Virtual residency for crypto-enthusiasts: how it works

Spoiler: it may be of interest to crypto-enthusiasts who use the services of centralized crypto-exchanges (CEX). But first things first.<br

Electronic passport

Virtual residency can be defined as an official digital status issued by a state. We rightly associate such categories as citizenship, visa, residency with the physical world – they define our position where there are borders, states. But the Internet knows no boundaries, so virtual residency, while ideologically similar, has its own specifics. Actions on the Internet are gaining more and more power to influence the real world: we can shop, educate, do business;

And many of these actions are in the hands of governments that are trying to legitimize online activity. But who told you that on the Internet you are permanently tied to jurisdiction and citizenship? In fact, you can perform under any flag of any country that is willing to officially grant you residency.

Why do you need virtual residency?

Virtual residency is needed for online activities that require official permission. It’s mostly about money matters, primarily running a business. Let’s take a point-by-point look at the main benefits that virtual residency provides:

1. Online business opportunity. The country that gives you virtual residency, allows you with minimal delay to open a business in its jurisdiction (usually related to digital services and not involving the actual conduct of business in its territory). You may even be relieved of the need to obtain a physical address (necessary to open a company as part of standard procedures) and a number of other bureaucratic hurdles.

2. You can run your company from anywhere. For its virtual residents, the state seeks to provide the most convenient business management procedures. Since residency is virtual, you don’t need to be physically present in the country to run your business – everything is completely remote.

3. Simplified taxes. Virtual residency usually implies a convenient system of interaction with the tax authorities (please note that the state with which you are connected by citizenship by birth may have its own opinion about all these virtual residencies, and it is ready to demand taxes from you to its treasury with great enthusiasm). Many virtual programs offer a zero tax rate, while others strive to make the system of taxation of residents as profitable, simple and clear as possible;

4. Interaction with businesses and partner companies that have supported the program. In practice, this means that it is possible, for example, to book rooms at individual hotels, register and KYC-verify at cryptocurrency exchanges, sign contracts with a digital signature, and perform other actions using the corresponding ID.

Who offers residency

Estonia offered a virtual residency program back in 2014, and it is now one of the most successful offers. The Baltic country has a well-developed digital infrastructure, where almost all important actions for doing business can be done online. Virtual residency gives you access to this infrastructure, allowing you to open a business, open a bank account, enter into transactions by digitally signing. Estonia is a member of the European Union, and this opens up great opportunities. For cryptoenthusiasts, it may be important that virtual residency allows
legally open a DAO. On the other hand, it is very likely that the program will be subject to MiCA-regulation restrictions for crypto-investors.

Azerbaijan began offering virtual residency in 2018, becoming the second state to offer such a service. In addition to services similar to the Estonian program, Azerbaijan attracts tax benefits (the first three years – no taxes at all, and then a reduced rate of 5%). The disadvantages are poor English support and generally less convenient and worked out procedures compared to Estonia.

Palau – a small island nation, a jurisdiction that recently has also offered virtual residency. It is not yet very clear how exactly many services will be provided (for example, whether all banks will allow virtual residents of Palau to open an account), but the list of possibilities declared is quite competitive in principle. It may particularly interest crypto-investors, so let’s dwell on the country and this virtual ID in more detail.

Palau

One of the interesting features of the virtual residency after purchasing the cherished ID is possibility to register with it on cryptocurrency exchanges, including Binance, Kraken, Huobi, Bitmex, Bitfinex, Bitmart, Bittrex, Bitget, Bybit, Kucoin, Phemex and some others. Naturally, we are talking about registration with KYC (customer identification based on ID). Individual investors will not have to pay taxes on certain transactions because the Palauan government officially exempts residents from taxation in this case (although the taxation issue depends on the law in your current jurisdiction on the one hand, and possible changes in the Palau program over time on the other). In any case, if you consider virtual residency for such purposes – it is better to consult with a specialist lawyer in advance.

You can get a blockchain-based plastic residency card or online ID (NFT version is also available) for $248 for one year. Twenty minutes for document verification, three days for screening (authorities will check the application for errors and the applicant for being wanted and on sanctions lists), seven days to print the document and package the package, then send the plastic ID in the mail.

It is realistic to hope for zero taxes as a Palau resident, but the question that remains is how much of a convincing status will the tax officials in the state where you re a real (not Web3-) resident and won’t they charge you for tax evasion? So it is possible to register for the Palau program according to its creators, but the claimed tax benefit is debatable;

But there are other benefits of the digital passport: with the help of the ID it will be possible, for example, to book hotels around the world with partner networks. Don’t forget that other private companies may join Palau’s initiative in the future, so the list of partner crypto exchanges, hotels, stores and other organizations could be expanded. A list of current partners can be found
here.

Interesting fact: the creator of the second most capitalized cryptocurrency in the world, Etherium, Vitalik Buterin managed to become a participant of the digital residency program of the Republic of Palau.

Withdrawal

In general, virtual residency programs are still relatively obscure and unpopular. It is important, however, that practices have emerged that bypass the usual boundaries to obtain opportunities to expand freedom of action. So it’s only a matter of time before such practices become widespread. While people may be deterred by the uncertainty and “virtuality” of such statuses. But as long as there are concrete opportunities, programs will be in demand. And the more such practices and programs, the clearer they will become for the market. So maybe we have something in front of us that will soon change perceptions of what boundaries are.

This material and the information in it do not constitute individual or other investment advice. The editorial opinion may not coincide with the opinions of the author, analytical portals and experts.