Compliance framework for cross-border (overseas) Web3 projects

Written by: Crypto Miao, Fat Meimei

In today's wave of globalization, Web3 projects are moving to the international stage at an unprecedented speed, and Chinese enterprises are an undeniable force. However, the uncertainty of industry policies in China, the lack of legal frameworks, and the ambiguity of regulatory attitudes have caused hesitation in the development of Web3 enterprises. These factors collectively lead to compliance challenges for Web3 projects domestically, forcing many practitioners to turn overseas or seek breakthroughs within limited compliance frameworks. However, by closely monitoring policy trends and leveraging favorable policies from various countries, and reasonably constructing a compliance framework for enterprises, the Web3 industry may still find a suitable development model.

Purpose of enterprises going abroad

(1) Market Opportunities

The global market provides a broader user base and growth potential for Web3 projects. Especially in regions like Asia and Europe, users have a higher acceptance of blockchain technology and cryptocurrencies, which brings more business opportunities and development space for projects.

(2) Regulatory Environment

The regulatory policies regarding blockchain and cryptocurrencies vary significantly across different countries. Some countries, such as Singapore and Hong Kong, have relatively loose and friendly regulatory environments, which provide greater flexibility and security for the operation and development of Web3 projects. In contrast, stringent regulations in certain countries may limit the development of projects. In some countries, Web3 projects may face legal and compliance challenges. Expanding to countries with more favorable legal environments can effectively reduce these risks and ensure the long-term stable operation of the projects.

(3) Talent Acquisition

Web3 is a technology-intensive field, and attracting top developers and experts is crucial for the success of projects. By going global, projects can seek and recruit outstanding talent from around the world, thus accelerating technological and product innovation and development.

(4) Funds and Investments

Going abroad allows Web3 projects to reach more potential investors and sources of funding. Especially in regions where venture capital and cryptocurrency investments are active, such as the United States or Southeast Asia, projects are more likely to receive financial support, driving their rapid development.

(5) Industrial Cluster Effect

Different countries and regions have formed various industrial clusters due to inherent advantages such as technology and policies, creating regional supply chains that provide different foundational support for local Web3 enterprises.

(6) Risk Diversification

Conducting business in multiple countries can diversify risks and avoid significant impacts on projects due to economic, political, or regulatory changes in a single market, thereby enhancing the project's resilience to risks.

Compliance and Risk Isolation

When Web3 companies choose overseas destinations, they must prioritize the local regulatory framework to ensure legal and compliant operations.

(1) Compliance policies of various countries and regions

Hong Kong:

Since 2023, Hong Kong has implemented a licensing system for Virtual Asset Service Providers (VASP), requiring all Virtual Asset Trading Platforms (VATP) to obtain permission from the Securities and Futures Commission (SFC) of Hong Kong. As of January 2025, the SFC has issued operational licenses to platforms such as PantherTrade and YAX, totaling 7 companies that have been licensed since mid-2024. Since 2020, Hong Kong has officially licensed 10 exchanges, including 4 in December 2024, demonstrating its cautiously open attitude towards the virtual asset industry. Licensing requirements include strict KYC processes, asset protection, and cybersecurity measures aimed at protecting investors and preventing money laundering risks.

Singapore:

The Monetary Authority of Singapore (MAS) allows fintech companies to test innovative products in a controlled environment through its Regulatory Sandbox, providing regulatory support for businesses. Coinbase's compliance framework in Singapore demonstrates its adaptation to a regulatory-friendly environment: it received In-Principle Approval from MAS in 2022 and further obtained a Major Payment Institution License in 2023. This indicates that Singapore has become a hub for Web3 companies in the Asia-Pacific region, with Coinbase establishing its Asia-Pacific institutional business there, reflecting its confidence in the local regulatory environment.

Other regions: Europe, Asia-Pacific, and North America:

The European Union's Markets in Crypto-Assets Regulation (MiCA) will come into effect at the end of 2024, standardizing the regulatory framework for crypto assets. MiCA requires crypto asset service providers to register and comply with standards of transparency, liquidity, and consumer protection.

In the Asia-Pacific region, Japan requires virtual asset service providers to obtain a license from the Financial Services Agency (FSA), while Australia must register as a digital currency exchange service provider, regulated by the Australian Transaction Reports and Analysis Centre (AUSTRAC). In North America, the U.S. SEC has stricter regulations on cryptocurrency assets, with Binance and Coinbase having faced lawsuits, but they are still actively communicating with regulators to seek a clear framework.

(2) Risk Isolation

The risk isolation mechanism is an important component in building a compliance framework for Web3 projects operating across borders. Its core goal is to ensure that risks in different business sectors or regions do not infect each other through reasonable design of corporate architecture, thereby protecting the overall stability and continuous operational capacity of the enterprise. In the globalized Web3 industry, the risk isolation mechanism is particularly critical due to significant differences in regulatory policies, legal environments, and market risks across different jurisdictions.

