Nearly $2.5 billion has been raised through October in ICOs worldwide, with the majority of that coming in the first half of 2017. Then the US government stepped in to take it’s cut and regulate ICOs. This put most US ICOs on hold and is pushing the market offshore.

There are now 3 ways for US investors to get in on ICOs:

Anyone can buy utility tokens,
Accredited investors can buy equity tokens in the US, and
Anyone can buy in to offshore ICOs.

The SEC has said it will not regulate utility tokens. Thus, anyone can buy these investments and the business need not incur all kinds of legal fees to put the token forward.

A utility or use token is one that gives you a right to use a service or receive a product. For example, if Lyft were to issue a use token, you would receive the right to a certain number of rides in exchange for your cryptocurrency.

The same applies to those selling a product. You give the company cryptocurrency and they promise to give you a product when it becomes available. Invest in a new high tech suitcase company, they use the crypto to finish and produce their first product, and you get a suitcase at a discount if and when it becomes available.

Use tokens are basically the crowdfunding sites like Kickstarter and Indiegogo. The only difference is that you’re exchanging cryptocurrency for a token. That token entitles you to use the service or receive a product in the future.

Equity tokens differ from use tokens in that they give you a right to some of the company’s future earnings. Equity tokens act like a share of stock in that they give you some level of ownership and control over the company. Rather than a right to use a service or receive a product, you get a right to ownership and a share of the profits.

The US SEC says that, if you issue an equity token, the US government can regulate and control the transaction. As a result, the costs of most ICOs in the United States have increased by hundreds of thousands of dollars to millions of dollars in some cases. Only the largest companies can now issue ICOs in America.

Finally, the US government says it’s a crime to sell bitcoin outside of a licensed and regulated exchange. If you sell your coins without an exchange and in such a way that the IRS can’t track and tax the transaction, you’ve committed a crime and can be put in jail.

As a result, Americans are moving their coins offshore and true startups will be forced to issue their ICOs offshore. If American investors want to get in on the ICOs with the most potential, those truly in the beginning stages, then we will need to look abroad from here on out.

Keep in mind that there are no laws that prevent US citizens from buying offshore ICOs. The SEC doesn’t allow foreign ICOs to market into the United States. But, if you can find the right offshore investment, you’re free to deploy your capital as you see fit.

Of course, when you invest offshore, the task of due dilligence – checking out the investment – falls to you. Uncle Sam and a swarm of lawyers have not vetted these transactions. This keeps the costs are lower, opportunities greater, and the need to research falls to you.

With all of that said, I believe the best ICOs for 2018 will be offshore. More specifically, I believe the best ICOs for 2018 will be offshore financial technology companies operating banks or proving unique blockchain services to international financial entities.

As legacy banks fight to keep cryptocurrency from taking over, they’re closing accounts and forcing customers offshore. For example, the US is waging an all out war on cryptocurrency and Hong Kong is closing accounts, putting exchanges out of business.

As in any war, there are winners and losers. The winners in this battle are offshore banks that can efficiently convert from crypto to FIAT. Those with blockchain systems and zero cost transfers are especially interesting.

A bank that sends international transfers over blockchain, and avoids SWIFT, can do so with zero or little cost.

Banks that can raise money through an ICO, or have an ICO platform for their clients, will be especially valuable in the near future. The bottom line is that blockchain and cryptocurrency are the future of offshore banking and early adopters are excellent investment opportunities.

If you’re an accredited investor and would like information on offshore crypto banks and FinTech opportunities, you can reach me at info@premieroffshore.com. I will be happy to introduce you to quality international banks.

If you run an offshore bank, our would like to form a new crypto focused international financial entity, you might find my 300+ page book on the topic helpful. See Offshore Bank License Guide, 2017, available on Amazon Kindle.

Protect your IRA by moving it onto the blockchain

10/09/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Offshore IRA/by Christian Reeves

The new “offshore” is in the cloud. The new asset protection tool is the blockchain. The best way to protect your IRA is by moving it onto the blockchain and behind and offshore structure. Get your retirement savings out of the United States, on to the cloud, and out of the reach of creditors before it’s too late.

As of today, you can freely move your IRA and other liquid assets out of the United States and behind the protective wall of an offshore structure. But, don’t expect this freedom to last long. As the tax reduction plans of President Trump come through, these loopholes will close.

The US will likely reduce US taxes and then eliminate the ability to retain earnings offshore. When that happens, all manner of regulations and new reporting requirements will be unleashed on offshore accounts. Only those who are already offshore will be spared.

You should be grandfathered in and not required to report the transfer. Also, you should not be required to pay any exit tax or transfer tax as we see with intellectual property transfers under IRC Section 482.

In most cases, the transfer of intellectual property to an offshore entity is a taxable event. The IP must be valued and tax paid on that fair market value as if you had sold it to the foreign entity. We expect this treatment to apply to all types of property in the near future.

