For which projects is an offshore crypto license required?

Getting a license for a crypto company offshore is a step taken by many entrepreneurs. It means registering a business in a non-continental country and, most often, not in the native country of the business owner. A great share of offshore jurisdictions have their own established bodies that regulate, oversee, and control the crypto activities of the local companies. Consequentially, there are legal frameworks and licensing guidelines provided for such businesses.

There are benefits of an offshore crypto license that a domestic license cannot guarantee: comparatively rapid setup and development, lighter licensing and management requirements, and, of course, lower taxation.

Offshore crypto license types & features

Offshore licenses to crypto companies and crypto-asset issuers are mostly issued by island countries located in different parts of the world or countries that do not belong to any supranational organizations, like the EU or the EEA. The most popular examples of offshore licensing jurisdictions in 2024 are the British Virgin Islands, the Cayman Islands, Dubai VARA, Saint Vincent and the Grenadines, and the Seychelles.

Island countries like the British Virgin Islands (the BVI), the Cayman Islands, Saint Vincent and the Grenadines, and the Seychelles have similar scopes of licensing conditions and, therefore, their advantages coincide:

• Zero taxation on locally registered companies;
• Fast incorporation and licensing procedures;
• Basic and considerably lenient licensing requirements.

As for the potential downsides of such jurisdictions, their reputations fade in comparison to traditional, onshore licensing countries. Other offshore regulators, such as Dubai VARA or Switzerland, have a higher credibility and trustworthiness on the market, but it is also more difficult and financially demanding to secure a license in any of them. The reason is (but is not limited to) the higher corporate income tax rates, which are currently set at 9% for Dubai VARA and 8.5% for Switzerland.

Possible activities with an offshore crypto license

Not every crypto project requires a license per se: mostly, it will be necessary when your company is involved in or offers operations with fiat currencies in any form, as an addition to crypto. A good example would be on-ramp and off-ramp solutions, where clients can convert fiat currencies into crypto and vice versa before performing any operations.

However, it is still advisable to secure a crypto license to improve the overall trustability and reputation of your future company. Thus, such jurisdictions as the Cayman Islands, the SVG, or the BVI issue licenses for a large scope of crypto activities, including crypto exchange, blockchain trusts, DAO, DeFi protocols, peer-to-peer exchange, DApps, NFT issuance, and so on. Depending on the business models involved in your particular case, you can choose the regulator that licenses them all.

Requirements for obtaining an offshore crypto license

The regulatory requirements for the applicants can differ from country to country. At the same time, since most offshore jurisdictions have milder criteria and regulations compared to their traditional counterparts, the most common requirements you will come across are:

• Incorporation of a legal entity (company) in the licensing country;
• Renting an office space with a legal address;
• Providing identity documents of all directors and shareholders (ID cards, passports, or driver’s licenses, as well as certificates of non-criminal records);
• Passing the KYC check for all directors and shareholders;
• Depositing the starting share capital (if applicable).

These criteria may vary depending on the license type you are aiming for and the nature of your project. It is also advisable to consult an expert lawyer before commencing the application process. A lawyer can assist you with choosing the right license type for your company and fulfilling all the requirements of the regulator.

Advantages of an offshore crypto license

An offshore crypto license is a universal way to stay legally compliant and trustworthy while not suffering from stringent regulatory requirements at the same time. The majority of offshore jurisdictions, like the BVI or the Seychelles, are entire hubs of technological growth and development, encouraging the creation and development of crypto businesses on their territories.

Therefore, it is in their best interest to create such an environment that is not legally binding and a framework suitable even for novice crypto businesses. The advantages you can reap from acquiring an offshore license for your crypto project include:

• Easier and faster incorporation, company set-up, and licensing processes;
• Little to no corporate income tax (jurisdictions like the BVI, SVG, or the Seychelles have it at 0%);
• Cost-effectiveness: fast and cheap licensing allowing you to commence business in the fastest time frame ;
• Remote operation: offshore crypto licenses give you an opportunity to conduct business remotely, without your own physical presence in the country.

While the advantages overweigh, there are certain risks and challenges that may come your way when licensing your crypto startup in an offshore jurisdiction. Consider the following stumbling blocks:

• Despite the speed and ease of acquiring a license, offshore jurisdictions are still considered less reliable compared to traditional regulators. Therefore, not every banking institution or a business partner may agree to cooperate with your company in the long run;
• Often, offshore countries require hiring at least one local director and an AML specialist for your company. It is not always easy to find a professional that ticks all the boxes while being a resident of the country you’re registering a company in;
• Not all crypto activities can be regulated under offshore jurisdictions since some of them are still expanding their legal frameworks. Therefore, it is important to double-check the list of permitted business models before applying for a license.

How to choose the right offshore license for your business

While it is not difficult to apply for and secure an offshore crypto license, we strongly advise to use the services of a lawyer who knows the intricacies of building a crypto business offshore. A good lawyer will break down the peculiarities of each jurisdiction from A to Z and together, you will choose the best course of action for licensing your startup.