For example, establishing independent subsidiaries in different countries or regions, with each subsidiary acting as an independent legal entity responsible for business operations in specific markets. This can contain legal, financial, and operational risks within specific entities, preventing risk from spreading to the entire corporate group. Each entity operates independently without interference, so even if one region faces regulatory changes or legal challenges, other entities can continue to operate normally. This design not only enhances the company's ability to withstand risks but also facilitates the adjustment of strategies according to the specific market demands.

Core assets (such as technical patents, intellectual property, brands, etc.) are placed in specific holding companies or trust structures to protect them from the risks associated with operating entities. For example, companies can register core assets in a holding company in the British Virgin Islands (BVI) or the Cayman Islands, while placing high-risk operational businesses in subsidiaries located in other regions. Even if the operating entity faces litigation or financial difficulties, the core assets remain protected, thereby ensuring the long-term development of the enterprise.

Clearly define the rights and obligations between entities through contracts and agreements, ensuring that risks are effectively isolated at the legal level. For example, businesses can use service agreements, licensing agreements, or financial transaction agreements to clearly delineate the business boundaries and responsibilities between entities. This approach not only reduces the likelihood of risk transmission but also provides flexibility and transparency for businesses in global compliance operations.

By establishing a reasonable enterprise architecture isolation mechanism, Web3 companies can respond flexibly to regulatory requirements and risk challenges in different markets, ensuring the safety of core businesses and assets while maintaining the stability of global operations.

Main destinations for Chinese companies going abroad

(1) Hong Kong

Hong Kong, as an international financial center, has a mature financial infrastructure and a sound legal system, providing a stable operating environment for Web3 companies. Compared to other regions, Hong Kong has a relatively lenient regulatory environment for Web3 projects, allowing startups to quickly launch their businesses. Especially in recent years, the Hong Kong government has actively promoted the development of blockchain technology, creating favorable conditions for Web3 companies through policy incentives and support measures.

(2) Singapore

Singapore is a leading fintech hub in Asia, with an advanced technology ecosystem that attracts a large number of Web3-related enterprises. Moreover, the Singapore government has an open attitude towards blockchain and Web3 technologies, having established clear regulatory policies to help companies grow rapidly while remaining compliant. The tax system in Singapore is relatively favorable, reducing operational costs for Web3 companies and enhancing their attractiveness.

(3) BVI (British Virgin Islands)

BVI is known for its fast and simple company registration process and lower registration costs, making it suitable for Web3 startups to establish quickly. BVI offers strict privacy protection policies to ensure the security of company and shareholder information, which is very suitable for privacy-focused Web3 projects. The local legal system is flexible and provides significant tax advantages, making it an ideal choice for offshore registration.

The construction of the offshore architecture

The underlying logic of global compliance layout is to establish different entities and build a regional compliance framework. Through shareholding or substantial control, it fully leverages the unique advantages of each region. This approach allows offshore companies to no longer be merely synonymous with "regulatory evasion" or "tax havens," but rather, through reasonable planning, become a "strategic hub" for enterprises to build a global compliance system and optimize the allocation of funds and resources. Enterprises can flexibly construct single entity structures, multi-entity structures, parallel structures, and other multi-level, multi-ecosystem corporate strategic systems according to the demands of different stages of development to adapt to the requirements of various scenarios and stages.

(1) Applicability of the Architecture

In terms of architectural applicability, different enterprise architecture designs can meet the goals of businesses at various stages of development and under different business needs.

(1) Single Entity Architecture

A single entity architecture is suitable for startups or small companies that want to quickly validate their business model and focus on a single market.

This architecture is simple, has low management costs, and is conducive to rapid startup and operation. For example, a startup can register a single entity in Singapore, quickly enter the market, enjoy local tax incentives, and avoid the complex burden of multinational management.

However, as the scale of enterprises expands and business complexities increase, the shortcomings of a single-layer architecture become increasingly apparent. It may not meet the compliance requirements of global markets, such as the differences in regulatory standards across regions, and it is also difficult to achieve efficient allocation of resources and effective isolation of risks. When enterprises need to enter multiple markets simultaneously, a single entity may face bottlenecks in taxation, legal issues, or operations.

(2) Multi-entity architecture

Multi-entity architecture is suitable for enterprises with long business lines, complex sectors, and diverse equity structures.

By establishing subsidiaries or affiliated companies in different jurisdictions, a multi-entity structure can achieve risk isolation, tax optimization, and market adaptation. For example, a technology company sets up a subsidiary in the European Union to comply with GDPR (General Data Protection Regulation) requirements, while establishing a holding company in the Cayman Islands to optimize its global tax structure. This structure controls legal and financial risks within specific regions by decentralizing entities, while enhancing the operational flexibility of the business globally. It supports resource allocation between different markets and enhances global competitiveness through a regional compliance framework.