To support this position, I note that the IRS has already ruled that cryptocurrency is property and not cash or a cash equivalent. This is why they can tax each and every sale as a capital gain. For more on this, see: Tax on Bitcoin Transactions.

In fact, the US government is all over cryptocurrency. The IRS is taxing transactions as capital gains. At the same time, the SEC claims Bitcoin is a currency and thus it has the right to regulate ICOs as it does IPOs.

You can expect the government to close the door to IRA transfers in the near future. If you want to get your retirement account on the blockchain and out of harm’s way, you’ll need to act quickly.

So, how do you get your IRA offshore? How can you move your IRA onto the blockchain? That’s easy enough.

The first step is to form an offshore IRA LLC in an offshore jurisdiction that 1) maximizes asset protection and privacy, 2) won’t tax your transactions, and 3) allows for single member LLCs. We need all three of these to build a proper retirement account structure.

As a result, the number of jurisdictions is limited. We usually work in Nevis, Belize, Cook Islands, and Seychelles. After 15 years in the industry, these countries are the most reliable.

Second, you likely need to transfer your IRA to a new US custodian. All IRAs require a US custodian, even those invested in cryptocurrency offshore. And the large custodians don’t want you investing offshore. They make money selling you their funds, so they prohibit international transfers.

Third, once your IRA is with a custodian that allows for international transfers, you instruct them to send a wire transfer to your offshore wallet or to your international bank account. If you will invest only in cryptocurrency, you might only need a wallet. If you want to diversify, you probably need an offshore bank account.

Fourth, once you have your structure, an agreeable custodian, and your offshore company is funded, we install you as the manager. You’re responsible for writing the checks or sending the transfers. You’re in control of the IRA and the account grows based on your investment choices.

And that’s all you need to get your IRA onto the blockchain and out of the reach of governments and civil creditors. A proper offshore structure, a US custodian, a quality international wallet or trading platform, and the documents required to install you as the manager of the account.

I should point out that buying Bitcoin in your retirement account will allow you to avoid US tax on these transactions. If you buy and sell crypto within a ROTH, the trades are tax free. If within a traditional account, they’re tax deferred – you pay US tax as you take distributions.

However, if you buy using leverage, you may still have a taxable event. Whenever you buy and sell in an IRA with a loan or on margin, the gain attributed to that leverage is taxable at ordinary rates.

You can eliminate this tax if you’re offshore, but not if you’re investing in the United States. Offshore traders can set up a UBIT Blocker in addition to their IRA LLC and eliminate UBI on their cryptocurrency trades. For more on this, see: What is UBIT in an IRA?

UBIT blockers a very advanced IRA tool only available offshore. Only sophisticated investors should deploy these structures.

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

What SEC Regulation Means to ICOs in the United States

10/06/2017/0 Comments/in Articles, Bitcoin, Cryptocurrency, Initial Coin Offering, International Business/by Christian Reeves

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE PCI TOKENS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER LAW OR REGULATION GOVERNING THE OFFERING, SALE OR EXCHANGE OF SECURITIES IN THE UNITED STATES OR ANY OTHER JURISDICTION. THIS OFFERING IS BEING MADE (1) INSIDE THE UNITED STATES TO UP TO 99 “ACCREDITED INVESTORS” (AS DEFINED IN SECTION 501 OF THE SECURITIES ACT) IN RELIANCE ON REGULATION D UNDER THE SECURITIES ACT AND (2) OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS (AS DEFINED IN SECTION 902 OF REGULATION S UNDER THE SECURITIES ACT) (IN JURISDICTIONS WHERE THE OFFER AND SALE OF PCI TOKENS IS PERMITTED UNDER APPLICABLE LAW) IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT. PERSONS PURCHASING IN THE UNITED STATES AS ACCREDITED INVESTORS WILL BE REQUIRED TO MAINTAIN THEIR PCI TOKENS ON COINHUB UNTIL THE FIRST ANNIVERSARY OF THE ISSUANCE OF THE PCI TOKENS AND WILL BE REQUIRED TO MAKE UNDERTAKINGS TO COINHUB IF THEY REMOVE THEIR PCI TOKENS FROM COINHUB THEREAFTER, THEY WILL BE REQUIRED TO AGREE NOT TO SELL SUCH PCI TOKENS TO ANY U.S. PERSON UNLESS THEY SELL ALL OF THEIR PCI TOKENS TO A SINGLE U.S. PERSON. NON-U.S. PERSONS PURCHASING PCI TOKENS WILL ONLY BE ENTITLED TO RESELL THEIR PCI TOKENS TO OTHER NON-U.S. PERSONS (IN COMPLIANCE WITH APPLICABLE LAW) IN AN OFFSHORE TRANSACTION (AS DEFINED IN RULE 902 OF THE SECURITIES ACT). SEE “NOTICE TO SUBSCRIBERS,” “TRANSFER RESTRICTIONS” AND “RISK FACTORS.” THE ISSUER WILL NOT BE REQUIRED TO, NOR DOES IT CURRENTLY INTEND TO, OFFER TO EXCHANGE THE PCI TOKENS FOR ANY SECURITIES REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER LAW OR REGISTER THE PCI TOKENS FOR RESALE UNDER THE SECURITIES ACT.

