Offshore DAO Myths

Law firms in onshore jurisdictions — particularly Germany, the UK, and the US — have a financial incentive to discourage offshore DAO formation. Their advice often conflates legitimate regulatory considerations with blanket fear about “tax havens.” This page addresses each concern directly.

Myth 1: “The Marshall Islands Is on the EU Tax Blacklist”

The claim

The EU maintains a list of “non-cooperative jurisdictions for tax purposes.” The Marshall Islands was on this list. Therefore, incorporating there creates problems with European business partners and tax authorities.

The reality

This concern is resolved. In October 2023, the European Union removed the Marshall Islands from its list of non-cooperative jurisdictions for tax purposes. The delisting followed significant progress in the RMI’s enforcement of economic substance requirements.

While the Marshall Islands was on the blacklist, the following sanctions applied to EU-resident companies:

• EU companies could not deduct payments to RMI entities as business expenses in some member states
• Enhanced due diligence applied to financial transactions
• Withholding tax rates increased on certain payments

With the October 2023 delisting, these sanctions generally no longer apply.

The German Context

For German-based founders specifically: the previous blacklisting triggered the German Tax Haven Defense Act (Steueroasen-Abwehrgesetz / StAbwG), which imposed serious defensive measures including denial of tax exemptions for dividends and non-deductibility of business expenses. With the EU delisting, these sanctions no longer apply provided the RMI remains off the German Tax Haven Defense Ordinance.

This means German founders can now incorporate in the Marshall Islands without triggering the punitive tax measures that previously made RMI entities impractical for EU-connected businesses.

Myth 2: “Controlled Foreign Corporation Rules Negate All Benefits”

The claim

CFC rules in the US, EU, and other jurisdictions attribute the income of a foreign entity to its domestic shareholders if the entity is controlled by domestic taxpayers and earns primarily “passive” income.

The reality

CFC rules are real and important. But they apply under specific conditions:

• Control threshold — Typically 50%+ ownership by domestic taxpayers (US: Section 957). In a widely distributed DAO where no single jurisdiction holds majority control, CFC rules may not trigger.
• Non-profit DAOs — Entities that do not distribute profits have no income to attribute. CFC rules are designed to prevent profit shifting; when there are no profits, there is nothing to shift.
• Active business income — CFC rules primarily target passive income (interest, dividends, royalties). Active business income from genuine operations may be exempt.
• AI agents — Autonomous systems operating under algorithmically-managed entities present novel CFC questions that current regulations do not address.

The honest advice: if you are a US or EU tax resident with significant control over a for-profit DAO, consult a tax advisor. CFC rules may apply to you personally. But this does not invalidate the entity structure itself — the DAO LLC still provides liability protection, banking access, and legal personhood regardless of your personal tax obligations.

Myth 3: “Management Location Determines Tax Residency”

The claim

If the core team managing the DAO is located in Germany (or any other country), the DAO is tax resident there regardless of where it is incorporated.

The reality

This is the “place of effective management” (POEM) doctrine, and it is a legitimate consideration for traditionally managed entities. However, it breaks down for DAOs:

• Algorithmically-managed DAOs — When the governing smart contract is the management, there is no human “place of effective management.” The code runs on a distributed network with no single location.
• Member-managed DAOs — When governance is exercised through on-chain voting by globally distributed members, identifying a single “management location” becomes factually difficult.
• No officers or directors — The RMI DAO LLC does not require officers, directors, or a board. This eliminates the traditional markers that tax authorities use to determine POEM.

The POEM doctrine was designed for companies with a CEO in an office making decisions. It was not designed for code executing on Solana.

Myth 4: “Offshore Companies Can’t Get Bank Accounts”

The claim

Banks refuse to serve offshore crypto entities. Your DAO will have no banking access.

The reality

This was largely true in 2018-2021. It is no longer accurate. RMI DAO LLCs have successfully opened accounts with US-linked institutions including Signature Bank and Western Alliance Bank. The key is having:

• A formal Certificate of Formation
• A Registered Agent who can facilitate KYB (Know Your Business)
• Compliance infrastructure (BOIR filing, KYC for major stakeholders)
• A clear source of funds narrative

entity.legal includes banking as part of the formation package — bank account, debit card, and crypto wallet. The compliance infrastructure we provide is specifically designed to pass bank KYB processes.

Myth 5: “German Foundations Are Better for DAOs”

The claim

German civil law foundations (Stiftungen) provide a superior “ownerless” structure for DAO treasury management with preferential tax treatment (15% corporate rate, capital gains exempt after one year).

The reality

German foundations are excellent structures — for German-based, Euro-denominated, traditionally managed organizations. For DAOs, the comparison falls apart:

A German foundation makes sense for a German nonprofit managing Euro-denominated grants. It does not make sense for a globally distributed DAO with on-chain governance and crypto-native treasury.

The Real Question

The question is not “is offshore bad?” The Marshall Islands is a sovereign nation with a 50-year track record in international commerce, a Compact of Free Association with the United States, and purpose-built legislation for DAOs. Calling it “offshore” is like calling Delaware “offshore” for a California company.

The question is: does the legal structure serve the organization’s actual needs? For globally distributed DAOs, AI agents, and crypto-native entities, the RMI DAO LLC provides statutory recognition, liability protection, tax clarity, and banking access that no onshore alternative can match.

Further Reading

• Marshall Islands DAO LLC — The complete legislative framework
• DAO LLC Tax Structure — 3% GRT and territorial exemptions in detail
• Compliance & KYC — How RMI meets international AML/KYC standards
• Jurisdiction Comparison — RMI vs. Wyoming, Cayman, and Delaware
• DAO LLC Banking — How to open bank accounts for your entity