Wednesday 12 May 2010

Intellectual property tax havens: where's best?

Another reader has asked this weblog, in general terms, which jurisdictions are regarded as the best tax havens for intellectual property portfolios. In particular, he wants to know, are there some countries which are good places in which to place some types of IP but not others?

If readers have any suggestions, can they post them as comments below.


Anne Fairpo said...

I'll leave most the caveats as to types of IP and location to the IP protection specialists but jurisdictions to think about include:

For royalties (patent/innovation box):
Luxembourg - the innovation box reduces tax on royalties from IP to around 6%, with some restrictions
Netherlands - similar reduction in tax on IP to Luxembourg, but rather more restricted in scope
Belgium - similar reduction in tax but on patents only
Ireland - 0% tax on royalties relating to patents where the R&D was done after 1 January 2008

Switzerland - pick your canton carefully to reduce the tax rate, but don't forget the federal rate of 8.25% isn't so negotiable.
Channel Islands/other beaches and chocolate locations - 0% tax achievable but beware the lack of tax treaties. The Channel Islands have better IP protection than the tropics, in general.

But - beware withholding tax:
If you are paid royalties by (eg) a company in the US, the royalties will have tax deducted at 30% on the gross amount of the royalties paid; UK companies are required to deduct tax at 20% on royalties. This withholding is intended to ensure that the royalties are taxed somewhere and is not repayable. There needs to be a tax treaty in place between the payer and payee country to reduce the rate of withholding tax (the UK/US treaty reduces withholding to 0% in almost all cases, for example).

Tax havens (the 0% countries) don't have tax treaties, so the full withholding will be payable - the EU countries generally have a reasonable range of tax treaties.

If you're expecting the return on the IP to be in the form of royalties, tax treaties are probably the key thing to think about - pick a jurisdiction that has good tax treaties with the locations you are expecting to receive royalties from.

If you are not expecting the return on the IP to be by way of royalties, consider what you will do if the IP is infringed and royalties are all you can settle for - and be aware that some countries may regard any payment for IP as a royalty for tax treaty purposes, even if it's a payment for the outright sale of the IP.

Finally, bear in mind that the tax authorities in the UK will usually scrutinise offshore IP holding structures rather closely. The arrangement will need to have substance in the offshore jurisdiction to ensure that UK tax is escaped, and that is not an inexpensive exercise.

Anonymous said...

This month's edition of Managing IP magazine has an article comparing the rules on IP and Tax in Belgium, Cayman Islands, Luxembourg, the Netherlands and Singapore. It is available here (I took out a free trial to read):

Anonymous said...

2 % effective tax rate on income from IP in Cyprus

A recent amendment to the tax law, in force since 06 July 2012, provides 80 % tax exemption on income from IP. The remaining 20 % of the income from IP are taxed at ordinary 10 % corporation tax, which results in an effective tax rate of 2 % on the income from Intellectual Property.
Intellectual Property includes: patents, brand names, software development, copyrights on music, visual productions (film, TV etc), book etc,.
Income from IP: income from the sales of IP or from license fees received for granting the right to use IP.
Depreciation of IP development costs or IP purchase costs is 20 % annually.

Stefan Nolte
Shanda Consult, Cyprus

Anonymous said...

TO: Anne Fairpo

Dear Anna,

You have written:
"For royalties (patent/innovation box):
Luxembourg - the innovation box reduces tax on royalties from IP to around 6%, with some restrictions"

But in some sources i found that: "Luxembourg does not levy witholding tax on royalties related to patents, trademarks and know-hows"

Is it true?

Looking forward for your kindly reply.

Thank you in advance

Pankaj said...

Royalty income in Malta is tax free along with no withholding taxes. Also there is a double taxation agreement ( DTA) with India which reduces the tax burden at home in case the money has to repatriated.

For more information, mail
(Govt. of Malta)