US Withholding tax on royalties solutions

[Mr Gus]

Where is that limitation written? In the treaty? Can you show me?

There is none, there was a new treaty proposed in 2010 to overwrite the 1979 one with an LOB but has not come in effect apparently, so yes you are right that would be an option as well.

 

[OffshorePhantom]

In the case of software at this point the best one is Cyprus using IP Box Regime to obtain 2.5% CIT

Apparently there is no way to obtain 0 % tax rate ,am I correct?
We can leverage a low taxation using some eastern europe countries but cannot achieve 0 % from what I understood from the discussion so far.

 

[Mr Gus]

In the case of software at this point the best one is Cyprus using IP Box Regime to obtain 2.5% CIT

Apparently there is no way to obtain 0 % tax rate ,am I correct?
We can leverage a low taxation using some eastern europe countries but cannot achieve 0 % from what I understood from the discussion so far.

Well legally I haven't found an option for 0% tax, maybe someone else has. But you can always risk it with the UK LLP setup.

 

[OffshorePhantom]

Well legally I haven't found an option for 0% tax, maybe someone else has. But you can always risk it with the UK LLP setup.

If you want to risk wouldn't be better using a US LLC with no public records and sign a W8BEN with your home country documents instead of a UK LLP ?

 

[yngmind]

If you want to risk wouldn't be better using a US LLC with no public records and sign a W8BEN with your home country documents instead of a UK LLP ?

Some guy told me to dig into British Columbia LLP, it has no public records, I'm reading now about that.

If you want to risk wouldn't be better using a US LLC with no public records and sign a W8BEN with your home country documents instead of a UK LLP ?

Using US LLC not always good, because there is a risk that they can tax you because you are using US company.

 

[Marzio]

Some guy

It was me

 

[OffshorePhantom]

Some guy told me to dig into British Columbia LLP, it has no public records, I'm reading now about that.


Using US LLC not always good, because there is a risk that they can tax you because you are using US company.

If you use a pass-through LLC and are not a US Person I do not understand how they could tax you.

I may have found another solution by moving to Portugal with the NHR program. I read that foreign royalties are not taxed. Since Adsense (as of June 2021) now count the money they pay you as royalties (in fact they apply the 30% WTH which is applied only to certain incomes like royalties or dividends) moving to Portugal and receiving the money directly from there can be seen by the Portuguese tax man as foreign royalties (you can even show them the W8BEN you signed with IRS and that they consider it as royalties) and Portugal has a tax-treaty with the US. Is this something that make sense?

 

[FreedomSearcher]

If you use a pass-through LLC and are not a US Person I do not understand how they could tax you.

I may have found another solution by moving to Portugal with the NHR program. I read that foreign royalties are not taxed. Since Adsense (as of June 2021) now count the money they pay you as royalties (in fact they apply the 30% WTH which is applied only to certain incomes like royalties or dividends) moving to Portugal and receiving the money directly from there can be seen by the Portuguese tax man as foreign royalties (you can even show them the W8BEN you signed with IRS and that they consider it as royalties) and Portugal has a tax-treaty with the US. Is this something that make sense?

Would like to hear from other people who can confirm if this is possible.

 

[CyprusLawyer101]

I have not read above, if this has been mentioned, but the only country with no LOB provision in itas treaty with the US is Hungary. Hope this helps to the discussion

 

[lacomaco]

Thai residency would be possible however there is a 15% withholding tax so not 0% tax but 15% tax on revenue.


Yeah looked into this as well but there is a a limitation on benefits clause stating that 50% of the shares need to be held by either a Hungarian resident or US resident in order to claim benefits, so that's not an option.

Are you sure that the new double tax treaty is already in force? The old one has no limitation of benefits

 

[Mr Gus]

Are you sure that the new double tax treaty is already in force? The old one has no limitation of benefits

No it's not, my bad.

 

[lacomaco]

No it's not, my bad.

Even Berlusconi used Hungarian companies to save money on US royalties

 

[Zaki]

I see a lot of topics on this issue and new ones popping up every week, it might be nice to just have one thread to discuss this topic and list all possible solutions.

The problem

Withholding of 30% on all US revenue generated from YouTube / Google ad earnings.

The case

Trying to achieve a as low as possible tax rate by reducing the withholding tax and other taxes. There are quite a few legal options and as far as I know and one non-legal option but the latter one is commonly used.