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

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

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

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

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

The US Government is Targeting Bitcoin

09/22/2017/0 Comments/in Articles, Asset Protection, Banking Offshore, Bitcoin, Cryptocurrency, Offshore IRA/by Christian Reeves

The US government has launched an all out war on Bitcoin and battles are raging on several fronts. The purpose of this war is to either kill Bitcoin so that the dollar remains dominant or, failing that, to control Bitcoin such that the government maximized taxable income and eliminates your ability to transact in private.

It’s early days yet in the war on Bitcoin. But, the writing’s on the wall. The only way for you to salvage some level of privacy is to move your Bitcoin offshore. Set up an offshore company and hold your crypto account in the name of the company.

Here are the 4 primary lines of attack the US government has on Bitcoin today. You can rest assured that new agencies will jump into the fray once they find a way to take what’s yours.

IRS taxing bitcoin as a capital asset and not a monetary instrument.
The SEC treating bitcoin as cash so they can regulate ICOs.
Applying civil asset forfeiture rules to Bitcoin.
Requiring you to report your Bitcoin every time you enter or exit the United States.

Let’s start with the IRS. The Service recently declared that Bitcoin and cryptocurrency are assets, not cash and not currency. This means that, when you exchange Bitcoin for FIAT currency, you must pay tax on the gain.

If you held the Bitcoin for less than a year, you pay short term capital gains tax at your standard rate. This is probably around 35%. If you held the Bitcoin for more than a year, you pay the long term capital gains rate on your profit, which is probably 23.5% (20% if Trump repeals Obamacare taxes). These are the Federal rates and your State will also tax the gain.

Had the IRS classified Bitcoin as a currency, they wouldn’t be able to tax you when you convert Bitcoin to dollars. By calling Bitcoin an asset, the IRS can tax the conversion (or more properly, the sale of the asset).

Only currency investments are taxable, such as FX traders, and not basic conversions. That is to say, if you buy foreign currency as an investment, then the gains are taxable.

Then there’s the Securities and Exchange Commission (SEC). If the regulator had determined Bitcoin to be an asset, rather than a cash or cash equivalent, they might not have had jurisdiction to control ICOs. For the reasons why this might have been the case, see: Crowd Sale vs ICO – What’s Legal?

Suffice it to say, if Bitcoin were an asset, all ICOs might have been considered crowd sales and thus outside the purview of the SEC. Of course, this is unacceptable… all investments must be watched over and controlled by our government – so, Bitcoin is cash to the SEC.

To those of us who write on these topics, both of these lines of attack were obvious. Each US agency will define Bitcoin in whatever way allows them to exert control and levy fines to generate more income. That’s the nature of the beast… to a hammer, everything looks like a nail.

Here’s the regulation of Bitcoin that no one saw coming:

Introduced last month, the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017, will force you to report your Bitcoin each time you leave or enter the United States. That’s right, you will be required to fill out a form telling the government how much Bitcoin and cryptocurrency you have each and every time you cross our border.

When I first saw comments on this legislation, I didn’t believe it. I’ve been writing about government overreach since 2000 and still thought this must be an error. It took me days, and a lot of research, to accept that this level of insanity was possible.

When you cross a US border with $10,000 or more in cash or cash equivalents (diamonds, coins, checks, letters of credit, etc), you must report to the government by filling out a form. Of course, filing this form will likely subject you to scrutiny at the airport and unwanted attention from the IRS later.

In most cases, the government has been reasonable in applying this rule. For example, if you’re traveling with collectable coins, you only report if the face value of those coins is over $10,000. So, reporting was generally for those transporting cash and very rarely intruded into the lives of everyday Americans.

The new rules targeting Bitcoin basically allege that cryptocurrency is always with you. Unlike an offshore bank account, where cash is held outside of the US and must be reported once a year, Bitcoin is literally travels with you inside of your laptop. Regulators believe that Bitcoin is stored in your laptop, phone, hard drive, or USB storage device, and is thus crossing the border with you.

This claim that Bitcoin is always with you is key to the government’s attempt to force reporting. If Bitcoin, which is cash or cash equivalent and not an asset in this case, travels with you, the government can force you to report. If it’s cash sitting on the blockchain, and all you have on your laptop are the codes to access that “cash,” no reporting can be required.

That is to say, you don’t need to report how much you have in your bank accounts simply because you’re username and password to access those accounts is stored on the laptop. You can only be required to report what you are physically carrying with you carrying when you cross the border.

And the same law that requires you to report your Bitcoin allows the government to take it from you. Bitcoin will become subject to the asset forfeiture laws. The government can seize your Bitcoin if 1) you fail to report it, or 2) you report it and they believe you obtained it illegally.

