Portugal NHR + Luxemburg company

[OffshorePhantom]

I agree with the fact that's legal and doable, i'm just wondering what they mean by "doing it in the correct way"

I'm saying what i said because there are other measures that are put in place right now that nobody is talking about that are actively preventing profits shifting.

Take a read at this: Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS - OECD

The CPAs I talked to where referring in building some substance in the country where the company is in order to avoid it being classified as a shell company like you mentioned, but no need to have somethings crazy, even a part-time employee and a local director are sufficient from what they said.

As of my understanding BEPS are applied only to large multinationals in the magnitude of more than $750M, but I might be wrong.
Also those are like signed conventions but where is the actual reference to the law about this?

From what I understood BEPS seems to be divided in two pillars, and one of them is the global minimum corporate tax of 15% which has of now it is not implemented and I do not know if it will ever be, also all big corps are continuously shifting profits and there is no law as of December 2022 that is stopping them from doing it.

 

[CyprusLawyer101]

They will obviously get the help of the administration of the treaty country.

In any country where there's a LOB the tax administration of the contracting party will verify if indeed the company qualify for the favourable rate.

Otherwise how do you think IRS came to know about this scenario?

This conclusion by the IRS is quite interesting. It appears that the LOB provision of the CY US treaty and the exemption provided therein makes the treaty quite flexible to use on specific occassions. Thank you @marzio once again for your fruitful contributions.

 

[Marzio]

The CPAs I talked to where referring in building some substance in the country where the company is in order to avoid it being classified as a shell company like you mentioned, but no need to have some crazy, even a part-time employee and a local director are sufficient from what they said.

OECD released the MLI instrument to automatically update all the treaties of a country (that would take part in the MLI) without the country having to negotiate the treaty with all their contracting parties by adding this kind of text.

It is not abut multinationals, it's about preventing ANYBODY who is deliberately creating companies in a country just to reap the treaty benefits of that country.

That's why i said that there must be some kind of work performed by that company so that it will be reasonable to conclude that obtaing the benefit wasn't the principal purpose of an arrangement.

If you are curious to know which countries took part in the MLI here's a handy instrument to check: MLI Matching Database (beta) - OECD

Luxembourg is one of the countries with the most covered tax agreements.

 

[OffshorePhantom]

Thanks to clarify this @marzio, that is probably also why the CPAs I talked to suggest to build some substance and the type of substance probably depends a lot on the nature of the business and the day-to-day operations it requires I guess.

In my case those are luckily not that much that is why there isn't a huge need of having lots of employees.

If you guys have also other possible solutions to mitigate this (having 0% WTH tax) and pay as less as possible, maybe using royalties to deduct expenses or other solutions, it would be really interesting to hear them.

I also discovered that Adsense revenue (same system as Admob) is considered as service income and not royalties so I do not really understand why Google is applying the 30% WTH tax.

 

[Marzio]

If you guys have also other possible solutions to mitigate this (having 0% WTH tax) and pay as less as possible, maybe using royalties to deduct expenses or other solutions, it would be really interesting to hear them.

You have some options but the question here is "how much are you willing to sacrifice in the name paying less tax"?

0% total tax: US LLC with you tax resident in Georgia.

You only need to move to Georgia and stay there for 183 days to achieve 0% taxation since it's fair to presume that Apple store and Google payments are considered passive income and since Georgia is a territorial taxation country you could receive everything tax free.

The problem is that you need to move to Georgia and stay there 183 days which i suppose it doesn't have the same lifestyle as Dubai so it could become boring.

There's a HNWI program in Georgia for people that demonstrate that their income in the preceding 3 years was at least 60K and you can become tax resident in Georgia without minum staying requirements BUT according to @bagpacker "The Georgian HNWI certificate is not an ordinary tax residence certificate. Not only does it look different, it explicitly states that it has been issued based on your special status. Furthermore, that this status is not based on ordinary residency.
Due to this a foeign tax administration will refuse to grant DTT benefits, if this claim is exclusively based on the presentation of such a certificate."