Suitable for enterprises that have entered the expansion stage and need to deal with multi-national regulatory environments and diversified business needs. For example, some leading exchanges have set up subsidiaries in Southeast Asia, Europe, and North America, and launched different versions of their apps to cater to local consumer habits and legal requirements.

(3) Parallel Architecture

Parallel architecture is another, more complex design that typically involves the direct combination of equity or business of multiple multi-entity architectures, especially suitable for companies that require independent operation of multiple business segments.

The parallel structure ensures that various business segments do not interfere with each other legally and financially by establishing multiple independent entities. For example, a group may simultaneously operate in manufacturing, retail, and financial services, creating independent legal entities for each segment through a parallel structure to prevent the risks of one segment from affecting other businesses. However, through equity control or business integration, there will still be close connections and synergistic effects among the segments. A Web3 company can independently operate technology development and business promotion in different regions, meeting local compliance requirements while optimizing global resource allocation.

This design not only enhances the clarity of management but also achieves greater flexibility and stability in global compliance arrangements, making it more suitable for enterprises with diversified businesses.

(2) Analysis of Architectural Advantages

(1) Single Entity Architecture

The characteristic of a single entity structure is that businesses can fully leverage the policy and regulatory advantages of the selected jurisdiction to achieve rapid compliance and operation. The regulatory environment in different regions provides unique opportunities for enterprises.

For example, if a company values financing or the technology cluster effect, it can choose Singapore as its registration location. Singapore's financing laws and regulations are relatively lenient, especially open in terms of capital markets and financial innovation. This provides Web3 companies with flexible financing channels, helping them to quickly raise funds and promote project development. Furthermore, the Singapore government actively encourages the development of high-tech enterprises, providing multiple policy supports and financial incentives for companies. Companies can leverage these policies to reduce R&D costs and accelerate technological innovation.

If a company places more emphasis on tax and shareholder privacy, it can choose BVI as its place of registration. BVI is known for its strict privacy protection policies, making it particularly suitable for Web3 companies that prioritize information security and shareholder rights protection. Companies registered here can enjoy a high level of commercial confidentiality protection while benefiting from simplified regulatory requirements and a low tax rate environment.

(2) Multi-Entity Architecture

Case: China → Singapore → Domestic Company

The characteristic of a multi-entity structure lies in its ability to organically combine the regulatory advantages of different regions by establishing subsidiaries or affiliated companies globally, thereby optimizing compliance and operations.

For example, establishing a BVI holding company to hold a Hong Kong financial company, and then the Hong Kong company holding an onshore operating company. The BVI company has the advantages of low tax rates and privacy protection, the Hong Kong holding company enjoys the financial conveniences and tax benefits of Hong Kong, and the operating company in mainland China benefits from research-related subsidy policies and advantages in the technology industry, optimizing the global holding structure and protecting core assets.

Through a multi-entity structure, enterprises can not only flexibly allocate resources across different markets but also control legal and financial risks within specific regions, ensuring compliance in their global operations.

(3) Parallel Architecture

For example:

The regulatory characteristics of a parallel architecture lie in its high flexibility and risk isolation capability, making it particularly suitable for enterprises with group structures, diversified businesses, and complex equity demands.

For example, by establishing multiple independent entities, a parallel structure ensures that each business segment does not interfere with others legally and financially, avoiding the regulatory risks of one segment affecting other businesses. A Web3 company may independently operate technology development and business promotion in different regions, meeting local compliance requirements while optimizing global resource allocation.

Although each entity operates independently, they can still achieve close connections and synergistic effects between different sectors through equity control or business integration. A multinational company establishes a technology research and development center in Singapore and a Web3 service company in Hong Kong, with both collaborating through equity or business exchanges to jointly promote technological innovation and market expansion.

The parallel architecture not only enhances the flexibility and stability of enterprises in global compliance arrangements but also provides a solid foundation for sustainable development in complex regulatory environments.

Tax Advantages of Architecture

When choosing the registration location for the architectural entity, it is necessary to keep abreast of the regulatory policies in various regions, the demands for technology and cost reduction, as well as the in-depth cooperation between local service providers and compliance services. It is especially important to pay attention to the tax differences and preferential agreements in different regions.

(1) Single Entity Architecture

A single entity structure refers to a business that conducts overseas investment or operations directly through a single foreign subsidiary, suitable for enterprises with centralized operations, smaller scale, or a single target market.

Advantages: Simple structure, convenient management and control.

Disadvantages: It may face relatively high tax burdens and lacks a risk isolation mechanism.

1. Hong Kong: Profit tax rate of 8.25% for the first 2 million, with over 50 countries exempt from double taxation buff support.

