Compliance framework for cross-border (overseas) Web3 projects

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

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 for blockchain and cryptocurrency vary significantly across different countries. Some countries, such as Singapore and Hong Kong, have relatively relaxed and friendly regulatory environments, which provide greater flexibility and security for the operation and development of Web3 projects. In contrast, strict 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 projects.

(3) Talent Acquisition

Web3 is a technology-intensive field, attracting top developers and experts is crucial for the success of projects. By going global, projects can seek and recruit excellent talent worldwide, thereby accelerating innovation and development in technology and products.

(IV) Funds and Investment

Going global 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 find it easier to secure funding 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

Web3 companies must prioritize the local regulatory framework when choosing a global destination to ensure legal and compliant operations.

(1) Compliance policies of various countries and regions

Hong Kong:

Since 2023, Hong Kong has implemented a virtual asset service provider (VASP) licensing regime, requiring all virtual asset trading platforms (VATPs) to be licensed by the Hong Kong Securities and Futures Commission (SFC). As of January 2025, SFC has issued operating licenses to platforms such as PantherTrade and YAX, with a total of seven licensed since mid-2024. Since 2020, Hong Kong has officially licensed 10 exchanges, including four in December 2024, showing its cautious openness to the virtual asset industry. Licensing requirements include strict KYC processes, asset safeguards, and cybersecurity measures designed to protect investors and prevent 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 layout in Singapore demonstrates its adaptation to a regulatory-friendly environment: it obtained In-Principle Approval from MAS in 2022 and further secured 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 here, reflecting its confidence in the local regulatory environment.

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

The EU'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 and is regulated by the Australian Transaction Reports and Analysis Centre (AUSTRAC). In North America, the U.S. SEC has stricter regulations on crypto assets, with Binance and Coinbase facing lawsuits, but they are still actively communicating with regulatory agencies to seek a clear framework.

(2) Risk Isolation

The risk isolation mechanism is an important component of the compliance framework built by Web3 projects in cross-border operations. Its core objective is to ensure that risks from different business sectors or regions do not infect each other through reasonable design of the corporate structure, thereby protecting the overall stability and sustainable operational capacity of the enterprise. In the globalized Web3 industry, the risk isolation mechanism is particularly crucial due to the 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 the business operations in a specific market. This allows for the limitation of legal, financial, and operational risks within a specific entity, preventing the spread of risks to the entire corporate group. Each entity operates independently and does not interfere with one another, so even if a particular region faces regulatory changes or legal challenges, other entities can continue to operate normally. This design not only enhances the company's risk resistance capability but also facilitates the adjustment of strategies based on the specific market demands.

Core assets (such as technology patents, intellectual property, brands, etc.) should be 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 holding companies in the British Virgin Islands (BVI) or the Cayman Islands, while placing high-risk operating businesses in subsidiaries located in other regions. Even if the operating entity faces litigation or financial difficulties, the core assets can still be protected, 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, companies can clearly delineate the business boundaries and responsibilities between entities through service agreements, licensing agreements, or funding transfer agreements. This approach not only reduces the possibility of risk transmission but also provides flexibility and transparency for companies operating globally in compliance.

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

Main Destinations for Chinese Enterprises Going Abroad

(1) Hong Kong

As an international financial center, Hong Kong has a mature financial infrastructure and a sound legal system, providing a stable operating environment for Web3 companies. And compared to other regions, Hong Kong's regulation of Web3 projects is more relaxed, making it easier for startups to start business quickly. Especially in recent years, the Hong Kong government has actively promoted the development of blockchain technology, and created good conditions for the development of Web3 companies through policy incentives and support measures.

(2) Singapore

Singapore is a leading fintech hub in Asia, with an advanced technology ecosystem that has attracted a large number of Web3-related companies. Furthermore, the Singaporean government maintains an open attitude towards blockchain and Web3 technologies, and has established clear regulatory policies to help companies grow rapidly under the premise of Compliance. Singapore's tax system is relatively favorable, reducing operational costs for Web3 companies and enhancing its attractiveness.

(3) BVI (British Virgin Islands)

The BVI is known for its fast and easy incorporation process and low registration fees, making it suitable for Web3 startups to set up quickly. The BVI offers a strict privacy policy to keep company and shareholder information safe, making it ideal for privacy-focused Web3 projects. The local legal system is flexible and offers significant tax benefits, making it ideal for offshore registration.

Construction of Overseas Architecture

The underlying logic of the global Compliance layout is to establish different entities and construct a regional Compliance framework, leveraging the unique advantages of each region through shareholding or substantive control. This approach transforms offshore companies from mere synonyms for "regulatory avoidance" or "tax havens" into "strategic hubs" for enterprises to build a global Compliance system and optimize the allocation of funds and resources through reasonable planning. Enterprises can flexibly construct a multi-level and multi-ecological corporate strategy system, including single entity structures, multi-entity structures, and parallel structures, based on the needs of different development stages, to meet the demands of various scenarios and stages.

(1) Architecture Applicability

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

(1) Single Entity Architecture

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

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

However, with the expansion of enterprise scale and business complexity, the shortcomings of single-tier architecture gradually become apparent. It may not be able to meet the compliance requirements of the global market, such as differences in regulatory standards in different regions, and it is difficult to achieve efficient allocation of resources and effective isolation of risks. When businesses need to enter multiple markets at the same time, a single entity may face tax, legal, or operational bottlenecks.

(2) Multi-entity architecture

The 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 also establishing a holding company in the Cayman Islands to optimize its global tax structure. This structure controls legal and financial risks within specific areas by dispersing entities, while enhancing the company's operational flexibility worldwide. 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 cope with multi-country regulatory environments and diverse business demands. For example, some leading exchanges have established subsidiaries in Southeast Asia, Europe, and North America, and launched different versions of the App to adapt to local consumer habits and legal requirements.

