Going Global for Enterprises: Structure Selection and Tax Optimization Strategies

Written by: Crypto Miao

“Choosing the right corporate structure is crucial for Web3 companies going global; it can not only optimize tax burdens but also reduce risks and enhance operational flexibility worldwide.”

Whether utilizing a single entity structure to enjoy low tax rates or establishing a multi-entity structure based on business needs, a reasonable design can significantly enhance a company's international competitiveness and help it thrive in the Web3 ecosystem.

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 enterprises operate in compliance with regulations, but also optimize tax burdens, reduce risks, and enhance market flexibility to adapt to the legal frameworks, technological infrastructures, and market demands of different regions.

1. What is an overseas architecture

The offshore architecture refers to the organizational structure and management model established by enterprises during the process of globalization, with the aim of coordinating global resources, adapting to the characteristics of different markets, and achieving efficient multinational operations.

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

II. Selection of Types for Offshore Architecture

Tax optimization is an important consideration in the choice of Web3 enterprise architecture, and the global tax framework's impact on digital assets is becoming increasingly significant. When companies set up holding companies abroad, Hong Kong, Singapore, and BVI are popular choices.

(1) Single Entity Architecture

1. Hong Kong

Hong Kong implements a low tax rate system, mainly consisting of profits tax, salaries tax, and property tax, with no value-added tax, business tax, or other taxes. The corporate income tax rate is 8.25% on the portion of annual profits not exceeding HKD 2 million, and 16.5% on the portion exceeding HKD 2 million. When receiving dividends from offshore companies with a shareholding ratio of more than 5%, the offshore dividends are exempt from tax.

Hong Kong has signed Double Taxation 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 tax planning space for enterprises, especially in reducing withholding tax on cross-border dividends and interest.

2. Singapore

The corporate income tax rate in Singapore is 17%, slightly higher than that of Hong Kong. However, Singapore's tax system is relatively friendly to technology research and development companies, allowing them to enjoy multiple tax exemptions and deduction policies. Furthermore, Singapore exempts foreign dividends and capital gains from tax (subject to certain conditions).

In addition, Singapore offers a range of tax incentive policies, such as the Regional Headquarters (RHQ) and Global Trader Programme (GTP), which provide businesses with more possibilities for tax planning.

Singapore has signed DTAs with over 90 countries internationally, creating a network that covers major economies around the world, including China, India, and the European Union. This provides businesses with a very broad operational space in tax planning, particularly beneficial in reducing withholding taxes on cross-border dividends and interest.

3.BVI (British Virgin Islands)

The BVI has become the preferred offshore jurisdiction for global cross-border investment, asset protection, and tax optimization due to its zero tax regime, strong privacy, and flexible structure, making it 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 burden costs.

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

BVI companies, recognized as offshore entities internationally, are widely acknowledged by major global financial centers such as Hong Kong, Singapore, and London, 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 Architecture

By adopting a multi-entity structure, tax planning can be carried out more effectively. Domestic companies can establish one or more intermediate holding companies in countries or regions with low tax rates (usually Hong Kong, Singapore, BVI, or the Cayman Islands) to invest in target investment countries. Utilizing the advantages of offshore companies' low tax rates and confidentiality helps to reduce the overall tax burden on the enterprise, while also protecting business information, diversifying the parent company's risks, and facilitating future equity restructuring, sale, or financing for public listing.

Case 1 Intermediate Control: China → Singapore → Southeast Asia Subsidiary (e.g., Vietnam)

The Chinese parent company invests in Vietnam through a holding company in Singapore. 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 is a 50% reduction compared to the tax rate of directly holding a subsidiary in Vietnam from China (the China-Vietnam DTA agreement is 10%).

The Singapore company acts as an intermediary company, and the transfer of shares in the Singapore company is usually not subject to capital gains tax; however, a direct transfer of shares in the Vietnamese subsidiary may face Vietnam's capital gains tax (20%). The Singapore structure is more in line with the trading habits of European and American investors, enhancing the liquidity of asset sales.

And the Singapore company can serve as a regional headquarters, with multiple subsidiaries managing operations in different countries, facilitating the subsequent introduction of international investors or spin-off listings. The financial market in Singapore is developed, and the holding company can issue bonds or obtain international bank loans to reduce 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 operating companies (such as Alibaba, Tencent Music, New Oriental, etc.). The overseas holding company achieves control over the operating company through a layered structure using the VIE agreement.

BVI companies serve as top-level holdings, allowing for future equity transfers to be exempt from capital gains tax, thus 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 applied to situations where different companies need to collaborate on different businesses due to uncertainties in the market and regulations, or reasons such as financing, geopolitical issues, qualifications and licenses, and data security. For example: Mankun Research | Web3 Entrepreneurship, can the “front store and back factory” model of Hong Kong + Shenzhen be compliant? (hyperlink)

Overall tax rates are lower. Offshore companies can choose to register in tax-advantaged regions (such as Hong Kong, Singapore, the Cayman Islands, etc.), where there are usually lower corporate income tax rates or capital gains tax exemptions than domestically. By reasonably distributing profits through business cooperation, they can enjoy tax deductions in various regions and reduce the overall tax burden.

Independent operations both domestically and abroad. Under a parallel structure, the domestic company and the overseas company 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 the issue of global income aggregation for tax purposes due to equity association.

3. Summary

Choosing the right corporate structure is crucial for Web3 businesses going global. It not only optimizes tax burdens but also reduces risks and enhances operational flexibility worldwide. Whether leveraging a single entity structure to enjoy low tax rates or establishing a multi-entity structure based on business needs, a reasonable design can significantly enhance a company's international competitiveness, helping it thrive in the Web3 ecosystem.