Note that I said, they “believe.” The government can take your Bitcoin and then force you to prove how you earned it. The burden of proof falls on you in a civil asset forfeiture case (YouTube video by John Oliver)… and you must be willing to spend big money on lawyers to have any chance of success.

What can you do to protect your Bitcoin?

These are all the ways the US government is targeting Bitcoin. And the only thing you can do to protect your coins is to move them out of the United States and out of the government’s reach. Remember that the US government can seize any cryptocurrency “stored” in a US exchange by issuing a levy or seizure order.

The US government can’t easily seize assets held outside it’s borders. For example, the IRS can levy any bank or brokerage in the US, and any institution that has a branch in the US. So, if you have cash in a bank in Panama, and that bank has a branch in the US, you’re at risk.

The solution is to form an offshore corporation or trust to hold your wallet. Then use only Bitcoin firms located out of the United States… those without ANY ties to the US and can’t be intimidated by Uncle Sam.

The same goes for buying Bitcoin in your retirement account. First, form an offshore IRA LLC. Then move your account into an international bank that doesn’t have a branch in the United States. Then setup an offshore wallet and buy your coins.

I should point out that buying Bitcoin in your IRA is one way to beat the IRS at their own game. Because crypto is an asset, you pay capital gains tax on each and every transaction. However, if you buy Bitcoin in your IRA, you defer or eliminate capital gains tax. Because cryptocurrency is an asset, you can buy and sell it inside an IRA. For more, see How to move your IRA offshore in 2017.

The fact that Bitcoin is an asset also means you can take advantage of the tax benefits available in the US territory of Puerto Rico. Basically, if you move to Puerto Rico, spend 183 days a year on the island, and qualify for Act 22, all crypto gains on coins acquired after you become a resident will be tax free. See: Move to Puerto Rico and Pay Zero Capital Gains Tax.

I hope you’ve found this article on how the government is targeting Bitcoin to be helpful. For more information on taking your IRA offshore, setting up an asset protection structure, or moving to Puerto Rico, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist you to protect your coins and keep more of those crypto profits.

ICOs come to the Caribbean

09/15/2017/0 Comments/in Articles, Banking Offshore, Cryptocurrency, Initial Coin Offering, International Business/by Christian Reeves

ICOs and cryptocurrencies are coming to the Caribbean. Many Caribbean islands are looking to the licensing of cryptocurrency and ICOs to boost their fledgling financial services sector. The banking, FX (Forex currency conversion), investment and brokerage industries are all moving towards blockchain. The Caribbean island who gets to a solid licensing scheme the quickest might dominate the industry for years to come.

And this move, to ICO and crypto, couldn’t come at a better time for the Caribbean. The offshore banking industry has been decimated in recent years. Puerto Rico is taking over the offshore bank licensing industry because smaller jurisdictions can’t compete with the tax deals from the US territory.

Likewise, offshore banks throughout the Caribbean are closing because it’s become impossible to find and keep correspondent banking relationships. Without the support of bigger banks, the smaller offshore entities are out of business.

I believe crypto will solve many of these issues for offshore banks, but not just yet. For more, see: Blockchain and cryptocurrency are the future of offshore banking.

What’s hot today are ICO platforms and offshore crypto exchanges.

Let’s start with ICOs. This financing method, similar to stock offers, has characteristics that make it different and unique, which is perhaps the main reason why, the regulators are slow to recognize it. The SEC, just this month, equated ICOs to IPO (Initial Public Offering) for regulatory purposes. For more on this topic, see: Crowdsale vs. ICO.

Investors receive ICOs as coins or tokens, they even are given certificates if investments made in Ethereum. ICOs could be done from the mere start of companies, or in financing phases commonly is embodied in a document that is known as “White Paper” explaining the operation and investment.

Does anyone regulate the ICOs?

As mentioned previously, the United States sector called SEC has begun regulating ICOs. Also as, Singapore has MAS, and China has PBoC regulating or banning cryptocurrency, and so forth. Essentially these agency regulate for their own nationals but their is no international regulator for digital investments made. In fact, China has closed down all ICO platforms and cryptocurrency exchanges.

So, you may ask if the investment exists in cyberspace, what is the difference of the physical location? Why do you need a license to operate a crypto exchange?

The physical location, or jurisdiction of your license and/or your investment, is key in avoiding stricter regulations. Many Caribbean jurisdictions are looking very favorably on crypto currency to support their financial services offerings.

Can you imagine your investments being tax free?

The Caribbean is one of the most approachable financial markets in the digital world, flexible and sovereign governments are abundant in these warm waters, and the ICO world is looking for offshore solutions.

The Caribbean holds 13 sovereign island nations and 12 dependent territories, each having its own financial systems and source of income (tourism, local businesses, financial services, corporate formations, etc). Many Caribbean nations are struggling with low economic growth, and feeling the battle of de-risking banks and the high cost of compliance. Digital currency issuance is a viable solution to solve a number of problems in the Caribbean. See How to Raise Money for an International Bank

Where can we avail of this wonderful opportunity?

