Best countries to incorporate for Google Adsense
- Thread starter yngmind
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I have no experience with US royalties or royalties in general, but I’m curious why there aren’t service provider focused on solving the withholding tax issues faced by digital nomads and anybody who would be subject to WHT in general.
How could such a solution look like?
- Create a legal entity with real substance in a country without withholding tax
- The legal entity enters into a kind of licensing/management agreement with the content creator (or whoever would otherwise receive the royalties), granting the legal entity the right to exploit the asset
- The legal entity is receiving all the royalties without any WHT︀ and is distributing them according to the agreement
I do see challenges in about how︁ to structure the "agreement" that all involved parties are satisfied, however this should be all︂ solvable. Similar to what is discussed in this thread, but instead of everybody building its︃ own structure, why not to make it a business model with a solid solution and︄ sell the service to everybody in need.
How could such a solution look like?
- Create a legal entity with real substance in a country without withholding tax
- The legal entity enters into a kind of licensing/management agreement with the content creator (or whoever would otherwise receive the royalties), granting the legal entity the right to exploit the asset
- The legal entity is receiving all the royalties without any WHT︀ and is distributing them according to the agreement
I do see challenges in about how︁ to structure the "agreement" that all involved parties are satisfied, however this should be all︂ solvable. Similar to what is discussed in this thread, but instead of everybody building its︃ own structure, why not to make it a business model with a solid solution and︄ sell the service to everybody in need.
Most of the︅ digital nomads couldn't burden the cost of this setup .
These licensing/management agreement will be︆ very difficult because of enhancing BEPS (Base-erosion-Profit-shifting) regulations .
Every time you sell a working︇ "setup", you're just increasing the chance that tax authorities notice it and implement counter-measures.
These licensing/management agreement will be︆ very difficult because of enhancing BEPS (Base-erosion-Profit-shifting) regulations .
Every time you sell a working︇ "setup", you're just increasing the chance that tax authorities notice it and implement counter-measures.
In the music industry, for example, it is pretty much industry standard to have a copyright collective and/or a label in the value chain. While they are not for tax-saving purposes, they in fact can save taxes.
As an example, a strong copyright collective is the German GEMA (a government-backed monopolist for music licensing in Germany).
YouTube --> GEMA --> Copyright holder (in a country without DTA) = Since the GEMA is located in Germany, German WHT of 15% is applicable
YouTube -->︀ Copyright holder (in a country without DTA) = US WHT of 30% is applicable
While the GEMA is probably not the best example, I think setups like this are feasible︁ and pretty much standard for many music labels. I agree with you, BEPS would be︂ something to have an eye on, however, I do not see it as a dealbreaker.︃
As an example, a strong copyright collective is the German GEMA (a government-backed monopolist for music licensing in Germany).
YouTube --> GEMA --> Copyright holder (in a country without DTA) = Since the GEMA is located in Germany, German WHT of 15% is applicable
YouTube -->︀ Copyright holder (in a country without DTA) = US WHT of 30% is applicable
While the GEMA is probably not the best example, I think setups like this are feasible︁ and pretty much standard for many music labels. I agree with you, BEPS would be︂ something to have an eye on, however, I do not see it as a dealbreaker.︃
GEMA is a monopoly and exclusively for content watched in Germany. Hence there is no real profit shifting or base erosion they tax authorities may tackle on.
But the example is good. Maybe it would be possible to form such entity in Kyrgyzstan for payout?
But the example is good. Maybe it would be possible to form such entity in Kyrgyzstan for payout?
Yeah but︃ you forgot that GEMA also withholds (15 % Einkommensteuer sowie 5,5 % Solidaritätszuschlag) .
So you would need a country with a DTA with Germany to reduce/nullify the withholding tax︄ . Then you also would need to wait around 5-6 months for "Freistellung" .
So you would need a country with a DTA with Germany to reduce/nullify the withholding tax︄ . Then you also would need to wait around 5-6 months for "Freistellung" .
I think he just means it as an example. Like we set up KEMA in Kyrgyzstan and use that one to pay out.
