Setting up a BVI foundation

[MrBean]

Hi guys this is my first post and I'm looking for some advice on a new company structure.

We have a New Zealand incorporated company that has a DeFi product and we are now going to tokenize it and launch that token to the investor community next year. The company has already fully developed the product and has received equity investment - so we have shareholders in the company.

Advice received so far indicates that we should not issue the token in the New Zealand company as the local regulator doesn't have particularly clear guidelines in this area; almost all token offerings go through some sort of offshore entity. So we're in the process of deciding on the structure, which jurisdiction etc.. but I haven't got experience and would welcome any advice that can be provided.

Here is the structure we are looking at so far

• NZ incorporated private company (already exists)
  The NZ company does regular software development work
• BVI foundation as the token issuer
• BVI foundation holds the crypto assets
  The NZ company invoices the BVI foundation when it needs money for development work
• Funds are sent from the BVI foundation to the NZ company in crypto; NZ company then converts this into Fiat

The reason for posting is to get some general comments around how the structure looks, is it fairly typical? What are the tax implications?

The way we see it at the moment is the NZ company is basically going to pay tax as normal on invoiced amounts. But the BVI foundation will not pay any tax. Also a question about structure of the BVI foundation. Recognising that we already have investors / shareholders in the NZ company:

• Should the foundation council reflect the director structure of the NZ company?
  (from shareholders perspective: same control structure?)
• Should the foundation place the NZ company itself as the beneficiary OR the shareholders of the NZ company as beneficiary?
  not sure on the implications of these approaches...

 

[ncracy]

Hi there,

The way you see it at the moment is a bit naive, I'm afraid.
Generally if a BVI foundation is managed by NZ tax residents, it is considered NZ tax resident and should pay NZ taxes as usual.
If it is only partially manged/controlled from NZ, then it may be considered a CFC structure instead and most likely a CFC with passive income so those controlling NZers will be responsible for disclosures and NZ taxes on the BVI foundation income attributed to them. Note that the burden of proof that the foundation is controlled and managed not from NZ is always on you.

Of course the words "managed", "controlled", "passive", "CFC", "attributed" are ill-defined and there are gazillion details which might affect the outcome especially when a foundation is involved. There is no direct equivalent of a foundation in NZ legislation, so it may be treated as a company or as a trust or hell knows how which further complicates things.

I'm pretty sure that if you ask three different tax advisors you will get at least four conflicting opinions on this, and most likely all four would differ from the IRD position in the end
May be a good advisor can come up with some more tax-proof setup for you, but you will probably need an advance tax ruling from IRD approving this before going on.
Most likely, though, there will be no such setup at all, as the IRD will simply presume all your setups/structures as NZ entities.

My personal view on this: if you want to do crypto, the first and the most important thing is to stop being a tax resident of a high tax crypto-hostile jurisdiction.

 

[hernanday]

Sounds like you should go for a 1-3% tax locations like Barbados or the one in Seychelles, then licenses out the IP from there to the NZ firm, take advantage of double tax treaties,pay the 1-3% to the tax hounds and move on.

 

[MrBean]

Hey @hernanday and @ncracy good advice - thank you. I'm a lot more educated now, and still wading through the options. Now I'm one step closer will ask more specifics in mentor group. Thanks again.

 

[Alex Fr]

Sounds like you should go for a 1-3% tax locations like Barbados or the one in Seychelles, then licenses out the IP from there to the NZ firm, take advantage of double tax treaties,pay the 1-3% to the tax hounds and move on.

I think that 1-3% taxable company from Barbados or Seychelles could be considered as CFC structure in many cases. Am I wrong?

 

[hernanday]

I think that 1-3% taxable company from Barbados or Seychelles could be considered as CFC structure in many cases. Am I wrong?

Yes it can be, but he will have to understand the tax laws of his country. They typically require legit activity in those locations, but wages over there are low, and enforcement is difficult for local tax authorities so, it depends on how much he is willing to spend to eliminate his tax issue. If you are making $400k, with 50% tax rate, spending 5-10k for a "management and mind" in Barbados is an obvious move.

 

[tictac991]

Hey, are there some solutions to this problem? I have the same. I have a company in country A but need to do it in Country B (e.g. BVI) because of regulation. Dont really know how ICO/Token issue will be taxed..