Nigerian blockchain startup, Patricia, is done with Nigeria. After a tumultuous life at the hands of the country’s regulators — SEC, then followed by CBN — the three years old startup has announced its new-found love, the Northern European country of Estonia.
“This global movement is set to strengthen our relationships with marketers and agencies in the global crypto markets, whilst also positioning us as the leading cryptocurrency trading company in Nigeria, Africa, and Europe,” Patricia noted in a statement, while adding that, “this recent development is accompanied by the launch of our new and upgraded Patricia app version 2, which features lots of new updates and upgrades, including crypto swap; a betting feature that enables users to use crypto to place bets.”
But Patricia is not the first to move out of Nigeria. Paga, one of the country’s leading payments companies has been jumping ships, leaping over Nigeria as the company’s primary place of administrative operations, well before Patricia’s latest move. The payments company recently re-headquartered from the small island nation off the coast of East Africa, Mauritius. While announcing — visibly out of annoyance — that he would never register a company again in Mauritius, Paga’s CEO and co-founder, Tayo Oviosu, stated that “the tax benefits of Mauritius can be gained onshore UK or offshore UK or Netherlands or Luxemburg.”
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Following Paga and Estonia-bound Patricia are a host of other startups, which have mostly flocked towards North America, notably the US state of Delaware.
But then, there is a huge difference between simply registering a company overseas and having a company’s headquarters overseas. This difference is what authorities in Mauritius have been spending so much time explaining in recent times.
In fact, as though the explanations have not been enough, the Mauritian Financial Services Commission recently elaborated on what it meant by the “substance feature” in maintaining a corporate headquarters in Mauritius. According to it, the substance feature is to the effect that to be able to claim benefits as a company headquartered in Mauritius, a company must be centrally managed and controlled. And to be regarded as a company centrally managed and controlled in Mauritius, the company shall do the following features:
- The company shall have its office premises in Mauritius.
- The company employs or shall employ on a full-time basis, at the administrative or technical level, at least one person who shall be resident in Mauritius.
- The company’s constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius.
- The company holds, or is expected to hold, within the next 12 months, assets (excluding cash held in a bank account or shares/interests in another corporation holding a Global Business Licence) that are worth at least 100,000 United States dollars (USD) in Mauritius.
- The company’s shares are listed on a securities exchange licensed by the Commission.
- The company has, or is expected to have, a yearly expenditure in Mauritius that can be reasonably expected from any similar corporation that is controlled and managed from Mauritius.
Finding The Difference Between Maintaining A Branch And Headquartering In A Foreign Country
In Estonia where Patricia has moved to — for example — a company may be registered as a foreign branch or headquartered locally.
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The major difference between a foreign branch and a local company headquartered in Estonia is that the foreign company with a local branch in Estonia is not a different legal entity than the foreign company. As such, the foreign company is responsible for the activities and duties of the branch in Estonia.
All a company needs to do to maintain the branch in Estonia is to select a director or directors for the branch to be established and authorize them to open the branch. Also, unless at least half of the directors of the branch live in Estonia, the foreign company shall designate an Estonian contact person. In other words, the founder of the branch company need not live or have visited Estonia.
On the other hand, to headquarter a company locally in Estonia, the founder must either hold an Estonian ID card or e-Residency card; or visit a notary in Estonia to verify the documents of incorporation. The necessity of e-residency is now the most interesting aspect of establishing a local corporate headquarters in Estonia. Estonia is the world’s first country to offer e-Residency. An e-resident is a foreigner for whom Estonia has constructed a digital identity and issued a digital identity card, based on their own country of citizenship’s identification credentials. However, it is vital to emphasize that e-residency does not grant tax residency, resident rights, or authorization to visit Estonia or the European Union. An e-digital resident’s ID is not also a real identity or travel document, and it lacks a photo.
Hence, instead of visiting a notary physically in Estonia, founders could simply obtain e-residency cards and register their companies in Estonia online. Once registered, the company will be regarded as an Estonian company for administrative and tax purposes. It may then proceed to register local branches in countries, including (in this case) Nigeria. The local laws of Estonia will also apply to the locally registered company.
To find out why African startups headquarter abroad, read the next article.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer