Portugal NHR + Luxemburg company

[OffshorePhantom]

Hello,
I would like to know if I can achieve a 0 % tax setup with the following business.

I have a mobile app business and I read that foreign royalties according to Portugal NHR are tax-free.
If I create a company in Luxemburg, administrated by a local director and receive all the money from Google Adsense and Apple regarding the app business using that company and then pay me directly in royalties in Portugal do I achieve a 0 % tax setup?

The business income is around EUR 2-3 million and we are two-people business so we will use this setup to receive royalties in two.

Portugal CFC rules should not be triggered since I read that Lux companies have a CIT of 24,94% (Luxembourg - Corporate - Taxes on corporate income.)

Royalties expenses are deducted from Lux company income and there is a tax-treaty between Lux and Portugal where there is no WTH tax on royalties so I can receive a monthly royalties income tax-free. (Luxembourg - Corporate - Withholding taxes)

Clearly, I can be the shareholder of the Lux company but not the director.

I would not stay in Portugal for 183 days but I also read that if I rent an apartment for the full year I can be considered a tax resident according to Portugal tax-man.
I live in a Western European country but I do not own any houses here or have strong tides.
Since I can then return to my home country using my home Government ID card how can my home country find out if I stay in my home country let's say 7 months?

Since Portugal is not considered a tax-heaven, according to my home country law, tax-man has to prove that and I am not being resident in Portugal and I reside in my home country, they cannot suppose it and ask me proof, they can only to that if I declare to be resident of a tax-heaven like UAE.

Can this work?

Thank you!

 

[Marzio]

Can this work?

I don't think this would work since you will have to pay CIT on royalties received from USA unless you are going to deduct royalties payments from taxable income reducing it to zero but to do that you have to prove that you, as a physical person, registered a patent or something that's worth that payment.

 

[OffshorePhantom]

I don't think this would work since you will have to pay CIT on royalties received from USA unless you are going to deduct royalties payments from taxable income reducing it to zero but to do that you have to prove that you, as a physical person, registered a patent or something that's worth that payment.

I have had the app for several years, even before the company was incorporated so this proof can be obtained easily.
Clearly, royalties payments are deducted from company taxable income since me and my business partner are the owners of the app.

 

[Marzio]

I have had the app for several years, even before the company was incorporated so this proof can be obtained easily.

That doesn't matter.

A company will pay you royalties for the use of something.

For example take the CrossFit trademark.

All the gyms around the world pay $3K as royalies to the CrossFit guys just to be able to use the name "CrossFit", the cage, all the equipments, exercises and so on.

If you think that the LUX company will pay you $1 million without any patent, trademark or similar you are naive at best.

Also NHR is a grey area, especially if you plan to working developing your app and having a dummy manager in LUX.

Yes, you could code outside of PT but are you ready to collect proof of you being outside of PT (plane tickets, trains, AirBnB invoices, grocery store bills, ATM withdrawals) and that in the remaning 182 days you weren't working?

In the app store there's a changelog, what if you publish an update to your app while you were living in Portugal?

I mean they could never get you but if they do they will ask you to pay taxes retroactively + fines.

If i remember correctly you are from Italy.

If i were in you i would move to S. Marino and pay 7% total tax. Yes it's not 0% but you will not have to deal with the stress of a LUX company, justifying royalty payments with the fear that one day Portugual tax man will knock on your door.

Instead if for seome reason you prefer Portugal you could get away with the Madeira IBC company + NHR.

Total tax 5% BUT you wil have to invest 75K in a fixed assed in Portugal + hiring a person.

 

[uplana]

All the gyms around the world pay $3K as royalies to the CrossFit guys just to be able to use the name "CrossFit", the cage, all the equipments, exercises and so on.

Is that true? This guy must be rich just from royalties' - I thought it just was a name for this type of gym.

sorry to get off topic

 

[OffshorePhantom]

That doesn't matter.

A company will pay you royalties for the use of something.

For example take the CrossFit trademark.

All the gyms around the world pay $3K as royalies to the CrossFit guys just to be able to use the name "CrossFit", the cage, all the equipments, exercises and so on.

If you think that the LUX company will pay you $1 million without any patent, trademark or similar you are naive at best.

Also NHR is a grey area, especially if you plan to working developing your app and having a dummy manager in LUX.

Yes, you could code outside of PT but are you ready to collect proof of you being outside of PT (plane tickets, trains, AirBnB invoices, grocery store bills, ATM withdrawals) and that in the remaning 182 days you weren't working?

In the app store there's a changelog, what if you publish an update to your app while you were living in Portugal?

I mean they could never get you but if they do they will ask you to pay taxes retroactively + fines.

If i remember correctly you are from Italy.

If i were in you i would move to S. Marino and pay 7% total tax. Yes it's not 0% but you will not have to deal with the stress of a LUX company, justifying royalty payments with the fear that one day Portugual tax man will knock on your door.

Instead if for seome reason you prefer Portugal you could get away with the Madeira IBC company + NHR.

Total tax 5% BUT you wil have to invest 75K in a fixed assed in Portugal + hiring a person.

The Lux company will pay me for the use of my intellectual property work (my app) with a written agreement between me and the company (this should be how all royalties agreement works).
I can even register the app as an intellectual property if there needs to be this kind of documentation.

