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.
Wednesday, 12 May 2010
Intellectual property tax havens: where's best?
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2 comments:
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
Generally:
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.
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): http://www.managingip.com/Article/2476615/Cut-your-IP-tax-bill.html
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