Advantages: corporate income tax (profits tax) 8.25%-16.5% (half of the first 2 million Hong Kong dollars of profits), no capital gains tax, value-added tax, tax treaties with more than 50 countries, free exchange of foreign exchange, listing and financing facilities;

2. Singapore: 17% tax rate, a wide network of double taxation agreements.

Advantages: Corporate income tax 17%, tax exemption for the first three years, bilateral tax treaties established with over 100 countries, beneficial for cross-border tax avoidance;

3. BVI: Zero tax paradise, strong confidentiality

Advantages: 0 corporate income tax, 0 value-added tax, 0 capital gains tax, extremely simplified company registration process, strong confidentiality of shareholder information;

( Two ) Multi-Entity Architecture

By adopting a multi-entity structure, tax planning can be conducted more effectively. Domestic enterprises can set up one or more intermediate holding companies in countries or regions with low tax rates (usually Hong Kong, Singapore, BVI, or Cayman) to invest in the target investment country. By leveraging the advantages of low tax rates and confidentiality of offshore companies, the overall tax burden of the enterprise can be reduced, while also protecting corporate information, dispersing the risks of the parent company, and facilitating future equity restructuring, sales, or financing for going public.

Advantages: It can take advantage of tax incentives in various countries to reduce investment costs and support global expansion.

Disadvantages: Management is complex, and tax compliance costs will also increase.

1. Top level: High confidentiality + Low tax rate + Free flow of capital

Registered in: Cayman Islands, British Virgin Islands (BVI) and other offshore financial centers

Functionality: Shareholder and beneficiary information is protected by law, mitigating single market risks (diversifying geopolitical impacts).

2. Operating Layer: Connect top-level investors with bottom-level operating entities + Enhance investment returns + Profit reservation

Location selection: Hong Kong / Singapore (trade compliance), Ireland / Netherlands (EU market), Dubai (Middle East market)

Functionality: Sign a Double Taxation Treaty (DTT) with the target investment to enhance overall investment returns.

3. Actual operating company: business implementation + direct / indirect holding

Select registration location: Local company in target market

Functionality: Implement production, marketing, and localization services to meet localized operational requirements, and choose the registration location based on the business project.

Case: Cross-border E-commerce

Architecture Design:

Holding Layer: BVI Company (Confidentiality) + Hong Kong Company (Financing and Supply Chain Coordination)

Operational Level: Hong Kong Company (Offshore Trade Tax Exempt) + Dubai Company (Middle East Warehousing and Logistics)

Physical layer: Mainland China factories (export tax rebate) + Brazilian subsidiary (localized sales)

Reinvest in the operating entity layer through a Hong Kong company controlled by a BVI company, with the offshore holding company achieving control over the operating entity through a layered structure using a VIE agreement.

BVI companies serve as top-level holdings, and dividends from Hong Kong to BVI are exempt from withholding tax. Future equity transfers are exempt from capital gains tax, protecting the privacy of the founders.

Case: Xiaomi Group

Architectural Design:

Holding level: Xiaomi Group (Cayman)

Operations layer: Xiaomi Hong Kong (Global procurement + Profit retention)

Entity Layer: Xiaomi Communications (Direct-to-Consumer), Xiaomi Technology, and Xiaomi Technology Subsidiaries

Reinvesting in entities such as Xiaomi Communications through Xiaomi Group (Cayman) holding Xiaomi Hong Kong Company. Xiaomi Communications signs agreements with Xiaomi Technology and its registered shareholders to control legal documents, and controls Xiaomi Technology through VIE agreements, indirectly controlling Xiaomi Technology's subsidiaries.

Summary

In the context of globalization, going overseas with Web3 projects has become a key strategy for Chinese companies to break through domestic regulatory restrictions and expand into international markets. By going overseas, companies can not only effectively avoid compliance risks but also seize opportunities in the international market, attract quality resources, and achieve risk diversification. For example, places like Hong Kong, Singapore, and the BVI have become ideal destinations for Web3 companies due to their relaxed regulatory environment, tax incentives, and well-developed infrastructure.

In architectural design, enterprises can flexibly choose between single entity, multiple entities, or parallel architectures based on their scale and goals, to ensure compliance and isolate potential risks. At the same time, by leveraging local policy advantages, enterprises can optimize capital flow through a multi-entity structure, significantly reducing tax burdens.

Looking to the future, with the globalization of Web3 projects, companies are shifting from a single structure to a hybrid structure to achieve risk isolation, capital flow, strategic synergy, and tax planning. By establishing multiple entities in different jurisdictions, companies can effectively isolate market risks and ensure compliance, while utilizing offshore companies and holding structures to optimize capital flow, reduce tax burdens, and integrate global resources to enhance innovation capabilities and market competitiveness, taking advantage of the new opportunities brought by globalization in blockchain technology.