7% total tax: MD SRL IT park resident

This one is interesting, the residents of IT parks are subject to a single tax of 7% on revenue

Moldova - Corporate - Tax credits and incentives

Detailed description of corporate tax credits and incentives in Moldova

taxsummaries.pwc.com

The problem is that you would need to be present in Moldova for at least 183 days to be considered tax resident.

~15% total tax: CY LTD that pays 12.5% CIT and distributes dividends tax free to a CY non-dom

You only need to be present for 60 days in CY to be considered tax resident there (unless another country would claim that you are tax resident) so it's better than spending 183 in Georgia but there will be more costs involved in running the CY LTD than the US LLC (obviously) and bureaucracy since we are in EU.

15% total tax: BG LTD that pays 10% CIT and distributes dividents at 5% tax

In BG the US withholding tax can be offset by making use of tax credit.

The advantage compared to Cyprus is that BG is not an island and it's part of EU (even if it's not part of Schengen) so you could potentially move your tax residency there and then freely move since nobody is probably checking.

Those are the structures that you could implement by yourself.

I didn't mention Hungary because it's tax treaty with US is going to terminate next year so it's not a long term solution.

I didn't mention Belarus and its technology park because it's a sanctioned country.

 

[Marzio]

Then there are structures which involves more countries where the company is resident in one country and the shareholder in another but this game is a magnitude harder to play because there are new enemies that you need to defeat that you probably don't even know.

One enemy is MLI.

Multi Lateral Instrument was released to prevent abusive structures like conduit companies that would make us of tax treaties to funnel profits in low tax jurisdictions.

Another enemy is DAC6

DAC6 applies to cross-border tax arrangements, which meet one or more specified characteristics (hallmarks), and which concern either more than one EU country or an EU country and a non-EU country.

It mandates a reporting obligation for these tax arrangements if in scope no matter whether the arrangement is justified according to national law.

Another enemy is the Unshell initiative

Unshell initiative was released so that entities that have no or minimal economic activity are unable to benefit from tax treaties

Here are the main tests

All those enemies have something in common: they all target cross-border transactions from different angles.

Now lets take a look at another part of the equation: where to receive income tax free.

Lets imagine that we found a country with a 0% US WHT and we defeated all the OECD enemies, profits are still in the company and we need to transfer those to us.

The question is where those profits are not subject to tax at the personal level?

As of today those are the most popular options.

- UAE
- Portugal under NHR: only lasts for 10 years + CFC rules + potential DAC6 reporting + uncertainty
- Singapore: foreign-sourced royalty income is taxable when it is remitted
- Malaysia: foreign income remitted to MY is taxed + MM2H residency requirements
- Hong Kong: stricter regulations on foreign source income
- Philippines: SIRV program
- Panama

Once you compare those options side by side it becomes apparent that there's a trend in making it difficult for people to receve royalties tax free, even if foreign sourced, even if received in a territorial taxation country.

And this trend is only going to get worse.

That's why i'd chose UAE because despite its sharia law it has a pro-business attitude, it's smart enough to please OECD monkeys but relentlessly moving towards becoming an international financial hub.

Also UAE knows that its empire is build on "0% taxation" so they will do anything they can to maintain the status quo for as long as they can to prevent millionaires leaving UAE.

Assuming OP would agree with my analysys lets see how to receive royalties tax free in UAE.

We are looking for a company in a country that has:

- 0% US WHT on royalties
- 0% WHT on royalties paid to UAE
- No LOB
- No MLI
- No DAC6
- No Unshell

There's only one country that fits all the above criteria and it's Georgia.

That doesn't mean that it will be easy because you would still need to form a company, hire a director, employees, rent an office, accounting, pay taxes (only upon dividends distribution) but it will be a lot less stressful than a Luxembourg company that has to comply with LOB, MLI, DAC6, Unshell and any other bulls**t directive that will EU come up in the future.