Barbados Central Bank is working has been working with blockchain since last year with the startup called Bitt which is empowered by California startup Netki. But wait there’s more, Bitt launched a digital Barbadian dollar in a partnership, through blockchain startup Colu. Basically demonstrates that cryptocurrency, ideally in sovereign nations, could be backed by real government currency. This concept stirred a wild fire in the Caribbean, soon to join similar platforms are Aruban Florins and Bahamian Dollars. Seeing that these hold “traditional” exchanges to the USD, transactions are simplified to tangible notion rather than a stock value if you are still insecure about investing. Your Token conversion is more or less solved and you are giving sustenance to a devastated economy (always think about the greater good).

As for tax havens Puerto Rico has opened the gates for all new companies to incorporate under new tax exemption programs, if your new company wishes to receive funds through ICO in Puerto Rico as of now there are no reasons not to – and local domiciled shareholders could receive 100% of their gains legally, through Act 22.

Then there are those Caribbean jurisdictions that don’t regulate ICOs or crypto at all. If you set up in Dominica, through an offshore corporation, you will have no government oversight. And, if you do set up in Dominica, you will have the opportunity to help shape the laws when the are finally enacted.

In my opinion, building a business and becoming part of a community in Dominica or another island that has not yet drafted crypto statutes is an amazing opportunity. So long as you select the correct political climate, you might well become a major player in the region.

I hope this article on ICOs coming to the Caribbean has been helpful. For more information on structuring an ICO platform, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Tax on Bitcoin Transactions

08/30/2017/0 Comments/in Articles, Banking Offshore, Taxation/by Christian Reeves

In this post I’ll talk about how the United States taxes bitcoin transactions and how you can reduce or eliminate those taxes by planning ahead. Bitcoin and cryptocurrencies are generating massive returns, but are very volatile. Proper tax planning must take both of these issues into account.

The US Internal Revenue Service declared Bitcoin and cryptocurrency capital assets back in 2014. This is significant because, by treating Bitcoins and other virtual currencies as property and not currency, the IRS is imposing extensive record-keeping and taxes on its use.

That is to say, from a federal tax perspective, Bitcoin and other cryptocurrency are not considered “currency.” On March 25, 2014, the IRS issued Notice 2014-21, which stated that, “Virtual currency is treated as property for U.S. federal tax purposes.”

The notice further reads, “General tax principles that apply to property transactions apply to transactions using virtual currency.”

In other words, the IRS is treating the income or gains from the sale of a Bitcoin as a capital asset, subject to either short-term (ordinary income tax rates) or long term capital gains tax rates, (20% tax rate assuming Trump repeals the Obamacare tax).

Fyi… in July of 2017, the US Securities and Exchange Commission ruled that cryptocurrencies are a currency. As a result, ICOs are regulated by the SEC.

Tax Reporting for Bitcoin Transactions

When you sell a Bitcoin, you must report the purchase price, purchase date, sale date and sale price on Schedule D of your personal return. If you’re audited, you must provide documents to prove your basis in these Bitcoins.

For example, if you bought Bitcoins in 2015 and sell them in 2025, you must keep your purchase “documents” until at least 2029, when your audit statute expires. The IRS usually has 3 years to audit your return after it’s filed.

You also need to decide which coins you sold when you report the transaction. For example, you bought two bitcoins in 2015, two in 2016, two in 2017 and two in 2018. Then you sold one coin in 2018. Which coin did you sell?

Since Bitcoin is taxed as personal property, you can chose from two accounting methods. You can select the coin sold using first-in-first-out (FIFO), last-in-first-out (LIFO), or to sell specific tax lots that are most efficient under the “specific share identification” method used for stocks. For more information, see: Bitcoin Tax Guide: Trading Gains And Losses – LIFO, FIFO, Offsetting Lots.

Under LIFO, you would have sold one of the coins you purchased in 2018 in that same year. Under FIFO, you would have sold one of the coins you purchased in 2015 in 2018.

Which accounting method you choose can make a major difference on your taxes. FIFO is the most common and spreads your tax obligations more evenly over the years assuming steady growth. LIFO can defer taxes, but can also result in major spikes in taxes owed.

Once you select a reporting method for your Bitcoin transactions, you must stick with it. If you go with FIFO, you must use that each and every year. You can’t switch methods year after year. For example, you can’t switch from LIFO to FIFO because you want to maximize your crypto gains because you have a large capital loss in a particular year.

Stop Paying Taxes on Your Bitcoin Transactions!

Because Bitcoin sales are taxed as a capital gain, there are three ways you can stop paying taxes on your bitcoin transactions. They are:

Invest through your IRA,
Invest through a life insurance policy, or
Move to the US territory of Puerto Rico.

