3 Best Countries for Play-to-Earn Games Registration in 2022
We have created this guide to help aspiring developers of play-to-earn games (NFT games or GameFi, as some might say) to understand the different options for registering a company. In this guide, we discuss the main considerations for choosing the best jurisdiction for registering a company. We also examine the most popular countries in 2022: Cayman Islands, Hong Kong, and Switzerland, to better understand what these countries have to offer.
If you're also interested in learning how to choose the right jurisdiction for other crypto projects such as wallets, exchanges, and NFT marketplaces, check out this guide.
What are play-to-earn games?
Generally speaking, play-to-earn games originate from the classical gaming world. In classical games, there are no rewards for players apart from pleasure, whereas in play-to-earn games, users may receive certain rewards for playing and winning the game or completing missions. The recent developments in the crypto industry, especially the widespread adoption of NFTs, has breathed new life into this gaming sphere.
Compared to classical games, in play-to-earn games, in-game items are wrapped into unique NFTs, which give these items additional liquidity (you may sell them outside of the game) and value (you have in-hand unique items).
Usually, two types of tokens are issued within play-to-earn games:
- utility tokens, which players may receive as a reward and use as in-game currency to purchase NFTs; and
- Non Fungible Tokens (NFTs) themselves.
How to Choose the Right Jurisdiction to Register a Play-to-Earn Developer Company
When choosing the “home” for a legal wrapper of your game, there are several aspects to consider:
- Your game should have the ability to receive crypto payments. In some jurisdictions this is easier to implement than in others, where crypto payments may not be regulated yet. The ability to accept fiat payments will also be highly appreciated by your future users;
- NFTs are your main in-game resource and the utility token is the “blood” of your game. That’s why the possibility to freely and legally issue these kinds of tokens will influence your jurisdiction choice;
- Many play-to-earn games make their own NFT marketplaces. It's better to decide whether you want to create an in-game marketplace before choosing the jurisdiction, as operating a marketplace requires an auction license/authorization (in case you charge any commission on NFT sales);
- The country of play-to-earn game registration should be acceptable for the future investors of your project and even better, present some advantages for them. Keep your fundraising plans in mind and think about the preferred countries of your ideal investors.
To make the best decision on the jurisdiction you'd need an expert by your side who knows the regulations and practices in all the popular countries and understands the business model of your project well. At Legal Nodes, we offer Legal Discovery Sessions with our crypto experts (with 7+ years of experience in blockchain legal) who help you to choose the best jurisdictions based on your tokenomics, and your project plan etc.
Alright, with these points in mind, let's dive into the most popular countries for play-to-earn game registration.
The Cayman Islands as an easy option
You may see the Cayman Islands in our publications quite often due to the popularity of this jurisdiction in the crypto world.
The Caymans is a more reputable jurisdiction than most offshores with its own specific regulation of virtual assets activity (Virtual Asset (Service Providers) Law, 2020). For example, Axie Infinity has chosen this jurisdiction, and we can say it's quite popular for these kinds of projects.
The process of company establishment here is easy and takes from 10 to 14 days. If you want to issue a virtual asset (in the case of a play-to-earn game it will be a utility token) publicly, you should obtain a special license from the regulating authority. With respect to issuing NFTs, the local regulator has no guidance on whether it should be deemed as a virtual asset, but, as the general practice, local lawyers don’t deem it so.
In the Cayman Islands, your expenses on the project will include expenses for company formation and obtaining a license. The average cost of the formation starts from 2500 USD to 4000 USD. It makes this jurisdiction very attractive for early-stage projects.
The biggest advantage of the Cayman Islands among other offshores is that the license will be proof of the legal nature of your activity, and you will have more chances to attract investments and open a bank account in a suitable jurisdiction. But keep in mind that although it's one of the most reputable offshore countries, it's still a jurisdiction that has an offshore reputation. That's why you need to think in advance about whether your project's stakeholders will have any issues with it.
As for the taxes, corporate income, capital gains, payroll, or other direct taxes are not imposed on corporations in the Cayman Islands.
Caymans is the cheapest and easiest way, but it has the offshore reputation; Hong Kong is a golden route with certain issues; and Switzerland is the most expensive but the most reputable option.
Should Hong Kong be your choice?
There are more corporate bureaucratic requirements in Hong Kong than in the Cayman Islands: you will need a secretary and an annual audit. At the same time, a big advantage of Hong Kong is that the company here will have fewer challenges with opening bank accounts.
You should also keep in mind that certain virtual assets (including NFTs) could be deemed as “securities” or “futures contracts” by the local regulator, so it's highly recommended that you obtain a qualified legal opinion from local lawyers prior to incorporation.
Approximate incorporation expenses in Hong Kong are almost the same as in the Cayman Islands (even cheaper in the first stage). But the maintenance of the company will cost you more because you will have more bureaucratic burdens like account reporting and audits.
The additional advantage of this jurisdiction is taxes, which you have to pay only if the company is a tax resident in Hong Kong (derived locally). The rates are the following: the first HKD 2 000 000 is taxed at 8.25%, the remaining at 16.5%.
Switzerland - the most advanced option
This country is the most reputable jurisdiction among the three, and the most expensive. The advantage of a Swiss company is that you can attract money from Switzerland itself (Swiss banks hold 25% of the world's assets), and have very broad options with respect to opening a bank account.
The biggest legal obstacle in Switzerland is the mandatory audit and the obligation to appoint a local director (a resident of Switzerland). Also, you will need to obtain the legal opinion of the local regulator - the Swiss Financial Market Supervisory Authority - prior to issuance of any virtual asset.
Among prominent market players, Pocket Arena is one of those who chose Switzerland for registration.
Formation in Switzerland would cost you a few dozens thousand USD (including token legal opinion, which is mandatory here in case of any token issuance, including NFT) and the same cost will be for the annual maintenance of the company.
Taxes in Switzerland are a subject for a separate guide given how nuanced taxes are. Switzerland has a very complicated two-layer tax system: federal and cantonal (depending on the company’s residence in Switzerland). The applicable tax rate at the federal level is 7.83%. On a cantonal level, the rates vary substantially.
How to choose the best option for your Play-to-Earn game?
Each of the above-mentioned jurisdictions has its advantages and disadvantages and you should understand that in the crypto-legal world there are no universal approaches or “one-size-fits-all” solutions. Caymans is the cheapest and easiest way, but it has the offshore reputation; Hong Kong is a golden route with certain issues; and Switzerland is the most expensive but the most reputable option. The choice is yours.
To make a more informed decision on these options and compare them with other possibilities of play-to-earn game legal wrappers, you can book a Legal Discovery Session with one of Legal Nodes’ experts. During the 1-hour session, you will get:
- An intro to crypto-friendly countries–specifically which ones may be the best jurisdictions for your play-to-earn game;
- An intro to token legal design to better understand all the implications of issuing a token; and
- A checklist of all to-do's to launch your own play-to-earn game legal wrapper.
Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.