As the UK has one of the widest tax treaty networks in the world, UK companies are ideal for use as vehicles to receive and pay out royalty income in a tax-efficient manner. For example, under the US DTA the rate of withholding tax on royalties can be reduced to zero.
Under the EU Interest and Royalties Directive, UK companies can receive royalties without withholding tax from connected companies in other EU member states.
An offshore company A holds valuable pharma licences and patents and would like to licence the IP to subsidiaries internationally. There would be withholding taxes applied in the jurisdictions of the subsidiaries on the royalty payments to the offshore company as offshore jurisdictions have none, few or very limited DTAs. A better plan might be to incorporate a UK “royalty” company and sub-licence the IP to the trading subsidiaries worldwide. As the UK would almost certainly have DTAs with most jurisdictions withholding tax could be reduced to zero or minimal amounts under treaty protection. The UK companycan claim a tax deduction for the licence fee paid to the offshore company.
UK royalty companies can be used for IP sub-licensing in industries employing intellectual property such as pharma, software, engineering design, aerospace, etc. RKG Consulting will be pleased to provide further information and tailor-made structures for each business scenario.