If you have a sizable IRA or retirement plan, you can buy Bitcoins through this account. Because Bitcoin is a capital asset, you’re allowed to hold coins inside your IRA. Most US IRA providers don’t allow Bitcoin, but you can take your IRA offshore and buy using an international wallet.

When you buy Bitcoin in a traditional IRA, you get tax deferral. You’ll pay tax on the gain when you take your distribution. When you invest through a ROTH IRA, you get tax free… you never pay tax on the gain.

Of course, buying Bitcoin in an IRA isn’t always possible or good practice. Most young investors don’t yet have significant cash in their retirement accounts. Also, Bitcoin is highly volatile and most investment advisors don’t recommend gambling with your retirement savings.

If you buy Bitcoin in an offshore IRA using leverage or a loan, you need to watch out for Unrelated Business Income Tax on the gains. For more on this, see: What is UBIT in an IRA.

Leverage on Bitcoin contracts is generally not available in the United States. The CFTC does not permit American retail customers to trade leveraged Bitcoin contracts on Bitcoin exchanges, thus investing through an offshore IRA LLC with a UBIT blocker can be a significant advantage to a sophisticated investor.

Another way to buy Bitcoin tax free is in an international life insurance policy. If you invest at least $1.5 to $2.5 million, you can get a US compliant life policy that allows you to control your investments.

Like the IRA, this policy gives you tax deferred growth if you cancel it during your lifetime. It also gives you tax free similar to a ROTH if you hold it until your death and transfer the assets to your heirs.

Offshore life insurance is a very powerful and complex tax planning tool. For more, see: Benefits of Private Placement Life Insurance.

The third way to stop paying tax on your Bitcoin transactions is to move to the US territory of Puerto Rico. If you move out of the United States, spend 183 days a year in Puerto Rico, and otherwise qualify for Act 22, you pay zero tax on gains on assets acquired after you move to the territory.

First, note that the United States taxes its citizens on our capital gains no matter where we live. If you move to Colombia, you still pay US tax on your crypto gains because the US taxes you on your worldwide income. So long as you have a US passport, you pay tax on your Bitcoin transactions.

The ONLY exception to this tax on worldwide income is the US territory of Puerto Rico. Section 933 of the US Tax Code excludes Puerto Rico source income from US tax, which allowed Puerto Rico to create it’s own tax rules.

Because the territory is in dire financial shape, they’re doing everything possible to attract high net worth investors. You can move to Puerto Rico, pay zero tax on your capital gains, and never pay US tax on those profits, even if you return to the States after a few years.

Puerto Rico’s tax incentives present a truly unique opportunity for US persons to benefit from the territory’s financial hardship. For more, see: How to benefit from Puerto Rico’s bankruptcy.

For example, you can set up a business on the island and cut your corporate tax rate by 90%. An internet business operating from Puerto Rico will pay only 4% in corporate tax on its PR sourced income. For more, see: Changes to Puerto Rico’s Act 20.

You might also like to read through: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

I hope you’ve found this article on how the US taxes Bitcoin, and how to eliminate that tax, has been helpful. For more information, please contact me at info@premieroffshore.com or (619) 483-1708.

Blockchain and cryptocurrency are the future of offshore banking

07/27/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank License, Puerto Rico Tax Incentives/by Christian Reeves

As I watch the offshore banking industry fight it’s way back to respectability and profitability, I expect blockchain and cryptocurrencies to play a major role in the comeback. Small offshore banks are down, but far from out. Blockchain and cryptocurrency will bring with them a paradigm shift in costs, allowing offshore banks to compete with their larger counterparts in top tier jurisdictions.

Note that I’m talking about the systems and technologies behind blockchain and cryptocurrencies in this article. About the value of blockchain in the offshore banking industry. So, let me get the volatility issue out of the way up front.

Yes, Ethereum, Bitcoin, and the rest are volatile. Ethereum lost about 50% of it’s value recently, and Bitcoin 25% before making a comeback on a deal to prevent the “fork.” And some believe the Ethereum market is a major bubble because of ICOs.

Such assets don’t fit well onto the balance sheets of certain offshore banks because of the regulatory policies of Central Banks.

For example, Belize is not the jurisdiction for an offshore bank that holds cryptocurrency. Their basic capital requirement is 20% and goes higher the more volatile the asset. Want to hold $1 of pink sheet stock? You need $1 of cash on your books.

But there are offshore jurisdictions that are working to attract Crypto banks. For example, the US territory of Puerto Rico just issued a license for a Cryptocurrency International Financial Entity (their version of a banking license). Dominica is also active in the issuance of quality offshore banking licenses and makes allowances for cryptocurrency.

And a number of open-sourced groups have been formed to increase the availability of blockchain technology for offshore banks. For example, the Enterprise Ethereum Alliance became the world’s largest open-source blockchain initiative on July 18, 2017. With members like MasterCard, Cisco and Scotiabank, I have high hopes for this team.

Scotiabank makes EEA interesting as as association offshore banks. Scotia holds a banking license in Puerto Rico, and licenses throughout the Caribbean, but no US license. Scotia is closely tied to Bank of America, and has offices in the United States, but no US charter.

