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Licensing and Franchising: Royalty Collection

One of the most common uses of IOFCs (International Offshore Financial Centres) is for the collection of revenue from technology licenses, franchise fees, and royalties on other transfers of intellectual property. These types of payment often result from transfers of intellectual property from more advanced nations to less advanced ones.

Such payments are often subject to withholding taxes in the country from which they originate, and will get taxed, perhaps doubly, on arrival in the country of the licensor. Therefore an IOFC having good double-tax treaties with emerging markets countries, and not levying withholding tax on onward payments, will be a suitable location for an intermediary company. If the offshore collection company can be independent of the originating company (the licensor or franchisor) then so much the better, and the profits from licensing may be available free of tax altogether.

The US and many other countries have legislation designed to ensure that companies do not manage to escape tax due on the sale of intellectual property from offshore jurisdictions. However, this legislation was not designed to cope with digital downloads of intellectual property or property rights from servers in offshore jurisdictions. Many tax-efficient opportunities of this type are arising as the range of digitally downloadable products expands, but great care is necessary in setting up such schemes given the uncertainty of the legal and fiscal environment.

While tax treaties are not absolutely vital to the success of offshore licensing schemes, they are quite important, and the list of jurisdictions below is restricted to those IOFCs having good networks of double-tax treaties. Click on any underlined jurisdiction for a full description, including details of that jurisdiction's double tax treaty network:

CyprusGibraltarIrelandLuxembourgMadeiraMaltaMauritiusThe Netherlands AntillesPanama

Perhaps because licensing was one of the earliest significant uses of what used to be called 'tax havens', many of the high-tax jurisdictions terminated tax treaties that they used to have with some of the more blatant IOFCs. There is by now a division between those IOFCs that try to maintain at least the appearance of a normal fiscal regime, and those that don't bother.

In the Lowtax.net jurisdictions section, information is given about business activities for each of the following jurisdictions:

AndorraAnguillaArubaBahamasBarbadosBelizeBermuda,British Virgin IslandsCayman IslandsCook IslandsCosta Rica,DubaiCyprusGibraltarGrenadaGuernseyHong KongIrelandIsle of ManJerseyLabuanLiechtensteinLuxembourgMadeiraMalta,MauritiusMonacoThe Netherlands AntillesPanamaSeychelles,SwitzerlandTurks & Caicos Islands and Vanuatu.