How will the “Crypto President” reshape offshore crypto jurisdictions?

We sat down with Zoe Wyatt, Partner at Andersen Global and one of City A.M.'s Top 50 Crypto Professionals 2024, to discuss the evolving role of OFCs in the cryptocurrency ecosystem. She offers us insights into how financial centres are positioning themselves as cryptocurrency hubs, and how decentralisation is redefining finance.

Why crypto looks offshore

Wyatt begins by explaining why offshore jurisdictions are integral to the crypto sector. “For UK and European-based multinational groups, financial hubs like the Channel Islands, Ireland, and Luxembourg have long been some of the go-to destinations for international tax structuring”, she says. However, despite their appeal for traditional finance, these jurisdictions have not been eager to embrace Web3.

“Many corporate service providers in these traditional OFCs are reluctant to take on Web3 clients”, Wyatt explains. “The main challenge lies in meeting anti-money laundering (AML) and other regulatory requirements, especially when projects undertake token issuances or operate decentralised protocols as it is often impossible to know who the purchasers are or where they’re located.”

This is where jurisdictions like the Cayman Islands, British Virgin Islands (BVI), and Panama come into play. “They have established more flexible regimes that can accommodate Web3 projects while maintaining regulatory compliance”, Wyatt says.

However, she points out that even in these jurisdictions, nuances exist. “For example, Cayman’s Virtual Asset Service Provider (VASP) regime means that most projects cannot issue a token directly from a Cayman entity. Instead, they often use a BVI entity for the token issuance but still leverage Cayman’s unique structures for governance.”

For projects wary of Cayman’s reputation, Swiss Associations and Foundations are common alternatives, albeit with longer setup times and stricter regulatory and tax implications. “They require more careful structuring to avoid unintended tax consequences for founders and participants.”

DeFi, DAOs, and decentralisation

Turning to the rise of decentralised finance (DeFi) and decentralised autonomous organisations (DAOs), Wyatt explains that the evolving nature of DeFi is influencing jurisdictional choices.

“Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC), and Ras Al Khaimah Economic Zone (RAKEZ) all have foundation-style vehicles”, she notes. “These are not commonly used in Web3 yet, particularly because the regulatory landscape there means that exchanges, protocols, or token issuances cannot take place without satisfying AML and other regulatory requirements – which is not easy to do.”

Wyatt also highlights how the origins of these structures impact their suitability. “The foundations may look more like a trust because they have traditionally been used for private client succession planning, which can have significant tax consequences for the founders, development company, and other participants.”

Yet, there is room for innovation. “We have recently set up a RAK foundation to act as a decentralised wrapper with a BVI subsidiary for the regulated activity”, Wyatt shares.

The "crypto president"

With Trump’s historic return to the White House, we ask Wyatt what this could mean for offshore finance centres serving the crypto sector. Her response is cautious.

“Everyone is excited at the prospect of being able to ‘locate’ in the U.S.”, she shares. “I would proceed with caution. Once a project is within the U.S., it is almost impossible to get out – certainly without remaining subject to U.S. taxes.”

Wyatt warns of the volatile political climate. “It is not inconceivable that Trump doesn’t even complete his four-year term – whether that’s through democratic process or an assassination – and even if he does remain, the landscape could still change very quickly”, she says.

Given this uncertainty, Wyatt advises clients to structure their operations carefully. “Anyone looking at the U.S. should consider keeping all IP elsewhere and establishing a dual structure, potentially with a non-U.S. vehicle as the top entity.”

While a Trump presidency could ease digital asset regulations, Wyatt cautions that the shifting political climate makes long-term strategies risky. The potential deregulation may initially seem attractive to crypto firms, but the underlying volatility could expose projects to unexpected liabilities.

Web3 vs. traditional business

When it comes to jurisdictional preferences, Wyatt highlights clear differences between Web3 projects and traditional businesses.

“Traditional multinationals often opt for Switzerland or Ireland as their HQs, but Web3 projects take a different route”, she emphasises. “For one, it’s hard to find Web3 talent in Ireland. While Switzerland’s Zug and Lugano are recognised Web3 hubs, the talent pool is still limited, and hiring is expensive.”

Instead, many Web3 projects are flocking to the UAE. “It’s the most common jurisdiction for establishing a hub right now”, Wyatt explains. “With a low 9 per cent corporate tax rate, no income or capital gains tax for individuals, a common law tax regime based on OECD principles, and a significant Web3 talent pool, this jurisdiction is booming.”

More mature projects, however, are moving towards traditional multinational structures. “They set up a hub in a low tax jurisdiction and establish local service entities. This can reduce a group’s effective tax rate from 25 per cent to around 9-12.5 per cent”, Wyatt adds.

The road ahead for offshore crypto

Wyatt makes it clear that decentralisation is reshaping how crypto projects approach legal and tax structuring, and OFCs remain essential in navigating these challenges. “For a truly decentralised project, a legal wrapper is critical because of the unknown legal and tax position for participants where there is none”, she points out.

Jurisdictions that offer flexible legal structures while maintaining regulatory compliance will continue to be the most attractive for Web3 projects. While traditional OFCs like Cayman and BVI remain key players, emerging hubs like the UAE are also positioning themselves as strategic locations for crypto businesses.

In an industry facing regulatory uncertainty and geopolitical shifts, offshore finance remains central to the evolution of decentralised technology.