With that said, the value of blockchain and cryptocurrency for offshore banks is in the following three areas:

The ability to transmit FIAT and cryptocurrency via blockchain outside of the high cost legacy systems like SWIFT and Fedwire.
The ability to transact without the oversight and compliance costs of a correspondent bank.
The ability to finance through ICOs and act as a platform for international ICOs for your clients.

Operational Efficiency

I believe that, because of it’s ability to transmit efficiently, blockchain will revolutionize the offshore banking industry. Offshore banks are being crushed by the high costs of compliance and by the outdated systems they’re forced to use.

When a small international bank wants to send a wire, they need to ask their correspondent for permission. Then the correspondent charges a fee, an agent takes a cut (if it’s a nested account), SWIFT charges a fee, and so on. Many banks are forced to charge $100+ to send a wire and net $15 per transfer.

As a result, the only service an offshore bank can offer is wealth management and cash management / retained earnings. You can’t run most business accounts through an offshore bank because the wire fees will eat you alive. Likewise, you can’t easily make payments to vendors or make small transfers in any currency. And, finally, very few clients want to go through the hassle of sending an international wire.

An offshore bank operating over blockchain, or network like Ripple, can send FIAT or crypto ledger to ledger, thereby bypassing high cost wire systems. This will allow them to transmit money across borders at little or no cost.

Once these blockchain systems become available on a wider scale, offshore banks will be able to compete with larger correspondent banks who currently have a monopoly on money transmissions.

I don’t think we’ll need to wait long for blockchain to dominate the offshore banking industry. I have clients setting up in Puerto Rico now under Act 273 that will transfer multiple FIAT currencies over blockchain.

Offshore Bank Compliance Issues and Blockchain

Then there’s the ability to control your compliance costs by reducing or eliminating your exposure to correspondent banking partners. The bane of any offshore bank is correspondent banking. Ask any international banker what they worry about and they’ll say correspondent banking, compliance risks from corresponding partners, and how to keep their correspondent accounts open.

All quality banks will need to deal with AML and KYC. No matter how you transact, you must protect your bank from money launderers and criminals. On the other hand, FATCA and KYC (or even KYCC, Know Your Customer’s Customer), are out of control. The United States and the EU can fine an offshore bank out of existence for an honest mistake and everyone is running scared. Most of these compliance requirements are being pushed upon offshore banks by their correspondent partners.

Reducing the number of transactions processed through your correspondent bank reduces costs, reduces compliance, and allows you to do business on your terms, not those imposed by a global bank.

Someday, you might be able to eliminate the the correspondent parter all together which will change the game. For more, see: How to Setup a Bank for the Marijuana Industry.

Initial Coin Offerings and Offshore Banks

Finally, there’s the ICO market. For many reasons, these offerings are best facilitated by an offshore bank. The bank is best suited to perform the due diligence, secure the transaction, issue the tokens, hedge that token, and providing the FIAT currency against the Crypto that comes in.

ICOs have allowed startups around the world to raise hundreds of millions of dollars by issuing digital tokens. Over half a billion dollars has been raised through these Initial Coin Offerings in the first 6 months of 2017. Amazing growth considering the ICO didn’t even exist 2 years ago.

And the speed of these ICOs is incredible. Genosis raised $12 million in 10 minutes back in April while Brave took in $35 million in less than 30 seconds. Demand for ICOs is strong and the opportunity for offshore banks is significant.

Running these ICOs through an offshore bank will maximize the privacy of the investors and may reduce SEC and other regulations. Operating outside of the purview of US regulators is sure to unlock capital and allow investors to place their capital more efficiently.

And there are plenty of reasons people prefer to hold their crypto offshore. For example, privacy, asset protection, etc. Also, the US IRS is in the process of auditing most crypto accounts at CoinBase. They can do this because of a John Doe summons issued to the brokerage last year.

While there are ICOs which are open to all US persons, the SEC just issued guidance saying that ICOs are regulated transactions (Reg D, Reg S, accredited investor standards, etc). The government hasn’t prosecuted anyone yet, but we all expect they will… and when that happens, some heads will roll. The SEC issued its first statement on ICOs July 25, 2017. See: Using a blockchain doesn’t exempt you from securities regulations.

It also appears that US brokerages will be subject to the money transmission laws of each state. See: Washington’s New Cryptocurrency Exchange Rules Are Now in Effect.

If an offshore business were to run an ICO through an offshore bank, they should avoid these regulations. Of course, you can’t market the offering in the United States without registering and must follow the KYC and AML rules of your jurisdiction. But, the use of an offshore bank for an offshore ICO is sure to reduce costs and streamline the process.

I’m also looking forward to the first ICO by an offshore bank. A high tech international bank focused on privacy and blockchain is a perfect candidate for a big dollar ICO. For more, see: How to Raise Money for an International Bank.