There is even Soli on the WHT? I thought that is limited by the DTA.
There is even Soli on the WHT? I thought that is limited by the DTA.
Are you familiar with their pricing structures? I could find some, however, the ones I saw positioned themselves more like media/publishing houses, with relatively high entry barriers.
Yep, KEMA would be the idea, at least the way to distribute the funds.︀ Of course, the GEMA with its monopoly on the German market is not the best︁ example.
Yes, there is the additional solidarity tax (Soli) on the GEMA payouts.
Yep, KEMA would be the idea, at least the way to distribute the funds.︀ Of course, the GEMA with its monopoly on the German market is not the best︁ example.
Yes, there is the additional solidarity tax (Soli) on the GEMA payouts.
Yes, but for residents. How about for non-residents, just the WHT?
I think the way to go would be that there is a Kyrgyzstan company owned by a UAE one, or an Armenian one owners by a Singaporean one. The proceeds would first go to the holding as dividends and then onwards to the performer as royalties. Does this work?
I think the way to go would be that there is a Kyrgyzstan company owned by a UAE one, or an Armenian one owners by a Singaporean one. The proceeds would first go to the holding as dividends and then onwards to the performer as royalties. Does this work?
In that case, wouldn't a Cyprus company this better and you don't have to worry about the WHT depending on the recipients location?
IP holder license rights to CY CO
CY CO sub-lease to YouTube
YouTube pays CY CO ad︀ revenue
CY CO takes a (minimal) cut and pays out the rest as a royalty︁ to IP holder as royalty
IP holder license rights to CY CO
CY CO sub-lease to YouTube
YouTube pays CY CO ad︀ revenue
CY CO takes a (minimal) cut and pays out the rest as a royalty︁ to IP holder as royalty
I was thinking about a virtual zone company in Georgia, which is owned by a Singaporean entity - but this is mainly due to experiences with those countries and entities. It could be tricky to get the solution accepted for the VZ status in Georgia, but I know that software licensing, even, if it is not originally created by the VZ company is not a problem, so I am quite optimistic.︀
Kyrgyzstan is interesting for sure, but I have no experience with it.
Yes, the GEMA website is pretty clear on that:
"In general, members who︄ have their tax residence abroad must pay tax on their income in Germany as well︅ as abroad. In the case of royalty payouts, we are obliged to deduct 15% income︆ tax as well as 5.5% solidarity tax from the income tax amount."
https://www.gema.de/en/help/creators/finances-bank-details/taxes/what-is-an-exemption
I think︇ it could work, I am just wondering what the ongoing maintenance and compliance costs would︈ be. But if you can offer it as a "LaaS" (Licensing as a Service) with︉ low entry barriers for the royalty-generating asset holders, you might easily reach a critical mass︊ of user.
Kyrgyzstan is interesting for sure, but I have no experience with it.
Yes, the GEMA website is pretty clear on that:
"In general, members who︄ have their tax residence abroad must pay tax on their income in Germany as well︅ as abroad. In the case of royalty payouts, we are obliged to deduct 15% income︆ tax as well as 5.5% solidarity tax from the income tax amount."
https://www.gema.de/en/help/creators/finances-bank-details/taxes/what-is-an-exemption
I think︇ it could work, I am just wondering what the ongoing maintenance and compliance costs would︈ be. But if you can offer it as a "LaaS" (Licensing as a Service) with︉ low entry barriers for the royalty-generating asset holders, you might easily reach a critical mass︊ of user.
Most likely it could work as long as your can fulfill the limitation it benefits under the treaty. The reason why they came up with CIS countries US because there are no limitation it benefits in this treaty.
Bumping the thread again, I have some new thoughts.
In theory, it should work with a UK LTD, but I can’t believe it’s legal.
So, YouTubers in Dubai - let’s say MoVlogs - have to pay 30% withholding tax on AdSense income. Why doesn’t he just establish a company in a country with a U.S. tax treaty? Or has he already done that?
