Tax Havens vs Major Economies – Who Is More Important for Crypto?

Crypto projects register themselves in tax havens but cater to big economies.

It is a well-known fact that crypto companies are flocking to tax havens to register their parent companies.

Tax havens are countries that levy little to no tax liability on businesses and have easy business compliance regulations.

According to a report by the International Monetary Fund (IMF), the 8 major pass-through tax havens are the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore—host more than 85% of the world’s investment in special purpose entities, which are often set up for tax reasons. These investments in empty corporate shells almost always pass through these tax havens.

That’s why the regulators of major economies always stay wary of businesses that operate from the aforementioned countries.

Tax Havens – The Laboratory of Financial Innovation

Due to the unregulated nature of cryptocurrencies, crypto companies usually register their businesses in tax havens.

Tax havens are good for experimentation due to their easy laws. They are the laboratories of financial innovation. The lax laws and easy compliance provide political stability to developers who can devote their energies only to innovation.

Some major economies like the United States, India, Russia, etc. have given tacit approval to the crypto industry. They have not formally legalized it but recognize the industry in some form.

India with its new proposed tax regime, Russian Government’s proposal to regulate, and Fed’s comment that they do not intend to ban crypto are some examples of the tacit recognition.

But this is not enough. The intricacies of the legal system make it unviable to start a crypto company in these countries. As a result, tax havens have become the go-to solution.

Big Countries Have the Market

If any company wishes to capture the big market, it would have to set up business in major economies.

Just the top 5 countries of the world by population account for over 40% of the global population.

The top 10 major economies by nominal GDP also account for over 40% of the global population. Further, they create more than 50% of the global GDP.

Legalization of crypto in just these 5-10 countries could have a drastic impact on the prospects of the whole industry.

Disruption will happen only in the big economies. Tax havens are small economies with small populations. Any business which wants to scale it to global levels will have to tap big economies and populations. Otherwise, they would be confined to a specific segment or region.

Both types of countries have their own advantages. The wave of legalization of crypto from tax havens to major economies is expected to be gradual. Big nations like the US, India, France, the UK, etc. will take a slow and steady approach towards embracing crypto.

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