Last but not least do not forget about potential headaches with incoming / outgoing USD payements in Georgia because lets face it, it's not the best place in the world to send USD to.

Banking in Georgia

What about the silk route bank Many from the s**fluencer crowd still shill Georgian banks. However we are now in the 2020s and they are not what they used to be. It was very good actually and until not so long ago. But not today.

www.offshorecorptalk.com

 

[OffshorePhantom]

Then there are structures which involves more countries where the company is resident in one country and the shareholder in another but this game is a magnitude harder to play because there are new enemies that you need to defeat that you probably don't even know.

One enemy is MLI.
Multi Lateral Instrument was released to prevent abusive structures like conduit companies that would make us of tax treaties to funnel profits in low tax jurisdictions.

Another enemy is DAC6

DAC6 applies to cross-border tax arrangements, which meet one or more specified characteristics (hallmarks), and which concern either more than one EU country or an EU country and a non-EU country.

It mandates a reporting obligation for these tax arrangements if in scope no matter whether the arrangement is justified according to national law.

Another enemy is the Unshell initiative

Unshell initiative was released so that entities that have no or minimal economic activity are unable to benefit from tax treaties

Here are the main tests

All those enemies have something in common: they all target cross-border transactions from different angles.

Now lets take a look at another part of the equation: where to receive income tax free.

Lets imagine that we found a country with a 0% US WHT and we defeated all the OECD enemies, profits are still in the company and we need to transfer those to us.

The question is where those profits are not subject to tax at the personal level?

As of today those are the most popular options.

- UAE
- Portugal under NHR: only lasts for 10 years + CFC rules + potential DAC6 reporting + uncertainty
- Singapore: foreign-sourced royalty income is taxable when it is remitted
- Malaysia: foreign income remitted to MY is taxed + MM2H residency requirements
- Hong Kong: stricter regulations on foreign source income
- Philippines: SIRV program
- Panama

Once you compare those options side by side it becomes apparent that there's a trend in making it difficult for people to receve royalties tax free, even if foreign sourced, even if received in a territorial taxation country.

And this trend is only going to get worse.

That's why i'd chose UAE because despite its sharia law it has a pro-business attitude, it's smart enough to please OECD monkeys but relentlessly moving towards becoming an international financial hub.

Also UAE knows that its empire is build on "0% taxation" so they will do anything they can to maintain the status quo for as long as they can to prevent millionaires leaving UAE.

Assuming OP would agree with my analysys lets see how to receive royalties tax free in UAE.

We are looking for a company in a country that has:

- 0% US WHT on royalties
- 0% WHT on royalties paid to UAE
- No LOB
- No MLI
- No DAC6
- No Unshell

There's only one country that fits all the above criteria and it's Georgia.

That doesn't mean that it will be easy because you would still need to form a company, hire a director, employees, rent an office, accounting, pay taxes (only upon dividends distribution) but it will be a lot less stressful than a Luxembourg company that has to comply with LOB, MLI, DAC6, Unshell and any other bulls**t directive that will EU come up in the future.

Last but not least do not forget about potential headaches with incoming / outgoing USD payements in Georgia because lets face it, it's not the best place in the world to send USD to.

Banking in Georgia

What about the silk route bank Many from the s**fluencer crowd still shill Georgian banks. However we are now in the 2020s and they are not what they used to be. It was very good actually and until not so long ago. But not today.

www.offshorecorptalk.com

Thank you for the very valuable insights.

I was also considering UAE for my personal residency due to the attracting economic environment, because let’s face it, Apart from 0% tax on paper you also need to be certain that the tax man of that country is not that aggressive, like for example it is in Portugal.

You mentioned that if you form a Georgian company you have to pay taxes upon dividend disitributions, how much is that ?

I also read that there are some companies in Georgia that you can create in Free Zones.

On the other side like you mentioned I do not really like a lot banking in Georgia and sending USD there. Also because I probably had to create an Georgian Adsense account which probably may receive money in GEL and then probably convert them to USD and this may cause high conversion fee.

