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Mr Gus

Active Member
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 it.
Alright, but you will not be doing any work in your home country and in Portugal and only in Luxembourg?

Well I don't know about the royalty expenses, I would get that double checked with a professional.
 

hireblade89

Active Member
Alright, but you will not be doing any work in your home country and in Portugal and only in Luxembourg?

Well I don't know about the royalty expenses, I would get that double checked with a professional.
If you mean the coding side, you can hire freelancers to do the work if necessary and they can be paid using the Lux company for instance.

A more complex setup would be to keep my home country company, without being the director of it, receive payments and do all the expenses like research and development there and then transfer royalties to a Lux company and then directly to you.

I cannot do that directly from my home country company to PT since the tax treaty has a 10-12% WTH tax, unfortunately.

Royalties are deductible expenses in every modern country, that is also how for example IKEA and other big companies use it to transfer profits using their trademark from all Europe to Lux.
 

hireblade89

Active Member
Transfer your IP to a company in a jurisdiction with a good IP regime and nil tax on distribution of dividends. Start from there.
Yes but then the money would stay in the company (I have also taken a look at Cyprus IP Box but in order to claim the reduced CIT you need to have lots of R&D expenses related to your IP in order to claim that benefit, in our case app is pretty much finished and do not require a lot of work or expenses).

If I have the IP on my person I can use special regimes like NHR and directly transfer royalties to myself tax-free without having me to transfer to a tax-heaven.
 

JimBeam

Entrepreneur
This may work but what if your local tax man sees that your company profits went from 2-3m to zero...
Then, they might check you personally and they will find out that you're having a bank account in Portugal and that you are a share older in a Lux company.
And they might raise questions and tell you that you have done all of this just to avoid taxes...
 

uplana

Corporate Services
Mentor Group Gold
This may work but what if your local tax man sees that your company profits went from 2-3m to zero...
That's true and what you have to consider. You won't avoid personal tax these days. I would take my IP rights either into a Luxembourg or Cyprus setup. Once you need moeny pay it out to yourself and pay the tax from it.

The money in the company can be used in otherwise where you also can have personal benefit but don't need to pay personal tax!
 

hireblade89

Active Member
This may work but what if your local tax man sees that your company profits went from 2-3m to zero...
Then, they might check you personally and they will find out that you're having a bank account in Portugal and that you are a share older in a Lux company.
And they might raise questions and tell you that you have done all of this just to avoid taxes...
I do not think it is illegal to relocate to a country that has fewer taxes than yours, that's how all the people which transfer residency in UAE are currently doing.
Also, the fact that you relocate to a non-tax heaven is better seen.

If this was an issue then all the guys which transferred to UAE now would have troubles.

Also, company profit goes to 0 because I haven't renewed the licensing agreement with it, I think it is quite standard, I am not hiding money anywhere, simply my home country company does not have the licenses anymore to use the app for economic purposes.
In Europe, there is the freedom to relocate anywhere (in any EU country) so I do not really know how this can be seen as an issue.
 

marzio

Mentor Group Gold
It is not illegal indeed, that's why all high tax countries created a so called "exit tax" meaning you will be taxed if you move your tax residency in a tax have.

The exit tex does not apply if you move to another EU country like Portugal.
 

hireblade89

Active Member
It is not illegal indeed, that's why all high tax countries created a so called "exit tax" meaning you will be taxed if you move your tax residency in a tax have.

The exit tex does not apply if you move to another EU country like Portugal.
Yeah that's indeed the purpose of all this, relocating to a country in Europe which is not seen as a tax heaven and that cannot be questioned because of this :)
 

marzio

Mentor Group Gold
Look, your plan in theory could work but prepare to be challenged by the tax man.

The only way you have defend yourself is to get a third party to assess the value of your IP.

Then you can pay yourself royaltes based on the amount assessed by the third party.

The good news is that you can have the IP assessed before moving so you know beforehand if your plan will work.
 

hireblade89

Active Member
Look, your plan in theory could work but prepare to be challenged by the tax man.

