International Tax Structuring for Hair Salons
- Thread starter alpakiwi
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First of all, interesting setup.
Second, compare this with NL-Cyprus setup. Specifically the NL IP route might be a lot more interesting due to not going via the UK and NL having an interesting IP regime.
In general; hair salons will trigger EDD. They are considered a ML risk due to the high amount of cash transactions. If that is the case it will affect your entire structure as banks will all trip over that same aspect. Double check this before setting up anything.
Second, compare this with NL-Cyprus setup. Specifically the NL IP route might be a lot more interesting due to not going via the UK and NL having an interesting IP regime.
In general; hair salons will trigger EDD. They are considered a ML risk due to the high amount of cash transactions. If that is the case it will affect your entire structure as banks will all trip over that same aspect. Double check this before setting up anything.
One thing is IP licensing and another is profit shifting which is what OP wants to do.
Uber in the past used NL for his dutch sandwich setup where they only paid 1% in taxes in NL, the rest was shifted to Bermuda thanks to a IP licensing deal.
So yeah, some US corp used NL for IP licensing but the goal was to avoid paying EU taxes, not to avoid US WHT on royalties.
NL is probably even worse than UK because beside having a LOB clause in the US-NL treaty they even implemented conditional WHT on interest, royalty, and dividend payments︀ to affiliated companies in designated low-tax jurisdictions and in certain (tax abuse) situations.
Uber in the past used NL for his dutch sandwich setup where they only paid 1% in taxes in NL, the rest was shifted to Bermuda thanks to a IP licensing deal.
So yeah, some US corp used NL for IP licensing but the goal was to avoid paying EU taxes, not to avoid US WHT on royalties.
NL is probably even worse than UK because beside having a LOB clause in the US-NL treaty they even implemented conditional WHT on interest, royalty, and dividend payments︀ to affiliated companies in designated low-tax jurisdictions and in certain (tax abuse) situations.
IP licensing is just a fancy way of profit shifting..
Reason for me to avoid the UK is that when you do want to use Malta its better to use the known and robust legislation of the EU. With the UK it's still a bit "greenflelding" due to the recent departure from the EU.
Reason for me to avoid the UK is that when you do want to use Malta its better to use the known and robust legislation of the EU. With the UK it's still a bit "greenflelding" due to the recent departure from the EU.
You are right.
I realize my post didn't convey what i was thinking.
The point i'm trying to make here is that the problem isn't the country receiving the royalties (UK, NL), the problem is the source of the royalties (US) that has limitation on benefits rules to prevent profit shifting.
US drafted their treaties in a way that claiming treaty benefits = paying taxes in the receiving country on at least 51% of the amount received.
The only way is to use a country with 0% WHT on US︀ royalties and no LOB clause (like Georgia) where you can shift profits or a country︁ with 0% WHT on US royalties with LOB clause where you don't shift profits (like︂ Spain) because you can get an advantageous CIT.
I realize my post didn't convey what i was thinking.
The point i'm trying to make here is that the problem isn't the country receiving the royalties (UK, NL), the problem is the source of the royalties (US) that has limitation on benefits rules to prevent profit shifting.
US drafted their treaties in a way that claiming treaty benefits = paying taxes in the receiving country on at least 51% of the amount received.
The only way is to use a country with 0% WHT on US︀ royalties and no LOB clause (like Georgia) where you can shift profits or a country︁ with 0% WHT on US royalties with LOB clause where you don't shift profits (like︂ Spain) because you can get an advantageous CIT.
Hi everyone,
Thanks for your help. I wanted to share an update.
If anyone else has ideas, it’d be︆ great to hear them. This is an intriguing topic! 🙂
Thanks for your help. I wanted to share an update.
- I spoke with a top international tax lawyer based in the UK. He confirmed that the LOB clause is indeed applicable (props to @Marzio – you know your stuff!), but mentioned that, in practice, he hasn't seen it enforced in his 30 years of experience. He also uncovered something useful: to prevent the Isle of Man from classifying the IP holding company as “high-risk IP,” we’d need to personally own the UK entity, not the IOM entity, so that it doesn’t form a "group." This setup should work even if most profits shift︀ to the IOM IP owner. This approach sidesteps the high-risk IP substance requirements, making it︁ easier to meet the standard IP substance criteria.
- I’ve also been exploring a potential setup︂ in Georgia, including getting local advice (thanks again @Marzio!). They confirmed that it’s possible,︃ so I’m diving deeper. I’ll share another update after our meeting next week.
If anyone else has ideas, it’d be︆ great to hear them. This is an intriguing topic! 🙂
I don't understand how owning personally the UK entity would actually help with LOB but hey if that was suggested by a top international tax lawyer i'm cool with it.
Even if in theory it's︁ a great idea, you have to keep your eyes and ears open about the political︂ situation which could impact your business.
Agree, don't forget to update us! 🙂
Even if in theory it's︁ a great idea, you have to keep your eyes and ears open about the political︂ situation which could impact your business.
Agree, don't forget to update us! 🙂
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