Maybe a US LLC owned by a Georgian company may help, in this way I could be paid in USD but then I have in any case to transfer them to my Georgian company (same problem as describe above - sending USD to Georgian banks).

This US WTH tax creates lot of problems, without it the setup will be way easier

Also apart from in app purchases which are considered royalties, do you possibile know why even if Adsense revenue is considered service income Google applies a WTH tax?

 

[JimBeam]

Also apart from in app purchases which are considered royalties, do you possibile know why even if Adsense revenue is considered service income Google applies a WTH tax?

As far as I know - your UAE company will be a client of Google AdSense Ireland and not Google AdSense US so no WTH tax on AdSense earnings.

It's different with Youtube as you'll be client of their US company and WHT of 30% will be deducted.

(if I'm wrong someone may correct me)

 

[CyprusLawyer101]

Thank you for the very valuable insights.

I was also considering UAE for my personal residency due to the attracting economic environment, because let’s face it, Apart from 0% tax on paper you also need to be certain that the tax man of that country is not that aggressive, like for example it is in Portugal.

You mentioned that if you form a Georgian company you have to pay taxes upon dividend disitributions, how much is that ?

I also read that there are some companies in Georgia that you can create in Free Zones.

On the other side like you mentioned I do not really like a lot banking in Georgia and sending USD there. Also because I probably had to create an Georgian Adsense account which probably may receive money in GEL and then probably convert them to USD and this may cause high conversion fee.

Maybe a US LLC owned by a Georgian company may help, in this way I could be paid in USD but then I have in any case to transfer them to my Georgian company (same problem as describe above - sending USD to Georgian banks).

This US WTH tax creates lot of problems, without it the setup will be way easier

Also apart from in app purchases which are considered royalties, do you possibile know why even if Adsense revenue is considered service income Google applies a WTH tax?

Its US source income that its subject to 30%in general. Royalties and "sercice income" apparently fall within that category.

 

[OffshorePhantom]

As far as I know - your UAE company will be a client of Google AdSense Ireland and not Google AdSense US so no WTH tax on AdSense earnings.

It's different with Youtube as you'll be client of their US company and WHT of 30% will be deducted.

(if I'm wrong someone may correct me)

Unfortunately Google applies WTH regardless of you being client of Google US or Google Ireland. For example even if you have an European company and are being paid by Google Ireland, Google asks for W8BEN-E and applying for a tax treaty form otherwise it applies the WTH tax (even this does not make any sense in theory).

Its US source income that its subject to 30%in general. Royalties and "sercice income" apparently fall within that category.

According to Internal Revenue Code Section 862 (A) (C) income from personal services or labour offered outside the US is not considered as US source income nor subject to any taxes (26 U.S. Code § 862 - Income from sources without the United States). This is what does not make any sense, those are not royalties. I think here Google is trying to play safe (probably to avoid any problems with IRS) without the need to do it according to law, but that is how it is apparently.

 

[Marzio]

I was also considering UAE for my personal residency due to the attracting economic environment, because let’s face it, Apart from 0% tax on paper you also need to be certain that the tax man of that country is not that aggressive, like for example it is in Portugal.

I don't think the problem with Portugal is aggressiveness necessarily but rather uncertainty because i struggled to find any reliable tax advisor that seemed to know his stuff. I mean there are people there that deliberately suggest to operate US LLC under NHR to achieve 0% taxation.

This is reckless advice that would put you in trouble.

Portugal "could" be a good jurisdiction to settle for EU nationals that could freely move there without much hassle and that have a bulletproof setup where they really receive passive income and don't do any work from PT.

Yes, CFC rules and potential reporting under DAC6 makes it less attractive but the biggest selling point for me, personally, is that there are no minimal stay requirements.

You mentioned that if you form a Georgian company you have to pay taxes upon dividend disitributions, how much is that ?