The only way you have defend yourself is to get a third party to assess the value of your IP.

Then you can pay yourself royaltes based on the amount assessed by the third party.

The good news is that you can have the IP assessed before moving so you know beforehand if your plan will work.

I understand, but the value of the IP increases over time as the app grows, for example in a year we doubled the revenue that the app has generated since more users are using it. The value that the IP has will change one year from now for example.

The plan is to sign an agreement with the Lux company to transfer for example 48% of company revenue to me and 48% to my business partner (as royalties signed in the agreement with the company), then the remaining 4% or so we pay CIT in Lux in order to pay little taxes and make the structure less challengable.

I do not think there is any way the tax-man could easily challenge this structure since I do not think it is breaking any law and also since the IP is mine can't I decide in the contract how much the company owes me in order to use the IP I license them?

I mean they can surely try to challenge it but the effort is too big in my opinion and there is no easy way to prove that I am breaking any laws (which I think I am not).
I think for them is easier to focus on challenging people which transfer their residency to tax heavens since they can sit and let the other side find proof of the contrary and then challenge it.

In terms of efforts and resources, I do not know if it is convenient for them to challenge my structure, also because I am not making billions like IKEA and others who may use this structure.

What do you think, does it make sense?
 

hireblade89

Active Member
Yes it makes sense, as i said your plan is well thought and indeed the value will change over time, that's why one of the evaluation methods is income based adjusted to its present day value.

You need to have somebody to value your IP assets if you want to pull this off.
Thank you, I'll try to find a service which does that? Any suggestions?

Also about the valuation, can I then pursue this plan:

"The plan is to sign an agreement with the Lux company to transfer for example 48% of company revenue to me and 48% to my business partner (as royalties signed in the agreement with the company), then the remaining 4% or so we pay CIT in Lux in order to pay little taxes and make the structure less challengable."

regardless of the exact value of the IP assessed by the evaluation process (which I think will be accounted for several million) ?

What is the purpose of getting the value of the IP apart from the possibility of selling it in the future?
 

marzio

Mentor Group Gold
What is the purpose of getting the value of the IP apart from the possibility of selling it in the future?

You structure the licensing deal based on the value of the IP.

If the IP is valued at $100 you can't ask to be paid $10K (just for saying)

Also, almost forgot. Since you will be receiving passive income, that structure is a prime target for CFC rules. I don't know how CFC rules play out with NHR but it's for sure something you have to investigate.
 
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hireblade89

Active Member
You structure the licensing deal based on the value of the IP.

If the IP is valued at $100 you can't ask to be paid $10K (just for saying)

Also, almost forgot. Since you will be receiving passive income, that structure is a prime target for CFC rules. I don't know how CFC rules play out with NHR but it's for sure something you have to investigate.
In theory, since Lux has a very high CIT (24.94%) I do not think it will trigger CFC rules.

About the royalties payments what I wanted to have is to pay a % of the total app yearly income as royalties, let's say 95%, regardless of the app value.
Clearly, the app value will be much higher than the yearly turnaround so the royalties paid will be surely less than the value but this will increase over time as soon as the app grows.
Of course, as the app grows, the valuation of it will grow too so royalties paid will always be less than the total app value.

The purpose of all this is to deduce almost all (95% or so) of app income as a business expense from the company balance to apply the CIT only to a small amount, regardless of the app value.
I found a license agreement template online that works exactly like those, they take a % cut of app yearly turnover and pay it to owners of the IP as per agreement between the parties.
 
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hireblade89

Active Member
Can you link to that document?
I can send to you in private but I can't seem to be able to PM you.

It is a legal agreement that I bought from a service online so I cannot link it publicly (also it is in my home country language so I do not know if you can read it).
 

hireblade89

Active Member
Already tried, in the modal it appears only the follow button for other users it appears also the start conversation button, but not for you. Maybe it is a privacy setting you have in your profile.
 
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