The top ‘onshore’ crypto jurisdiction — if you’re not American

Crypto Law Insider is the leading legal authority for entrepreneurs and investors in the cryptocurrency and blockchain ecosystem.

Delaware has held bragging rights as the first state to adopt the US constitution since 1787. And it seems that being a pioneer is the State’s ‘thing,’ as it takes a similar approach to drive blockchain adoption in the country.

True to its motto, the state of ‘liberty and independence’ has taken many steps over the past few months to provide an attractive business environment for crypto businesses.

While jurisdictions such as Malta and Zug have become some of the most established blockchain and crypto-friendly places in an international context, Delaware has enforced a series of legislative changes that have positioned it as the new ‘Crypto Valley’ in the US.

The main driving factors for this are Delaware’s laws designed to attract foreign businesses to register in the state and the legalization of tokenized securities.

Read on to learn about what makes this ‘onshore’ jurisdiction such an attractive choice (at least for non-US Persons)…

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In 2017, Delaware governor John Carney signed the “Blockchain Bill” that set up a legal framework to encourage companies to make use of blockchain technology to track ownership of shares, stockholder votes and proof of transactions in a legally binding way.

In layman’s terms, companies are now allowed to issue tokenized stocks and shares electronically in the form of digital tokens. That being said, it is important to note that compliance with Delaware blockchain laws does not exempt you from federal securities laws.

Tokenized equity ownership solves the age-old problem that affects physical share ownership and the stock markets –figuring out who owns what in the deep sea of stock exchanges and corporates.

The Harvard Business Law Review has noted the state’s corporate governance systems have long relied on legacy paper-based processes that simply can’t deal with the sheer volume and complexity of modern day stock trading and corporate record keeping.

This is why the bill is such a boon for business administration, as it sees the potential of using tokenized equity to track ownership and corporate shareholdings.

The use of decentralized ledgers to act as legal proof of share ownership, in particular, has essentially made the state of Delaware a blockchain adoption leader.

Coupled with the launch of the Delaware Blockchain Initiative in 2016, the regulatory and legal environment encourages big corporates to embrace blockchain technology –and it could entice foreign-based blockchain companies to open their doors in the state.

Business-friendly

A quick internet search brings up countless service providers that facilitate the process of Delaware incorporation, which shows the demand for this structure. For good reason too, Delaware is one of the best and easiest places to incorporate in the world.

You could have a Delaware LLC set up in a matter of days, for less than $1,000 and never have to set foot on US soil.

To make incorporation especially easy for foreign companies, companies that wholly operate outside the state are not required to obtain a Delaware business license.

On top of that, for those that value privacy the state’s laws do not require companies to publicly disclose their officers or directors. This gives businesses a higher level of confidentiality to run their operations, something prized by many crypto-focused businesses and unheard of in most other major jurisdictions.

As we’ve seen around the world, crypto and blockchain companies look to register companies in places that offer privacy, regulatory clarity and tax incentives, all of which Delaware provides.

Amazing tax advantages for non-US Persons

Last, but perhaps the most compelling reason to register a business in Delaware, is the significant tax advantages offered by the state.

Entities that are formed in the state but conduct their business outside of it do not pay state income tax.  Moreover, if the entity is formed as a pass through (e.g., LLC or S-Corp) then all US federal tax obligations flow to the individual tax returns of its owners. If those owners are not US Persons, and the business does not have US sourced income, there will be no income taxes owed in the US.

To repeat, you can own a Delaware entity and have no income taxes if you structure it properly!

For US Persons, while you may not have to pay Delaware taxes, you are still subject to federal personal and corporate income taxes. And though the US federal corporate income tax rate has come down in recent years, the country as a whole is far from being a low-tax jurisdiction.

What does this mean for Crypto Law Insiders?

As Insiders, you must be opportunistic when it comes to jurisdictions that can best serve your company’s needs.

Given the many tax and legal benefits offered, Delaware is a good option for non-US Persons when forming a business that will not have US operations or generate US source income.

Additionally, a Delaware entity will be able to open a US bank account, giving you access to banking services you probably can’t get anywhere else. In a world where access to banking services is no longer a given, this perk should not be overlooked.

So in sum, Delaware entities are easy to form, cheap to maintain, offer owners privacy, and can be structured in way where no income taxes are owed. Sounds like a good option for Insiders to consider.

Dean Steinbeck is the Managing Director of Crypto Law Insider, the leading legal authority for entrepreneurs and investors in the cryptocurrency and blockchain ecosystem.

Dean is a US corporate lawyer with a focus on data privacy and technology. With over 15 years of experience representing VC-backed software development companies, Dean has found himself at the center of multiple blockchain projects and is currently recognized as one of the top attorneys in the cryptocurrency space.

Dean currently serves as General Counsel for Horizen (formerly ZenCash), a privacy-oriented cryptocurrency and cutting-edge blockchain platform. Prior to Horizen, Dean was General Counsel at TigerConnect, the leading communication platform in the US healthcare market. His experience gives him an in-depth knowledge of the legal intricacies within blockchain technology, data privacy, intellectual property, venture capital funding and regulatory compliance. Click here to learn more about Crypto Law Insider.

 

 

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