Best countries to incorporate for Google Adsense

[yngmind]

DeepDrilling said:
Who else should respond to that if not the provider you've used to establish your company? This thread doesn't make any sense to me. And if your service provider can't receive a package or letter for you, then you can find another one who will.
Click to expand...

I believe it's a great thread. We have discussed a lot here, and some OCT members will benefit from it.

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[Offct]

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 WHT and is distributing them according to the agreement

I do see challenges in about how to structure the "agreement" that all involved parties are satisfied, however this should be all solvable. Similar to what is discussed in this thread, but instead of everybody building its own structure, why not to make it a business model with a solid solution and sell the service to everybody in need.

 

[aniglo22]

Offct said:
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 WHT and is distributing them according to the agreement

I do see challenges in about how to structure the "agreement" that all involved parties are satisfied, however this should be all solvable. Similar to what is discussed in this thread, but instead of everybody building its own structure, why not to make it a business model with a solid solution and sell the service to everybody in need.
Click to expand...

Most of the digital nomads couldn't burden the cost of this setup .
These licensing/management agreement will be very difficult because of enhancing BEPS (Base-erosion-Profit-shifting) regulations .
Every time you sell a working "setup", you're just increasing the chance that tax authorities notice it and implement counter-measures.

 

[diro]

yngmind said:
What would be the best countries to incorporate for Google Adsense income?

It's a royalty income, and the US charges 30% WTH tax, so the country should have DTT with the US and have somewhat no taxes.

I think it's Georgia and Armenia.
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where did you incorporated if I can ask you ?

 

[Offct]

aniglo22 said:
Most of the digital nomads couldn't burden the cost of this setup .
These licensing/management agreement will be very difficult because of enhancing BEPS (Base-erosion-Profit-shifting) regulations .
Every time you sell a working "setup", you're just increasing the chance that tax authorities notice it and implement counter-measures.
Click to expand...

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 feasible and pretty much standard for many music labels. I agree with you, BEPS would be something to have an eye on, however, I do not see it as a dealbreaker.

 

[yngmind]

Offct said:
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 WHT and is distributing them according to the agreement

I do see challenges in about how to structure the "agreement" that all involved parties are satisfied, however this should be all solvable. Similar to what is discussed in this thread, but instead of everybody building its own structure, why not to make it a business model with a solid solution and sell the service to everybody in need.
Click to expand...

There are actually such services in Cyprus, in the YouTube space, they are called "Media Network."

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[daniels27]

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?

 

[aniglo22]

Offct said:
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 feasible and pretty much standard for many music labels. I agree with you, BEPS would be something to have an eye on, however, I do not see it as a dealbreaker.
Click to expand...

Yeah but 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 tax . Then you also would need to wait around 5-6 months for "Freistellung" .

 

[daniels27]

aniglo22 said:
Yeah but 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 tax . Then you also would need to wait around 5-6 months for "Freistellung" .
Click to expand...

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.

 

[Offct]

yngmind said:
There are actually such services in Cyprus, in the YouTube space, they are called "Media Network."
Click to expand...

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.

daniels27 said:
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.
Click to expand...

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 best example.

Yes, there is the additional solidarity tax (Soli) on the GEMA payouts.

 

[kekmaw]

daniels27 said:
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.
Click to expand...

In Kyrgyzstan you got withholding of 10% (in most cases) on further royalties though.

Unless there is some incentive in any of the FEZs that this doesn't apply to.

 

[daniels27]

Offct said:
Yes, there is the additional solidarity tax (Soli) on the GEMA payouts.
Click to expand...

Yes, but for residents. How about for non-residents, just the WHT?

kekmaw said:
In Kyrgyzstan you got withholding of 10% (in most cases) on further royalties though.

Unless there is some incentive in any of the FEZs that this doesn't apply to.
Click to expand...

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?

 

[kekmaw]

daniels27 said:
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?
Click to expand...

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 ad revenue
CY CO takes a (minimal) cut and pays out the rest as a royalty to IP holder as royalty

 

[Offct]

kekmaw said:
In Kyrgyzstan you got withholding of 10% (in most cases) on further royalties though.

Unless there is some incentive in any of the FEZs that this doesn't apply to.
Click to expand...

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.

daniels27 said:
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?
Click to expand...

Yes, the GEMA website is pretty clear on that:
"In general, members who have their tax residence abroad must pay tax on their income in Germany as well as abroad. In the case of royalty payouts, we are obliged to deduct 15% income 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 think it could work, I am just wondering what the ongoing maintenance and compliance costs would be. But if you can offer it as a "LaaS" (Licensing as a Service) with low entry barriers for the royalty-generating asset holders, you might easily reach a critical mass of user.

 

[daniels27]

kekmaw said:
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 ad revenue
CY CO takes a (minimal) cut and pays out the rest as a royalty to IP holder as royalty
Click to expand...

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.

 

[yngmind]

kekmaw said:
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 ad revenue
CY CO takes a (minimal) cut and pays out the rest as a royalty to IP holder as royalty
Click to expand...

Seems like a good setup, and not that complicated.

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[yngmind]

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 management from the country of the company incorporation to make it legal.

BTW, Georgian LLC charges you 15% CT only when you distribute the dividends, so there are plenty of ways to optimize the taxes. It's like Estonia and Latvia.

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[aniglo22]

yngmind said:
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 management from the country of the company incorporation to make it legal.

BTW, Georgian LLC charges you 15% CT only when you distribute the dividends, so there are plenty of ways to optimize the taxes. It's like Estonia and Latvia.
Click to expand...

The UK LTD company cannot take advantage of the UK-USA tax treaty because it's not tax resident in the UK.

1. 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 and tax treaty = > Can't take advantage of tax treaty.
2. It fails to meet the LOB ( Limitation on Benefits) clause, which requires substance in UK. You would fail the tests of the LOB clause : (1) the publicly traded test, (2) the income/base erosion test, (3) the derivatives benefits test, (4) the Active Trade or Business test, and (5) going to competent authority.

What you are proposing is treaty shopping and tax authorities will see through it and punish it .

 

[Offct]

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 you are doing it only for an individual). However, if you have lets say 100 different asset holders and everybody is paying a 10% management fee, you can cover the costs and also justify the value of the company (e.g. network effects, cross-marketing opportunities).

Last edited: Oct 14, 2024

 

[ilke]

yngmind said:
What would be the best countries to incorporate for Google Adsense income?

It's a royalty income, and the US charges 30% WTH tax, so the country should have DTT with the US and have somewhat no taxes.

I think it's Georgia and Armenia.
Click to expand...

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 use of YouTube AdSense, as you are being rewarded for video watches. If you use the general AdSense for Web or AdMob for Apps, it will be classed as business income.