The app is finished and there is no need to work on it, so I wouldn't do any substantial work since eventual updates and coding will not be done by me. I do not code and royalties are passive income, not active income, in my app, I do not get paid for my active work, for example, Google pays me and considers its royalties.

I can demonstrate that it is passive income. If I do not work for an entire month I continue to receive Google payments, how can PT tax-man consider it as active work since those are royalties?

Also in App Store, there may be a changelog but you can use a VPN.

I mean I think in my case it is not really enforceable, it is very difficult to obtain this kind of information and this can be easily manipulated to your needs.

The problem with San Marino is that with Italian residents it is very controlled and then it is even more difficult to demonstrate that I reside in San Marino for 183 days since it is like a dummy state.

 

[Marzio]

I mean I think in my case it is not really enforceable

Good luck then!

If you'll go ahead with the LUX - NHR route please update the thread.

 

[JosephLL]

Instead if for seome reason you prefer Portugal you could get away with the Madeira IBC company + NHR.

Total tax 5% BUT you wil have to invest 75K in a fixed assed in Portugal + hiring a person.

What kind of a scheme is this?? Why 75k ? Is this some kind of immigration visa type ?

 

[OffshorePhantom]

What kind of a scheme is this?? Why 75k ? Is this some kind of immigration visa type ?

I think he's referring to this: Tax Benefits (also in the website says it is not doable anymore in 2022 unfortunately)

Problem is that I ready it will be available only until 2027 and also I do not know if with the NHR regime this can be considered as Portuguese income if you then after paying CIT you transfer dividends to you.

 

[Marzio]

What kind of a scheme is this??

It's the Madeira international business center regime.

Take a look under tax benefits requirements and you'll know why 75K

Problem is that I ready it will be available only until 2027

Well i don't know either if this regime will be further extended but i can't see why not.

I spoke once with a PT lawyer and said that this regime could be used in combination with NHR but haven't investigated futher.

 

[fshore]

Where do you live? That country would possibly want to tax your royalty income. And it might consider the lux company as controlled from their country.
Why not just receive the income directly to you personally without the lux company, if you anyway are going commit tax fraud by hiding that you live there?

 

[OffshorePhantom]

How the Lux company can be controlled from my home country if I am not even the director of it?

I cannot receive the income personally since it is a two-men business so we need some sort of company to collect all the profit and then distribute, otherwise it would have been much easier to directly collect Adsense and other revenue personally since they are all royalties paid by foreign companies.

 

[Asterion]

Hireblade, hi again!

Do you get royalties from the app because it's a setup you have between yourself and the legal entity that is the "developer organisation" with Google?

Because the revenue Apple pays to the developer organisation is not royalties, it's service income

https://www.offshorecorptalk.com/th...-app-developer-apple-google.36210/post-199818

 

[fshore]

How the Lux company can be controlled from my home country if I am not even the director of it?

I cannot receive the income personally since it is a two-men business so we need some sort of company to collect all the profit and then distribute, otherwise it would have been much easier to directly collect Adsense and other revenue personally since they are all royalties paid by foreign companies.

You might effectively control the company if you just have a nominee director.
Also, there might be CFC rules in your home country that will cover this income.

 

[uplana]

Looks like your setup won't work that way and that you will have to speak with someone professional to find the right solution for your business needs.

 

[OffshorePhantom]

You might effectively control the company if you just have a nominee director.
Also, there might be CFC rules in your home country that will cover this income.

I already checked and CFC rules do not apply.

Hireblade, hi again!

Do you get royalties from the app because it's a setup you have between yourself and the legal entity that is the "developer organisation" with Google?

Because the revenue Apple pays to the developer organisation is not royalties, it's service income

https://www.offshorecorptalk.com/th...-app-developer-apple-google.36210/post-199818

Hello, royalties should be paid from the company to me regardless if Apple or Google treats them differently. Here the royalties are intended of the economic utilization of my intellectual property (the app) by a company with which I have signed a licensing agreement

 

[Asterion]

Sounds interesting, I should look into that too to see if could be beneficial. Are you paid the royalties to as an individual, or as yet another company?

 

[OffshorePhantom]

Sounds interesting, I should look into that too to see if could be beneficial. Are you paid the royalties to as an individual, or as yet another company?

We are operating with a local company in which we are directors and shareholders and then this company has a license agreement with us (individuals) and we take a cut of the revenue.

 

[Mr Gus]

Well a part of this setup might work, if you do zero work for the Luxembourg company from Portugal and meet the corporate residence rules Portugal should not see your company as tax resident in Portugal.

However the part where all your profit is deducted as "royalty expenses" and pay 0% CIT that way might not work, I would suggest to get in touch with a professional about this.

And who is the owner of the IP rights now? The company in your home country or you personally?

 

[OffshorePhantom]

Well a part of this setup might work, if you do zero work for the Luxembourg company from Portugal and meet the corporate residence rules Portugal should not see your company as tax resident in Portugal.

However the part where all your profit is deducted as "royalty expenses" and pay 0% CIT that way might not work, I would suggest to get in touch with a professional about this.

And who is the owner of the IP rights now? The company in your home country or you personally?

I am the owner of the IP personally (me and my business partner). The company in my home country has only a licensing agreement. Also, I can demonstrate the app was created years before I created my home country company if necessary.

Why do you say that you might not be able to deduct royalties expenses? They are expenses that a company can deduct. In my home country (western Europe) tax man let you deduct them.