Conclusion

I hope you’ve found this article on why I believe blockchain and cryptocurrencies are the future of offshore banking to be helpful. If you’re considering forming an offshore bank, you might also read through Tax Planning for an International Bank License.

For more information on setting up an offshore bank, or for assistance in opening a correspondent account, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

How to Raise Money for an International Bank

06/21/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank License/by Christian Reeves

Blockchain and cryptocurrencies are the future of offshore banking. Ledger based protocols allow offshore banks to compete with legacy banks by reducing wire transfer and remittance costs. Now, cryptocurrency has become the best way to raise money for an international bank.

Here’s how to raise money for an international bank with zero filing requirements, no Securities and Exchange Commission rules, no quarterly reporting, and no required public disclosures. Here’s how to fund an offshore bank with an ICO (Initial Cryptocurrency Offering).

The problem for an offshore bank in selling shares directly are obvious. Shareholders have zero liquidity. Their only exit is to hope the bank is acquired or some random person comes along to buy their shares at a premium.

Don’t even think of an IPO in a major market with an international banking license. Even if you could get listed, the regulation would kill your business. That leaves you to pink sheets or small exchanges like Panama or the Eastern Caribbean Securities Exchange… and we’re back to zero liquidity.

Cryptocurrency can solve this problem. Offshore and international banks can now raise money and provide liquidity to their shareholders through cryptocurrency. No matter where you’re licensed, Dominica, Cayman Islands, Cook Islands, Puerto Rico, Gibraltar, Luxembourg, and anywhere inbetween, you can now issue “cryptoshares” which are 100% liquid.

A company called Bancor has developed a protocol that allows anyone to issue their own digital “smart tokens.” These tokens are linked to a cryptocurrency and can be converted at any time by the owner. This provides liquidity and a market price from day one. Click here for a whitepaper by Bancor.

And we’re talking about real money here. Bancor used it’s token protocol to raise nearly $150 million in 3 hours!

Bancor issued its own tokens and raised about 390,000 Ethers (a crypto-currency that competes with Bitcoin) in its initial coin offering. That’s $147 million spread over 11,000 buyers. According to Bancor’s website, this is the second-largest fundraising campaign in the blockchain industry.

Bancor will hold 20% of its tokens in reserve to ensure liquidity. They’ll convert what they need to dollars to use it as any startup does, for operating costs and to grow the business. The investor hopes the value of the business, and thus the value of their tokens, will increase.

Of course, the investors are taking a risk that Ethers will go down in value. But, that’s the crypto game. Also, the tokens can be revalued and linked to any crypto or FIAT currency the investor chooses, providing the buyer a hedge or FX option not available in other investments.

Bancor is new and not yet available to the public. There are operating ICO platforms in China and one ready to launch in the United States. However, the US market will require SEC and Reg D compliance. Click here for an article from Wired on the topic.

Here’s why an ICO is the perfect way to capitalize an international bank: In an ICO, investors don’t get equity in the venture, nor do they lend money… they speculate on the future value of the tokens they buy.

So, in theory, the transaction doesn’t need to be reported to the bank’s regulators. No due diligence from the regulator, no background check, and none of the headaches associated with selling equity in an internationally licensed bank.

In order to minimize your disclosure requirements, I would add two caveats:

Have your international banking license, or at least your preliminary offshore banking license / permit to organize, in hand before announcing any intention to issue an ICO.
Form a holding company that owns the cryptoshares of the bank and sell tokens from that entity. This corporation might be registered in a jurisdiction different from where the bank is licensed and modeled after a US bank holding company.

In most jurisdictions, you’ll receive a preliminary international banking license before you’re allowed to go live. The costs to secure this license are relatively low. Once it’s issued you can go out and raise capital.

For example, you’ll get a permit to organize from Dominica with $1 million in capital and about $100,000 spent on a business plan and legal services. You’ll get a preliminary license from the US territory of Puerto Rico at about the same cost, but don’t need to put up the corporate capital ($550,000) until you’re ready to launch.

The permit to organize is a preliminary license from the government that indicates their willingness to issue a full license once you comply with certain requirements. A permit to organize allows you to incorporate your company, hire employees, lease space, set up your IT, and raise capital using the word “Bank” in your company’s name.

Moving from the permit to the full license is a mechanical process because the government has already approved your people and your business model. Securing the permit before you raise money eliminates much of the risk for the investors.

Because of the liquidity and privacy afforded investors, and the relative ease and reduced costs for the bank, I believe an ICO is the most efficient method for international banks to raise capital.

And cryptocurrency and blockchain are natural extensions of the modern offshore bank. From correspondent banking to the transfer of FIAT currency, blockchain is where it’s at for offshore banks.

See, for example: Correspondent Banking Powered By Machine Learning And Using Blockchain

I hope you’ve found this article on how to raise capital for an offshore bank helpful. For more on setting up an international bank or raising capital, please contact me at info@premieroffshore.com or call (619) 483-1708.