It's 15% CIT + 5% WHT on dividends distribution (unless the rate is reduced under a tax treaty)

In case of UAE you'd pay only 15% CIT

I also read that there are some companies in Georgia that you can create in Free Zones.

Yes, VZP pays 0% CIT but the problem is that the law is unclear.

In 2021 Georgian revenue service changed their interpretation of the law and contected almost all VZPs operating in Georgia asking them to pay corporate income tax retrospectively

Unfortunately, even if it's ranked high in the ease of doing business, Georgia doesn't look fun according to some direct experiences from forum members.

On the other side like you mentioned I do not really like a lot banking in Georgia and sending USD there. Also because I probably had to create an Georgian Adsense account which probably may receive money in GEL and then probably convert them to USD and this may cause high conversion fee.

And you can't use Wise because AdSense requires a local bank account.

do you possibile know why even if Adsense revenue is considered service income Google applies a WTH tax?

Google doen'st apply a WHT on AdSense since they consider it service income.

AdMob, it's a different product and maybe works differently otherwise it would be treated like AdSense payments.

In any case knowing why Google apply a WHT on AdMob payments doesn't change the fact that you'll have to deal with WHT

 

[OffshorePhantom]

Portugal "could" be a good jurisdiction to settle for EU nationals that could freely move there without much hassle and that have a really bulletproof setup where they really receive passive income and don't do any work from PT.

Yes, CFC rules and potential reporting under DAC6 makes it less attractive but the biggest selling point for me, personally, is that there are no minimal stay requirements.

Yes, the problem is that you need a company that receives the payments that then directly pays to you this passive income since unfortunately I am not alone but with a business partner so I cannot receive Google Payments directly.

I recall I found an article about US LLC under Portugal NHR regime and it is considered as a opaque company managed from Portugal so subject to Portugal CIT, yet lot of professionals suggest this setup in Portugal also because as of now people under NHR are basically let alone by Portugal tax agency, but how much time this will last?

Tax advisors in Portugal let you do what you want because as of now PT tax agency let you do what you want, but I am afraid more regulation will come and then they will scrutinise everything even retrospectively maybe.

And you can't use Wise because AdSense requires a local bank account.

Yeah I do not really like getting payments directly to a Georgian bank maybe in GEL and have to convert them.
Also at this point having a Georgian company is a no-go since with 15% CIT I think you can find something better and also in a better jurisdiction.

Yes, VZP pays 0% CIT but the problem is that the law is unclear.

In 2021 Georgian revenue service changed their interpretation of the law and contected almost all VZPs operating in Georgia asking them to pay corporate income tax retrospectively

Unfortunately, even if it's ranked high in the easy of doing business, Georgia doesn't look fun according to some direct experiences from forum members.

This is insane Better staying away then!

AdMob, it's a different product and maybe works differently otherwise it would be treated like AdSense payments.

Admob payments are done through the Adsense system and work the same.

I found this article (US tax information reporting & withholding - Google payments center help)

where it says that in general there is no withholding for Admob payments and that they withhold money only for revenue generate from US for example US users ad impressions, subscriptions etc, in my case this is only a small portion of the revenue so if this is the case this is not a big issue (in their dashboard it was not that clear and I thought they will withhold the tax for the entire payments amounts)

"If you've been validly documented as a non-US business or individual, only the portion of your revenue earned from US users is subject to US withholding taxes and reporting. These are revenues (such as advertising views, transactions, subscriptions) that are generated from usage in the United States. US partners should provide a valid US tax identification number to indicate exemption from US tax withholding (including under Chapter 3 of the US Internal Revenue Code)."

Probably the best way is a US LLC owned by a UAE free zone company and let Admob WTH tax for US revenue which is my case is not that much compared to the whole revenue, but probably with a more complex system involving several companies with substance in some jurisdiction you can avoid even this, but we have to take also into account the cost of such structures and also all the regulation you mentioned previously that let me thing to stay away from Europe and its madness.

