In addition to having technology as a must element in our daily personal lives, it has been an inseparable element of our business lives. Many properties have been created with the creation of technology, such as Intellectual Property (IP) and its derivatives. Therefore, owning valuable intangible property became more and more common.
Nowadays, many businesses are being formed based on their ownership of valuable IPs, making them gain a lot of revenues and profit.
Now, IP owners must know how to protect their IPs and what points they should consider to benefit their properties in the best way possible.
This is why in this article, we will tackle the best business structure (I) and power (II)to hold IPs.
- Best business structure to hold IP
- IP Holding Company
In general, a Holding Company is the type of company that holds certain assets. In the case of IP Holding Company, the asset it holds is IP. It acts as a Special Purpose Vehicle (SPV). Consequently, such a company does not conduct operations or offer any services. It has just one primary object, which is to hold the IP.
Since it is the IP owner, it is the sole legal entity that can enter into agreements to sell, transfer or sub-license any of her IP. For this reason, any agreement or legal document that has for the subject the IP, this Holding Company should be involved.
- Advantages of an IP Holding Company
Having a legal entity whose main objective is to hold IP has an array of advantages from which we mention:
Centralizing your IP: when having just one entity as the sole owner of the IP, no questions or uncertainty will centralize the rise regarding ownership and everything related to IP. It will be the only party responsible for all matters that are related to IP.
Reducing risks: one significant benefit of having one entity owning the IP is to separate liabilities. For instance, if an IP Holding Company owns a subsidiary that is responsible for operations and another one that is a service provider, any problem arising from any of its subsidiaries will not affect the Holding Company in any case. Even in the worst-case scenario, where one of the subsidiaries loses everything, the Holding Company will remain intact since it has a separate legal entity.
This is how the maximum protection of IP is ensured.
It is worth mentioning that, with having several entities, there is a tendency that things will get quite complicated and confusing. Still, such complications can be easily avoided by having all the required documents and agreements clearly drafted. This way, the agreements will set straight the roles and duties of every entity and will waive any possibility of future conflicts and confusion.
Tax incentives: A Holding company has many advantages regarding taxes that parties could benefit from and therefore have more revenues.
- Best jurisdictions to hold IP companies
- The main elements that we should focus on
When the world is an option to incorporate, deciding the best jurisdiction can be tricky. But, there are certain elements that we must take into consideration that help to indicate the best suitable options.
When talking about IP, one should consider the laws of the potential power he intends to incorporate, in line with protecting the IP, economic and financial stability, tax regimes, and international IP treaties.
One should seek countries known for being tax havens and offer incentives when it comes to IP.
For instance, several countries have laws customized to govern IPs and their tax regime. Other countries offer exemptions when it comes to royalties for IP Holding companies.
We mention the Cayman Islands, Isle of Man, Luxembourg, Switzerland, Dubai, Ireland, Cyprus, the Netherlands, United States, Guernsey, Hungary, and many more from these countries.
Our study will cover a couple of these rules, which are the following:
- Significant rules to hold IP companies
It is considered a perfect place to hold your IP company since it has entered many international IP agreements and offers IP protection. Besides, Cyprus is one of the best EU countries for taxes, having a corporate tax rate as low as 12.5%.
Cyprus has a new IP regime that adopts the “nexus” approach. With that regime, taxpayers will benefit from an 80% reduction on taxes of qualifying profits such as profits generated from intangible assets such as copyrights, trademarks, and patents. With such exemption, the tax rate will approximately be around 2.5%.
- The Netherlands
With the “Dutch Innovation Box System,” it has become easier to reduce prices and get discounts on taxes. As of the year 2010, the taxes related to IP have been reduced to 5%, making it a very favorable jurisdiction to hold IP.
As of 2016, Ireland has introduced the “knowledge development box” that has contributed to making it a desirable power to hold IP. From these incentives, we list the following:
- 5% corporation tax rate;
- availability of tax depreciation for capital costs incurred on acquiring or developing IP;
- tax credits for research and development expenditure;
- 25% tax rate that applies to certain patents and copyright income;
- availability of deductions for interest expenses incurred on borrowings to fund the acquisition of IP; and
- relief for foreign withholding tax suffered on royalty income.
There are many options to consider when establishing an IP company. Each incorporation should be studied separately. Depending on the requirements of the founders, the most favorable rule will be chosen.
So, if you need help in establishing your IP company, do not hesitate to visit lexyom.com and book an online consultation with a lawyer to guide you through the process.