My lawyer said because the only purpose of your UK LTD, or let's say Estonian OU, Georgian LLC is to avoid the withholding tax, it doesn't work that way, and certainly the IRS won't like it, you need to establish the management︀ from the country of the company incorporation to make it legal.
BTW, Georgian LLC charges︁ you 15% CT only when you distribute the dividends, so there are plenty of ways︂ to optimize the taxes. It's like Estonia and Latvia.
In theory, it should work with a UK LTD, but I can’t believe it’s legal.
So, YouTubers in Dubai - let’s say MoVlogs - have to pay 30% withholding tax on AdSense income. Why doesn’t he just establish a company in a country with a U.S. tax treaty? Or has he already done that?
My lawyer said because the only purpose of your UK LTD, or let's say Estonian OU, Georgian LLC is to avoid the withholding tax, it doesn't work that way, and certainly the IRS won't like it, you need to establish the management︀ from the country of the company incorporation to make it legal.
BTW, Georgian LLC charges︁ you 15% CT only when you distribute the dividends, so there are plenty of ways︂ to optimize the taxes. It's like Estonia and Latvia.
The UK LTD company cannot take advantage of the UK-USA tax treaty because it's not tax︃ resident in the UK.
- The company's central management and control are outside the UK (e.g.,︄ in Dubai) => company is not tax resident in UK according to domestic law and︅ tax treaty = > Can't take advantage of tax treaty.
- It fails to meet the︆ LOB ( Limitation on Benefits) clause, which requires substance in UK. You would fail the︇ tests of the LOB clause : (1) the publicly traded test, (2) the income/base erosion︈ test, (3) the derivatives benefits test, (4) the Active Trade or Business test, and (5)︉ going to competent authority.
The Estonian OÜ is by default tax resident and you can easily issue the tax certificate online. However, it would still fail a proper investigation due to the lack of substance, and even with some minimal substance it still could be considered treaty shopping.
My initial idea (independent of where you incorporate the company) was to make it a business model with proper substance and real added value to the digital asset or license holder. Think about it as something like a record label or media network. Many YouTubers do not manage their asset themselves, they already use companies for it (usually they are in the same country, but why should they not be in Cyprus, Georgia, or wherever).
Building up the company with proper substance will be in most cases too costly (if you︀ are doing it only for an individual). However, if you have lets say 100 different︁ asset holders and everybody is paying a 10% management fee, you can cover the costs︂ and also justify the value of the company (e.g. network effects, cross-marketing opportunities).
My initial idea (independent of where you incorporate the company) was to make it a business model with proper substance and real added value to the digital asset or license holder. Think about it as something like a record label or media network. Many YouTubers do not manage their asset themselves, they already use companies for it (usually they are in the same country, but why should they not be in Cyprus, Georgia, or wherever).
Building up the company with proper substance will be in most cases too costly (if you︀ are doing it only for an individual). However, if you have lets say 100 different︁ asset holders and everybody is paying a 10% management fee, you can cover the costs︂ and also justify the value of the company (e.g. network effects, cross-marketing opportunities).
When you're earning from AdSense, you are unlikely to be paid by the US entity unless you are registered in the US or in general offshore jurisdictions, like the Carribean.
If you are in the EU, you will be invoicing Google Ireland, and covering VAT via reverse charge.
If you are in MENA/APAC, you will be invoicing Google Singapore.
See: https://support.google.com/adsense/answer/1322028?hl=en
Also, AFAIK, it's royalty income solely if you are making use︀ of YouTube AdSense, as you are being rewarded for video watches. If you use the︁ general AdSense for Web or AdMob for Apps, it will be classed as business income.︂
If you are in the EU, you will be invoicing Google Ireland, and covering VAT via reverse charge.
If you are in MENA/APAC, you will be invoicing Google Singapore.
See: https://support.google.com/adsense/answer/1322028?hl=en
Also, AFAIK, it's royalty income solely if you are making use︀ of YouTube AdSense, as you are being rewarded for video watches. If you use the︁ general AdSense for Web or AdMob for Apps, it will be classed as business income.︂
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