Legal Solutions

Malta company + non-dom resident (10% US withholding tax)
- 5% corporate tax on trading income, so all revenue there is no US withholding tax on will apply to this (6/7 refund on 35%)
- 11.8% corporate tax on royalty income, you get a tax credit resulting (2/3 refund on 35%)

No withholding if you pay it out as dividends to a foreign holding company, and leave it there a 1-2 years and then remit it to Malta tax free. So you will effectively pay somewhere between 5-11.8%

Cyprus company + non-dom resident (0% US withholding tax)
- 12.5% corporate tax

I believe 2.25% dividend tax when paying out the dividends so effective tax of 15%

Bulgaria company + resident (10% US withholding tax)
- 10% corporate tax (The withholding tax can be offset by the corporate tax by making use of the tax credit)

You will be subject to 5% tax on dividends so an effective tax rate of 15%.

Georgia company + resident (0% us withholding tax)
- 15% corporate tax
- 0% corporate tax for Virtual IT zone companies (I heard it is really hard to get a license for it today and I am not sure if a YouTube business is eligible for this status)
- 1% for small businesses if your revenue is below 500.000 Georgian Lari

In case you make use of a regular company or virtual one you will have to pay 5% on dividend distributions so in Georgia you will have an effective tax rate of 1%, 5% or 20%.


Non - Legal Solutions

UAE Resident + UK LLP
- 0% tax on personal income in the UAE
- 0% withholding tax on US revenue in the UK

The reason this is not legal is because of the LOB clause in the tax treaty between the US which states that at least 50% needs to be held by a UK resident. I see many people use this setup and so far so good because as far as I know the W8-Ben forms are not directly reported to the IRS but I am not sure about this. However if the IRS start digging into this scheme you are very easily caught, you can even google the residency of the directors/shareholders of an LLP.


Worth looking into Solutions

UAE Resident + Georgian Company
- 15% corporate tax
- 0% corporate tax for Virtual IT zone companies (I heard it is really hard to get a license for it today and I am not sure if a YouTube business is eligible for this status)

Since there is no LOB clause in the US and USSR tax treaty this could be an option worth looking into however would require some more expertise, especially if you are eligible for a Virtual IT zone company. Which would mean 0% tax because of the tax treaty between Georgia and the UAE otherwise 15%.

====

If you any addition to this list or spot a mistake please let it know.

regarding USA withholding tax, tax residency of UBO & DTA
I put a lot of useful Infos in this thread

https://www.offshorecorptalk.com/threads/best-offshore-jurisdiction-for-collecting-adsense-income.34374/

 

[Marzio]

but the only country with no LOB provision in itas treaty with the US is Hungary

Since Hungary is the only country with no LOB provision in the treaty i thought if using a Hungarian limited partnership would work.

 

[CyprusLawyer101]

A Hungarian partnership would be a transparent vehicle for tax purposes and should not meet the tax residency for claiming benefits of the Treaty. Therefore if it is a partnership it cannot claim Treaty benefits

 

[lacomaco]

Hungary does not accept the concept of flow-through entities, so why would the US accept such a classification for a partnership?

 

[CyprusLawyer101]

Hungary does not accept the concept of flow-through entities, so why would the US accept such a classification for a partnership?

You say that a Hungarian limited partnership is regarded as an opqque entity for tax purposes in Hungary? If this is the case then maybe it would affect the interpretation of the treaty. Obviously, It has to be looked into the text and context of the treaty.

 

[lacomaco]

You say that a Hungarian limited partnership is regarded as an opqque entity for tax purposes in Hungary? If this is the case then maybe it would affect the interpretation of the treaty. Obviously, It has to be looked into the text and context of the treaty.

I am not just saying but you can also check that Hungary does not recognize the concept of flow-though entities. As a kind remark I think these type of advices should not be given by someone who is not intimately familiar with a country's tax system. Half-knowledge is dangerous

 

[CyprusLawyer101]

I am not just saying but you can also check that Hungary does not recognize the concept of flow-though entities. As a kind remark I think these type of advices should not be given by someone who is not intimately familiar with a country's tax system. Half-knowledge is dangerous

Yes you are right. I did take it for granted that a hungarian llp was an see through. thank you for pointing this out and @marzio should take note of this.

 

[lacomaco]

Yes you are right. I did take it for granted that a hungarian llp was an see through. thank you for pointing this out and @marzio should take note of this.

This is the way intelligent conversations can be done, even on the internet