(3) Parallel Architecture

Parallel architecture is another, more complex design, generally involving the direct combination of equity or business across multiple multi-entity architectures, particularly suitable for enterprises that need to independently operate multiple business segments.

The parallel architecture 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, setting up independent legal entities for each segment through parallel architecture to prevent the risks of one segment from affecting other businesses. However, through equity control or business integration, there can still be close connections and synergies between the various 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 the global Compliance layout, making it more suitable for enterprises with diversified businesses.

(2) Analysis of Architectural Advantages

(1) Single Entity Architecture

The characteristics of a single-entity architecture lie in the fact that enterprises can fully leverage the policy and regulatory advantages of the chosen 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 place of registration. The financing laws and regulations in Singapore are relatively lenient, especially in terms of capital markets and financial innovation, which are quite open. This provides Web3 companies with flexible financing channels, helping them raise funds quickly and promote project development. Furthermore, the Singaporean government actively encourages the development of high-tech enterprises, offering various policy support and financial incentives. Companies can leverage these policies to reduce research and development costs and accelerate technological innovation.

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

(2) Multi-entity architecture

Case: China → Singapore → Domestic Company

The characteristics of a multi-entity architecture lie in its ability to organically combine the regulatory advantages of different regions, achieving optimization of compliance and operations by establishing subsidiaries or affiliated companies globally.

For example, establish a BVI holding company, which then holds a Hong Kong financial company, and the Hong Kong company holds a domestic operating company. The BVI company has the advantages of low tax rates and privacy protection, the Hong Kong holding company enjoys financial conveniences and tax incentives in Hong Kong, and the operating company benefits from research-related subsidy policies and advantages in the technology industry within China, 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 operations for the business on a global scale.

(3) Parallel Architecture

For example:

The regulatory characteristics of a parallel architecture lie in its high flexibility and risk isolation capabilities, 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 various business sectors do not interfere with each other legally and financially, avoiding regulatory risks in one sector from 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 synergies between the sectors through equity control or business integration. A multinational corporation establishes a technology R&D center in Singapore and a Web3 service company in Hong Kong, with both collaborating through equity or business interactions to jointly promote technological innovation and market expansion.

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

Tax Advantages of Architecture

When choosing a registration location for the architectural entity, it is necessary to timely understand the regulatory policies of various regions, the needs for technology and cost reduction and efficiency improvement, as well as the deep cooperation between local service providers and Compliance services, especially paying attention to the tax differences and preferential agreements in each region.

(1) Single Entity Structure

A single entity structure refers to a business model where a company directly invests or operates overseas through a single foreign subsidiary, suitable for businesses that are centralized, relatively small, or targeting a single market.

Advantages: simple structure, easy to manage and control.

Disadvantages: May face relatively high tax burdens and lack risk isolation mechanisms.

!

1. Hong Kong: 8.25% tax rate on profits up to 2 million, with a double tax exemption buff supported by over 50 countries

Advantages: Corporate Income Tax (Profit Tax) 8.25%-16.5% (half tax on the first HKD 2 million profit), no capital gains tax, no value-added tax, signed tax agreements with over 50 countries, free foreign exchange conversion, convenient for public listing and financing;

2. Singapore: 17% tax rate, extensive network of bilateral tax treaties

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

3. BVI: Tax haven with 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 carried out more effectively. Domestic enterprises can establish one or more intermediate holding companies in countries or regions with low tax rates (usually Hong Kong, Singapore, BVI, or the Cayman Islands) 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 is reduced, while also protecting corporate information, diversifying risks for the parent company, and facilitating future equity restructuring, sale, or listing financing.

Advantages: It can utilize tax incentives from various countries to reduce investment costs and support global布局.

Disadvantages: Management is complex, and the costs of tax Compliance will also rise.

1. Top level: High confidentiality + low tax rate + free capital flow

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. Operations Level: Connect top-level investors with bottom-level operational entities + Improve investment return rate + Profit reserve

Registration 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 the overall return on investment.

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

Registration location selection: local company in the target market

Functionality: Implement production, marketing, and localization services to meet local 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)
• Operating Layer: Hong Kong Company (Offshore Trade Tax Exemption) + Dubai Company (Middle East Warehousing and Logistics)
• Entity Level: Mainland China Factory (Export Tax Rebate) + Brazilian Subsidiary (Localized Sales)

Through a BVI company holding a Hong Kong company to reinvest in the operating entity layer, the offshore holding company achieves control over the operating entity company through a layered structure using a VIE agreement.

The BVI company serves as the top-level holding, and dividends from Hong Kong to BVI are exempt from withholding tax. Future equity transfers are exempt from capital gains tax, protecting the founders' privacy.

Case: Xiaomi Group

Architecture Design:

• Holding Layer: Xiaomi Group (Cayman)
• Operation Layer: Xiaomi Hong Kong (Global Procurement + Profit Retention)
• Entity Layer: Xiaomi Communication (Direct to Consumer), Xiaomi Technology and Xiaomi Technology Subsidiaries

Through Xiaomi Group (Cayman) holding Xiaomi Hong Kong Company to reinvest in entities such as Xiaomi Communications. Xiaomi Communications signs an agreement with Xiaomi Technology and its registered shareholders to control legal documents, and controls Xiaomi Technology through a VIE agreement to indirectly control Xiaomi Technology subsidiaries.

Summary

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

In terms of architectural design, enterprises can flexibly choose between single entity, multiple entities, or parallel architecture based on their own scale and objectives to ensure Compliance and isolate potential risks. At the same time, by leveraging policy advantages in various regions, enterprises can optimize cash flow through a multi-entity structure, significantly reducing tax burdens.

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