Author: Crypto Miao, Liu Honglin

Web3 companies face unique legal, tax, and operational challenges in international expansion due to their decentralized nature. Choosing the right corporate structure can not only help companies operate in compliance but also optimize tax burdens, reduce risks, and enhance market flexibility to adapt to different regional legal frameworks, technological infrastructures, and market demands.

What is an Offshore Structure

An offshore structure refers to the organizational structure and management model that companies build during the globalization process, aimed at coordinating global resources, adapting to the characteristics of different markets, and achieving efficient multinational operations.

The design of the offshore structure directly impacts a company's global competitiveness and operational efficiency. It is essential to consider not only the equity structure but also future structural adjustments, tax costs, intellectual property management, financing activities, and overall maintenance costs.

Types of Offshore Structures

Tax optimization is a significant consideration in the corporate structure selection for Web3 companies, as the global tax framework increasingly affects digital assets. When establishing a holding company for international expansion, Hong Kong, Singapore, and BVI are popular choices.

1. Single Entity Structure

1. Hong Kong

Hong Kong implements a low tax rate system, mainly including profits tax, salaries tax, and property tax, without levying value-added tax, business tax, and other taxes. The corporate income tax rate is 8.25% for profits not exceeding HKD 2 million, and 16.5% for profits exceeding HKD 2 million. Dividends received from overseas companies with a shareholding ratio of over 5% are exempt from tax.

Hong Kong has signed double taxation avoidance agreements (DTA) with approximately 45 countries and regions worldwide, covering key markets such as mainland China, ASEAN, and Europe. This extensive network of agreements creates a vast space for tax planning, particularly in reducing withholding tax on cross-border dividends and interest.

2. Singapore

Singapore's corporate income tax rate is 17%, slightly higher than Hong Kong. However, Singapore's tax system is relatively friendly to technology and research enterprises, allowing companies to enjoy various tax exemptions and deduction policies. Additionally, Singapore exempts overseas dividends and capital gains from tax (subject to relevant conditions).

Moreover, Singapore offers a range of tax incentive policies, such as Regional Headquarters (RHQ) and Global Trader Programme (GTP), providing companies with more possibilities for tax planning.

Singapore has signed DTAs with over 90 countries internationally, covering major global economies, including China, India, and the EU. This provides companies with a very broad operational space for tax planning, especially beneficial in reducing withholding tax on cross-border dividends and interest.

3. BVI (British Virgin Islands)

BVI, with its zero tax regime, strong privacy, and flexible structure, has become the preferred offshore jurisdiction for global cross-border investment, asset protection, and tax optimization, particularly suitable for holding companies and the cryptocurrency industry.

BVI does not levy corporate income tax, capital gains tax, dividend tax, or inheritance tax, resulting in extremely low tax burdens.

BVI companies do not publicly disclose shareholder and director information and can further conceal actual controllers through Nominee services, ensuring business privacy and asset security.

As an internationally recognized offshore entity, BVI companies are widely accepted in major financial centers (such as Hong Kong, Singapore, London, etc.), facilitating the opening of accounts in multinational banks and efficiently conducting international payments, trade settlements, and capital operations.

Main tax rate comparison:

2. Multi-Entity Structure

Using a multi-entity structure can facilitate more effective tax planning. Domestic companies can establish one or more intermediate holding companies in low-tax countries or regions (usually Hong Kong, Singapore, BVI, or Cayman) to invest in target investment countries. By leveraging the low tax rates and confidentiality of offshore companies, overall tax burdens can be reduced while protecting company information, diversifying parent company risks, and facilitating future equity restructuring, sales, or public financing.

• Case 1

Intermediate Layer Control: China → Singapore → Southeast Asia Subsidiary (e.g., Vietnam)

The Chinese parent company invests in Vietnam through a Singapore holding company. Singapore has signed bilateral tax agreements (DTA) with both China and Vietnam, allowing the withholding tax rate on corporate dividends to be reduced to a minimum of 5%, which can lower the tax rate by 50% compared to directly holding a Vietnamese subsidiary (the China-Vietnam DTA agreement is 10%).

As an intermediate layer company, transferring shares of the Singapore company typically does not incur capital gains tax; however, directly transferring shares of the Vietnamese subsidiary may face Vietnam's capital gains tax (20%). The Singapore structure aligns better with the transaction habits of European and American investors, enhancing asset sale liquidity.

Additionally, the Singapore company can serve as a regional headquarters, managing multiple subsidiaries for different country operations, facilitating the introduction of international investors or spin-off listings. The developed financial market in Singapore allows holding companies to issue bonds or obtain international bank loans, reducing financing costs.

• Case 2

VIE Agreement Control: BVI → Hong Kong → Operating Company

Due to strict regulations in some regions regarding the Web3 industry and high operational risks, a "VIE" agreement control framework (Variable Interest Entities) can be adopted, where a BVI company holds a Hong Kong company that reinvests in the operating company (e.g., Alibaba, Tencent Music, New Oriental, etc.). The offshore holding company achieves control over the operating company through a layered structure using the VIE agreement.

As the top-level holding company, the BVI company will be exempt from capital gains tax on future equity transfers, protecting the privacy of the founders.

• Case 3

Parallel Structure of Domestic and Foreign Companies:

The parallel structure of domestic and foreign companies can be applicable in situations where market and regulatory uncertainties, or reasons such as financing, geopolitical issues, qualifications, and data security, require different companies to collaborate on different businesses. For example: Mankun Research | Can the "Front Store and Back Factory" Model of Hong Kong + Shenzhen Comply with Regulations for Web3 Startups?

Overall lower tax rates. Foreign companies can choose to register in tax incentive regions (such as Hong Kong, Singapore, Cayman Islands, etc.), which typically have lower corporate income tax rates or exemptions from capital gains tax compared to domestic rates. By reasonably distributing profits through business cooperation, they can enjoy tax deductions in various locations, reducing overall tax burdens.

Independent operation of domestic and foreign entities. Under the parallel structure, domestic and foreign companies operate as independent legal entities, each subject to the tax jurisdiction of their respective locations. This means that the two companies can pay taxes according to the tax laws of their locations, avoiding global income consolidation tax issues due to equity relationships.

Summary by Mankun Lawyers

Choosing the appropriate corporate structure is crucial for Web3 companies going offshore, as it can optimize tax burdens, reduce risks, and enhance global operational flexibility. Whether utilizing a single entity structure to enjoy low tax rates or establishing a multi-entity structure based on business needs, reasonable design can significantly enhance a company's international competitiveness and support its thriving development in the Web3 ecosystem.

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