Most people do not really know what offshore companies are and what they are for. And even those who have a working knowledge about offshore company formation & registration know very little about its use for copyrights, patents and royalties.
What are Copyrights, Patents and Royalties?
Copyrights protect certain forms of intellectual properties such as books, songs, software and so forth. Patents protect an inventor of a certain instrument, device or machine. Royalties are the sums paid to a holder of a copyright or invention.
In this world were rampant copying and faking of inventions and intellectual properties occurs, an inventor or a composer needs to have patents and copyrights to protect their individual rights to be duly compensated when their works are used by third parties.
How an Offshore Company Will Help
An offshore company can purchase or be assigned the right to use a patent, a copyright by the original holder using a power of sub-license.
Once an offshore company acquires the intellectual property right, it can then enter into licensee agreements anywhere in the world with individuals or companies who would be in a better position to maximize the commercial potential of the original work.
This is a more preferred arrangement compared to acquiring a patent or copyright on a patent pending or copyright pending stage, before it becomes valuable. The capital payment for the acquisition of the patent or copyright is usually set at a lower amount.
Usually, royalties paid out of a high tax area attract withholding taxes at source. But with an interposing holding company, the governing tax body may allow a reduction in the tax rate withheld at source.
The Typical Process
If there is a small time inventor who has a number of good inventive ideas in mind and wishes to develop them, he can use an offshore company to cut his taxes should his inventive ideas turn out to be commercially successful.
He could go to the offshore company and sell his rights to some of his inventive ideas, in return for a guarantee that he will receive payments regardless if his inventions take off or not.
He then pays his income tax from the payments he receives, hoping that a number of his ideas are taken up by big manufacturing and marketing companies say for large sums of money.
The royalties of these inventions are paid to the holder of the rights, which is the offshore company. These royalties are tax-free and the inventor, in theory, only receives his portion at a flat-rate guarantee.
However, there is a sum of money that is growing substantially with the accumulating royalties that the offshore company is entitled to receive in some future date. It is also entirely possible for the inventor to be the owner of the offshore company.
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