Mankiw Research | Web3 Enterprises Going Global: Equity Structure and Tax Optimization Strategies

Web3 businesses face unique legal, tax, and operational challenges when expanding internationally due to their decentralized nature. Choosing the right corporate structure will not only help you operate compliantly, but also optimize your tax burden, reduce risk, and increase market agility to adapt to the legal framework, technology infrastructure, and market needs of different regions. What is the offshore architecture? The overseas structure refers to the organizational structure and management model built by enterprises in the process of globalization, with the purpose of coordinating global resources, adapting to the characteristics of different markets, and achieving efficient transnational operations. The design of the global structure directly affects the global competitiveness and operational efficiency of enterprises. It is necessary to consider not only the equity structure, but also future structural adjustments, tax costs, intellectual property management, financing activities, and overall maintenance costs. Select the type of overseas architecture Tax optimization is an important consideration in Web3 enterprise architecture choices, and the impact of global tax frameworks on digital assets is becoming increasingly significant. Hong Kong, Singapore, and BVI are popular choices for enterprises to build holding companies overseas.

1. Single-entity architecture
2. Hong Kong Hong Kong implements a low-tax tax system, mainly including profits tax, salaries tax and property tax, and does not levy value-added tax, business tax and other taxes. The corporate income tax rate is 8.25% for the part of the annual profit not exceeding HK$2 million, and 16.5% for the part of the annual profit exceeding HK$2 million. When receiving dividends from companies outside Hong Kong holding more than 5% of the shares, their overseas dividends are exempt from tax. Hong Kong has signed Double Taxation Agreements (DTAs) with about 45 countries and regions around the world, covering key markets such as Chinese mainland, ASEAN and Europe. This extensive network of treaties has created a very broad space for tax planning, especially in reducing the withholding tax on cross-border dividends and interest.
3. Singapore Singapore's corporate income tax rate is 17%, which is slightly higher than Hong Kong's. However, Singapore's tax system is relatively friendly to R&D companies, allowing them to enjoy a number of tax exemptions and deductions. In addition, Singapore exempts foreign dividends and capital gains from tax (if the relevant conditions are met). In addition, Singapore also offers a series of tax incentives, such as Regional Headquarters (RHQ), Global Trader Program (GTP), etc., which provide enterprises with more tax planning possibilities. Singapore has DTAs with more than 90 countries internationally, and this network covers the world's major economies, including China, India, the European Union, and others. This provides companies with a very wide range of maneuvers in terms of tax planning, especially in terms of reducing the withholding tax on cross-border dividends and interest. 3 BVI (British Virgin Islands) With its zero-tax system, strong privacy and flexible structure, the BVI has become the preferred offshore jurisdiction for global cross-border investment, asset protection and tax optimization, especially suitable for business scenarios in the holding company and crypto industry. There is no corporate income tax, capital gains tax, dividend tax or inheritance tax in the BVI, and the tax cost is very low. BVI companies do not disclose shareholder and director information, and can further hide the actual controller through the Nominee service to ensure business privacy and asset security. As an internationally recognized offshore entity, BVI companies are widely recognized by major financial centers around the world (such as Hong Kong, Singapore, London, etc.), which is convenient for opening accounts with multinational banks and efficiently carrying out international payments and payments, trade settlement and capital operations. Comparison of major tax rates:

Second, multi-entity architecture Adopting a multi-entity structure allows for more effective tax planning. Domestic enterprises invest by setting up one or more intermediate holding companies in some low-tax countries or regions (usually Hong Kong, Singapore, BVI or Cayman) in the target investment country. Taking advantage of the low tax rate and confidentiality of offshore companies, the overall tax burden of the enterprise can be reduced, and at the same time, the corporate information can be protected, the risk of the parent company can be dispersed, and it also provides convenience for future equity restructuring, sale or listing financing. Case 1 Middle-tier control: China→ Singapore→ Southeast Asian subsidiaries (e.g. Vietnam) The Chinese parent company invests in Vietnam through a Singapore holding company. Singapore has signed bilateral tax treaties (DTA) with China and Vietnam respectively, which can reduce the withholding tax rate for corporate dividends to as low as 5%, which can be reduced by 50% compared to China's direct holding of Vietnamese subsidiaries (10% under the China-Vietnam DTA agreement). As a middle-tier company, a Singapore company is usually not subject to capital gains tax on the transfer of equity in a Singapore company; If you directly transfer the equity of the Vietnamese subsidiary, you may face a capital gains tax in Vietnam (20%), and the Singapore structure is more in line with the trading habits of European and American investors to improve the liquidity of asset sales. In addition, the Singapore company can be used as a regional headquarters, with multiple subsidiaries to manage business in different countries, which is convenient for the subsequent introduction of international investors or spin-offs. Singapore has a well-developed financial market, and holding companies can issue bonds or obtain loans from international banks to reduce financing costs. Case 2 VIE Protocol Control: BVI→ Hong Kong → operating company Due to the strict regulation of the Web3 industry in some regions, the operational risk is high. Variable Interest Entities ("VIE") can be used to control Hong Kong companies through BVI companies to reinvest in operating companies (such as Alibaba, Tencent Music, New Oriental, etc.). The overseas holding company realizes the control of the operating company in the form of a VIE agreement through a layered structure. As a top-level holding, BVI companies are exempt from capital gains tax for future equity transfers to protect the privacy of 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 domestic and foreign companies need to divide and cooperate with different businesses due to market and regulatory uncertainties, or due to financing, geopolitics, qualifications, data security, etc. Such as: Mankiw Research | Web3 entrepreneurship, Hong Kong + Shenzhen "front store back factory" model can be compliant? The overall tax rate is lower. Offshore companies can choose to register in preferential tax jurisdictions (e.g. Hong Kong, Singapore, Cayman Islands, etc.), which usually have lower corporate income tax rates or capital gains tax exemptions than onshore. And through business cooperation, the profit will be reasonably distributed, enjoy the tax deduction in various places, and reduce the overall tax burden. Independent operation at home and abroad. Under the parallel structure, the onshore company and the offshore company are separate legal entities and are subject to the tax jurisdiction of their respective locations. This means that the two companies can be taxed separately according to the tax laws of their jurisdictions, avoiding the problem of pooling global income due to equity linkages. Mankiw's lawyer concluded Choosing the right enterprise architecture is crucial for Web3 companies to go global, not only to optimize the tax burden, but also to reduce risk and improve the flexibility of global operations. Whether it's using a single-entity architecture to enjoy low tax rates, or building a multi-entity architecture based on business needs, a reasonable design can significantly enhance the international competitiveness of enterprises and help them thrive in the Web3 ecosystem.

/ END. This article was written by Crypto Miao and Honglin Liu