Binance Lured to Ireland for Low Tax Rate as UK FinTech Role Fades
In order to make amends and up its regulatory game, Binance is moving away from globetrotting. Brexit makes Ireland the next-best expressway to the European market, with a low tax rate as a key benefit.
Binance’s Global Shuffle Coming to a Halt
Just a couple of years ago, Binance users had some degree of apprehension knowing that the world’s largest exchange was stationed in crypto-hostile China. Seeing the writing on the wall, Binance steadily distanced itself from China, opening offices in FinTech friendly Malta and settling in the Cayman Islands.
When you look up Binance headquarters now, you still see the Cayman Islands listed as its base of operations, despite the Cayman Islands Monetary Authority having issued a statement that Binance is “not authorized to operate a cryptocurrency exchange”. In the meantime, Binance has been actively severing its remaining ties with China.
After the latest China crackdown, Binance is blocking Chinese IPs, announcing it will prevent Chinese users from registering along with clearing up the remaining ones before the year’s end. Nonetheless, Binance has employed a global expansion strategy, and is even the top exchange in Africa. As a result, its market share only grows compared to its Asian counterparts, Huobi and Okex.
During this expansion, Binance has continually encountered regulatory resistance from the US, UK, Japan, and Europe. Although some end-users may want Binance to completely replace banking services, governments have different ideas. As a result, Binance redoubled its efforts to meet regulatory compliance, resulting in it still enjoying confidence from Visa and Mastercard.
The question then is, where can Binance finally settle its headquarters for the long haul?
Small Ireland for Big Tech
Dubbed as the Cel-Tech Tiger (a play on Celtic), Ireland attracted entire industries with its low tax rate. From Google and Apple to Facebook and Airbnb; all have found their home in Dublin’s Silicon Docks, styling itself after California’s Silicon Valley.
On the heels of Brexit, Ireland has become more attractive for Binance to base its operations in for a couple of reasons:
- Ireland has access to a large talent pool critical for FinTech companies, as exemplified by Facebook setting up in Ireland to develop Libra (now Diem).
- The only English-speaking country with access to the Eurozone after the UK officially left last year.
With these advantages in tow, Binance CEO, Changpeng Zhao, relayed to Reuters on Thursday that Binance is departing from its decentralized approach due to regulatory pressures.
“When we first started we wanted to embrace the decentralised principles, no headquarters, work all around the world, no borders,”
Zhao further explained:
“It’s very clear now to run a centralised exchange, you need a centralised, legal entity structure behind it.”
Thus far, Binance has registered three entities in Ireland: Binance (APAC) Holdings, Binance (Services) Holdings, and Binance Technologies, according to an Irish local news outlet. However, lockdown fallout may force the hand of Irish authorities to increase the corporate tax rate to 15% from the 12.5%, which was set in 1997.
Still, this tweak of the tax code represents a new global framework, signed by over 130 countries under the Organisation for Economic Co-operation and Development (OECD) umbrella, making it effectively unavoidable. Moreover, Ireland made a compromise for the 15% tax rate to be applicable to only annual revenue over €750 million, or $867 million USD.
In an interview with Bloomberg at the end of last year, Zhao revealed his revenue estimate to fall between $800 million and $1 billion for 2020, which would fit the old 12.5% tax bracket, if maintained into 2021.
What Happened to the UK?
Those familiar with the FinTech space know that the UK was perennially hailed as the most advanced FinTech hub in the world, serving as an incubator for blockchain and FinTech projects. Such a productive environment was in large part due to George Osborne’s 2010 – 2016 tenure as the Chancellor of the Exchequer, which is equivalent to Treasury Secretary in the US, currently occupied by Janet Yellen.
In numbers, FinTech had generated £11 billion in revenue by the end of 2019. Furthermore, 44% of FinTech firms in Europe valued at over $1 billion were headquartered in the UK. Needless to say, lockdowns destroyed much of that tailwind, having reported $1.7 billion in losses in Q1 2020.
With the completion of the Brexit deal, this era appears to be over. At the Token2049 conference held on Thursday, both Mike Novogratz of Galaxy Digital and Peter Smith of Blockchain.com pointed to regulatory uncertainties as the most present obstacles.
Smith noted the UK is relinquishing its FinTech hub status after its licensing system was rendered void by Brexit.
Do you think decentralized exchanges are bound to replace the likes of Binance or Coinbase? Let us know in the comments below.