 

[Marzio]

you need a company that receives the payments that then directly pays to you this passive income since unfortunately I am not alone but with a business partner so I cannot receive Google Payments directly.

In your case you have two (three) options:

0. kill your business partner and take his money LOL
1. have the passive income paid to a transparent entity bank accunt (i.e. UK LLP) so that each member could then transfer his share of profits into his own bank account
2. have the pssive incoeme paid to bank joint account

I found an article about US LLC under Portugal NHR regime and it is considered as a opaque company managed from Portugal so subject to Portugal CIT, yet lot of professionals suggest this setup in Portugal also because as of now people under NHR are basically let alone by Portugal tax agency, but how much time this will last?

Tax advisors in Portugal let you do what you want because as of now PT tax agency let you do what you want, but I am afraid more regulation will come and then they will scrutinise everything even retrospectively maybe.

Yes, i have the feeling that they are waiting the best moment to catch all those fishes in the barrel

I think you can find something better and also in a better jurisdiction.

There are pro and cons to any jursidiction.

More reliable environments and banks comes with the added compliance hurdles.

Probably the best way is a US LLC owned by a UAE free zone company and let Admob WTH tax for US revenue which is my case is not that much compared to the whole revenue, but probably with a more complex system involving several companies with substance in some jurisdiction you can avoid even this, but we have to take also into account the cost of such structures and also all the regulation you mentioned previously that let me thing to stay away from Europe and its madness.

It all depends on how big is the percentage withheld by US compared to the total amount.

If it's less than 5% it's probably not worth to consider a more complicated structure because the costs would probably eat out most of the gains.

 

[OffshorePhantom]

0. kill your business partner and take his money LOL

Best option so far, don't know if it is feasible though LOL

1. have the passive income paid to a transparent entity bank accunt (i.e. UK LLP) so that each member could then transfer his share of profits into his own bank account

Yes, but depending on the jurisdiction the UK LLP can be subject to taxes, for example in Portugal and unfortunately does not solve the WTH tax problem :/

Yes, i have the feeling that they are waiting the best moment to catch all those fishes in the barrel

Yeah, my impression is that this NHR system will cease operation and more crack down will happen to those already on the regime. PT was a tax heaven for crypto for example and now it is a tax hell LOL
From my experience most of EU countries would get pressure and more regulation will come and all the special regimes will be less attractive and will come with lot of more compliance, that is why I am considering more countries outside of Europe where there are both less regulation but also less enforcement.

It all depends on how big is the percentage withheld by US compared to the total amount.

If it's less than 5% it's probably not worth to consider a more complicated structure because the costs would probably eat out most of the gains.

Yeah it is around 8%-10% so it may make sense to just create a US LLC owned by a UAE free zone company where my and my business partner are the shareholders and send profit from the US LLC to the UAE free zone and then distribute them.

This also because when you have distributed the money to yourself you want probably to invest them somewhere like in Real Estate, stocks, other businesses so if you are in a friendly business and tax environment it will be easier to generate even more wealth without all the compliance and bureaucracy that comes in other places.

 

[Marzio]

Yes, but depending on the jurisdiction the UK LLP can be subject to taxes, for example in Portugal and unfortunately does not solve the WTH tax problem

No, i wasn't talking about using UK LLP as the royalty company.

I mean using, lets say, the royalty company to pay royalties to a transparent entity that acts only as a collector of money and since foreign source income is tax free in Portugal each member would withdraw his share of profits tax free.

Of course it would be better to have royalties paid directly to each partner's bank account.

Yeah it is around 8%-10% so it may make sense to just create a US LLC owned by a UAE free zone company where my and my business partner are the shareholders and send profit from the US LLC to the UAE free zone and then distribute them.

Well, 8%-10% it's a threshold where you could potentially leave some serious money on the table depending on the volume you generate.

This also because when you have distributed the money to yourself you want probably to invest them somewhere like in Real Estate, stocks, other businesses so if you are in a friendly business and tax environment it will be easier to generate even more wealth without all the compliance and bureaucracy that comes in other places.

