Web3 companies face unique legal, tax and operational challenges in their 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 increase market flexibility to adapt to the legal frameworks, technical infrastructure and market needs of different regions.
What is Overseas Architecture?
The overseas architecture refers to the organizational structure and management model built by enterprises in the process of globalization. The purpose is to coordinate global resources, adapt to the characteristics of different markets, and achieve efficient cross-border operations.
The design of the overseas structure directly affects the global competitiveness and operational efficiency of the enterprise. Not only the equity structure should be considered, but also future structural adjustments, tax costs, intellectual property management, financing activities and overall maintenance costs.
Type selection of overseas architecture
Tax optimization is an important consideration for choosing Web3 enterprise architecture, and the impact of the global tax framework on digital assets is becoming increasingly significant. When companies go overseas to set up holding companies, Hong Kong, Singapore and BVI are popular choices.
1. Single Entity Architecture
1. Hong Kong
Hong Kong implements a low tax system, which mainly includes profit tax, salary tax and property tax, and does not impose value-added tax, business tax and other taxes. The corporate income tax rate is 8.25% for the part of annual profit not exceeding HKD 2 million, and 16.5% for the part of annual profit exceeding HKD 2 million. When receiving dividends from Hong Kong companies with a shareholding ratio of more than 5%, the overseas dividends are tax-free.
Hong Kong has signed double taxation avoidance agreements (DTAs) with about 45 countries and regions around the world, covering key markets such as mainland China, ASEAN and Europe. This extensive network of agreements has created a very broad space for tax planning for enterprises, especially in reducing withholding taxes on cross-border dividends and interests.
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 R&D companies, allowing them to enjoy a number of tax exemptions and deduction policies. In addition, Singapore is tax-free for overseas dividends and capital gains (if relevant conditions are met).
In addition, Singapore also provides a series of tax preferential policies, such as Regional Headquarters (RHQ) and Global Trader Program (GTP), which provide companies with more tax planning possibilities.
Singapore has signed DTAs with more than 90 countries, covering major economies around the world, including China, India, and the European Union. This provides companies with a wide range of operating space in tax planning, especially in reducing withholding taxes on cross-border dividends and interest.
3. BVI (British Virgin Islands)
With its zero tax system, strong privacy and flexible structure, BVI has become the preferred offshore jurisdiction for global cross-border investment, asset protection and tax optimization, and is particularly suitable for business scenarios in holding companies and the crypto industry.
BVI does not impose corporate income tax, capital gains tax, dividend tax or inheritance tax, and the tax burden is extremely low.
BVI companies do not disclose information about shareholders and directors, and can further hide actual controllers through Nominee (nominee) services to ensure business privacy and asset security.
As an internationally recognized offshore entity, BVI companies are widely recognized by major global financial centers (such as Hong Kong, Singapore, London, etc.), making it easier to open accounts in multinational banks and efficiently conduct international payments, trade settlements and capital operations.
Comparison of major tax rates:
2. Multi-Entity Architecture
The use of a multi-entity structure allows for more effective tax planning. Domestic companies invest in target investment countries by establishing one or more intermediate holding companies in some countries or regions with low tax rates (usually Hong Kong, Singapore, BVI or Cayman). Taking advantage of the low tax rates and confidentiality of offshore companies, the overall tax burden of the company is reduced, while protecting corporate information, dispersing parent company risks, and facilitating future equity restructuring, sales or listing financing.
Case 1
Middle-tier control: China → Singapore → Southeast Asian subsidiaries (such as Vietnam)
The Chinese parent company invested in Vietnam through a Singapore holding company. Singapore has signed bilateral tax agreements (DTAs) with China and Vietnam respectively. The withholding tax rate on corporate dividends can be reduced to 5%, which is 50% lower than that of China directly holding a Vietnamese subsidiary (the China-Vietnam DTA agreement is 10%).
As a middle-tier company, Singaporean companies are usually not subject to capital gains tax when transferring shares in Singaporean companies. If the shares of Vietnamese subsidiaries are transferred directly, they may face Vietnam's capital gains tax (20%). The Singaporean structure is more in line with the trading habits of European and American investors and improves the liquidity of asset sales.
In addition, a Singapore company can serve as a regional headquarters with multiple subsidiaries to manage business in different countries, making it easier to introduce international investors or split and list the company. Singapore has a developed financial market, and holding companies 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 regulation of the Web3 industry in some regions, the operational risks are high. The "VIE" agreement control framework (Variable Interest Entities) can be adopted to control the Hong Kong company through the BVI company and then invest in the operating company (such as Alibaba, Tencent Music, New Oriental, etc.). The overseas holding company can control the operating company through the VIE agreement through a layered structure.
As the top-level holding company, the BVI company will be exempt from capital gains tax on future equity transfers, thus protecting the privacy of the founder.
Case 3
Parallel structure of domestic and overseas companies:
The parallel structure of domestic and foreign companies can be applied to situations where different domestic and foreign companies need to divide and collaborate on different businesses due to market and regulatory uncertainties, or due to reasons such as financing, geopolitics, qualifications and licenses, and data security. For example: Mankiw Research | Web3 Entrepreneurship, can the "front shop and back factory" model of Hong Kong + Shenzhen be compliant?
The overall tax rate is lower. Overseas companies can choose to register in tax-favored regions (such as Hong Kong, Singapore, and the Cayman Islands), which usually have lower corporate income tax rates or capital gains tax exemptions than domestic regions. Through business cooperation, the retained profits can be reasonably distributed, and tax deductions can be enjoyed in various places to reduce the overall tax burden.
Independent operation at home and abroad. Under the parallel structure, the domestic company and the foreign company are independent legal entities and are subject to the tax jurisdiction of their respective locations. This means that the two companies can pay taxes separately according to the tax laws of their locations, avoiding the problem of global income consolidation and taxation caused by equity connections.
Attorney Mankiw's Summary
Choosing the right corporate structure is crucial for Web3 companies to go global. It not only optimizes tax burdens, but also reduces risks and improves global operational flexibility. Whether using a single-entity structure to enjoy a low tax rate or establishing a multi-entity structure based on business needs, a reasonable design can significantly enhance the international competitiveness of an enterprise and help it thrive in the Web3 ecosystem.
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Author: Crypto Miao, Liu Honglin