Web3 Enterprises Going Global: Equity Structure and Tax Optimization Strategies

Web3 enterprises face unique legal, tax and operational challenges in international expansion due to their decentralized nature. Choosing the right enterprise architecture can not only help enterprises 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 an overseas architecture?

An overseas architecture refers to the organizational structure and management model built by an enterprise in the process of globalization, with the aim of coordinating global resources, adapting to the characteristics of different markets, and achieving efficient cross-border operations.

The design of an overseas architecture directly affects the global competitiveness and operational efficiency of an enterprise. Not only should the equity structure 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 in the choice of Web3 enterprise architecture, and the impact of the global tax framework on digital assets is becoming increasingly significant. When enterprises go overseas to build holding companies, Hong Kong, Singapore and BVI are popular choices.

1. Single Entity Structure

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 HK$2 million, and the tax rate is 16.5% for the part of annual profit exceeding HK$2 million. When dividends are received from Hong Kong companies outside Hong Kong with a shareholding ratio of more than 5%, the foreign 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 tax planning space for enterprises, especially in reducing the withholding tax on cross-border dividends and interest.

2. Singapore

Singapore's corporate income tax rate is 17%, slightly higher than that of Hong Kong. However, Singapore's tax system is relatively friendly to technology research and development companies, allowing companies to enjoy a number of tax exemptions and deduction policies. In addition, Singapore is tax-free for foreign dividends and capital gains (if relevant conditions are met).

In addition, Singapore also provides a series of tax incentives, such as Regional Headquarters (RHQ) and Global Trader Program (GTP), which provide enterprises with more tax planning possibilities.

Singapore has signed DTAs with more than 90 countries internationally, and this network covers major economies around the world, including China, India, and the European Union. This provides enterprises with a very 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, especially for holding companies and crypto industry business scenarios.

BVI does not impose corporate income tax, capital gains tax, dividend tax, or inheritance tax, and the tax burden cost is extremely low.

BVI companies do not disclose shareholder and director information, and can further hide the actual controller through the Nominee (nominee) service 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 carry out international payments, trade settlements and capital operations.

2. Multi-entity structure

Tax planning can be more effective with a multi-entity structure. Domestic enterprises invest in target investment countries by establishing one or more intermediate holding companies in some low-tax countries or regions (usually Hong Kong, Singapore, BVI or Cayman). Taking advantage of the low tax rate and confidentiality of offshore companies, the overall tax burden of enterprises is reduced, while protecting corporate information, dispersing parent company risks, and facilitating future equity restructuring, sales or listing financing.

Case 1

Middle-level control: China → Singapore → Southeast Asian subsidiaries (such as Vietnam)

The Chinese parent company invests 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% at the lowest, which is 50% lower than China's direct holding of Vietnamese subsidiaries (the China-Vietnam DTA agreement is 10%).

As an intermediate company, Singaporean companies are usually not subject to capital gains tax when transferring shares of Singaporean companies; if the shares of Vietnamese subsidiaries are directly transferred, capital gains tax (20%) may be imposed in Vietnam. 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, Singaporean companies can serve as regional headquarters, with multiple subsidiaries to manage businesses in different countries, which is convenient for the subsequent introduction of international investors or spin-off listing. Singapore's financial market is well developed, 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 supervision of the Web3 industry in some regions, the operating risk is high. The "VIE" agreement control framework (Variable Interest Entities, "variable interest entity") can be adopted to control Hong Kong companies through BVI companies and then invest in operating companies (such as Alibaba, Tencent Music, New Oriental, etc.). The overseas holding company controls the operating company through a layered structure and VIE agreements.

As the top-level holding company, BVI companies will be exempt from capital gains tax on equity transfers in the future to protect the privacy of the founders.

Case 3

The parallel structure of domestic and overseas companies can be applied to situations where different domestic and overseas companies need to divide and cooperate 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?

Lower overall tax rate. Overseas companies can choose to register in tax-favored regions (such as Hong Kong, Singapore, Cayman Islands, etc.), which usually have lower corporate income tax rates or capital gains tax exemptions than domestic ones. And through business cooperation, the profit retention will be reasonably distributed, and tax deductions from various places will be enjoyed to reduce the overall tax burden.

Independent operation at home and abroad. Under the parallel structure, domestic and overseas companies 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 due to equity ties.

Mankiw Lawyer Summary

Choosing a suitable enterprise structure is crucial for Web3 companies to go overseas. It can not only optimize the tax burden, but also reduce risks and enhance 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.