100%

 

[OffshorePhantom]

I mean using, lets say, the royalty company to pay royalties to a transparent entity that acts only as a collector of money and since foreign source income is tax free in Portugal each member would withdraw his share of profits tax free.

If I am able to set up the royalty company no need to have a UK LLP I could just sign two personal royalty contracts, one for me and one for my business partner and we are good to go. That is what I am already doing for two years with my current setup, problem is that we optimized a little bit of taxes but as we live now we are taxed on those royalties and with good volume taxes are high :/

Also, the other problem is all the regulations you mentioned, especially the arm's length principle, especially if using a European company, I do not know if shiting for example 95% of company revenue using royalties can cause some issues; in theory, if there is a contract backing it, no, but with all the European regulations I would not be surprised to have problems.

Well, 8%-10% it's a threshold where you could potentially leave some serious money on the table depending on the volume you generate.

That is what is halting me to proceed. With our volume, we could easily pay around $200k-$250k in WTH taxes every year. :/

 

[Marzio]

If I am able to set up the royalty company no need to have a UK LLP I could just sign two personal royalty contracts, one for me and one for my business partner and we are good to go. That is what I am already doing for two years with my current setup, problem is that we optimized a little bit of taxes but as we live now we are taxed on those royalties and with good volume taxes are high

D'oh! Yes, of course.

Also, the other problem is all the regulations you mentioned, especially the arm's length principle, especially if using a European company, I do not know if shiting for example 95% of company revenue using royalties can cause some issues; in theory, if there is a contract backing it, no, but with all the European regulations I would not be surprised to have problems.

All those EU regulations are targeted at inter-company transfers with a cross-border arrangement which your case is a prime example of.

It's in this context that you have to verify that your royalties are considered to be at arm's lenght because royalties could be paid at arm's lenght but if the company which the royalties are paid form is considered a shell company or the arrangement falls into one of DAC6 hallmarks you'll have to report those transactions to tax authorities and at this point it's unclear what could happen.

Having said that i'm pretty sure that paying 95% royalties is at arm's lenght but if you want data to back it up, one of the most reliable transfer pricing methods is the comparable uncontrolled price (CUP) method that relies on access to license agreements between independent entities.

With our volume, we could easily pay around $200k-$250k in WTH taxes every year

That's a lot of money that should be better spent on booze and Lambos in Dubai

 

[OffshorePhantom]

Having said that i'm pretty sure that paying 95% royalties is at arm's lenght but if you want data to back it up, one of the most reliable transfer pricing methods is the comparable uncontrolled price (CUP) method that relies on access to license agreements between independent entities.

The problem is that every software is unique so it is difficult to do this comparison for my personal specific case, also because since in our case the software produces passive income even a 5% profit for the company (and 95% royalties for us) should be a good deal (company side) because this company doesn't need basically to do anything to run the software or at least has only very little work (most of it is done using contractors), and we may justify this by saying we want this little work to be performed by a company and not by us directly since we want to stay on the beach all day long.

Problem is that all this is arbitrary (there is little history of similar cases probably, since every software is very unique) and if you go into litigation with the tax authority because of this only God knows the outcome LOL

That's a lot of money that should be better spent on booze and Lambos in Dubai

If I am able to find a good setup to avoid it for sure, even though I would rather prefer investing them in some Dubai real estate project

 

[Marzio]

very little work (most of it is done using contractors)

What kind of work is performed by the contractors?

Things like updating the app based on new phone dimensions and screen resolutions?

 

[OffshorePhantom]

What kind of work is performed by the contractors?

Things like updating the app based on new phone dimensions and screen resolutions?

Yeah, and maybe add some minor features to the app.

We also have a contractor agency that handles our ads mediation stack for example by managing waterfall prices for the ads we display, and adding new ad networks and ad instances.

We have also recently onboarded another company to handle ASO (the equivalent of SEO but in the app space) and do some marketing.