International Tax Structuring for Hair Salons

[Don]

Another approach would be to have the spanish company as a shareholder of a Singapore non resident company managed from Malta.

The SG company will not pay taxes in SG because it will not be considered tax resident as it's managed from Malta.

The SG company will also not pay any tax in Malta since it will be considered resident non domiciled company. (this will save you tens of thousands of euro in yearly setup fees in Malta)

This company will hold IP rights that will license to a Georgian company.

Georgia company will sub-license those rights to US companies and since there's no limitation on benefits in the old USSR-US double tax treaty you will be able to shift profits from Georgia to the SG company.

The biggest roadblocks with this setup would be:
1. opening and operating bank accounts for both companies, especially in Georgia.
2. ensuring both companies would not trigger spanish CFC rules which i'm not sure

What do you think about using Singapore non resident company also in Georgia? So it becomes Georgia resident.

 

[EliasIT]

What do you think about using Singapore non resident company also in Georgia? So it becomes Georgia resident.

he already said that there will be troubles with USD coming into Georgia and going out to the USA - don't you think it is going to be a problem ?

 

[Marzio]

What do you think about using Singapore non resident company also in Georgia? So it becomes Georgia resident.

What's the advantage of doing that?

 

[Don]

What's the advantage of doing that?

Not much besides the image, which could affect banking options. UK company resident in Georgia could also be considered.

 

[GPT]

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.

 

[Despina]

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.

As if NL didn’t have the same strict LOB clause in their treaty with USA…

 

[GPT]

As if NL didn’t have the same strict LOB clause in their treaty with USA…

Yet many US corporations still choose the NL route for their IP/licensing. If the turnover/profit is high enough you still can get a favourable ruling in NL.

 

[Marzio]

Yet many US corporations still choose the NL route for their IP/licensing.

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 payments to affiliated companies in designated low-tax jurisdictions and in certain (tax abuse) situations.

 

[GPT]

One thing is IP licensing and another is profit shifting which is what OP wants to do.

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.

 

[Marzio]

IP licensing is just a fancy way of profit shifting..

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 US royalties and no LOB clause (like Georgia) where you can shift profits or a country with 0% WHT on US royalties with LOB clause where you don't shift profits (like Spain) because you can get an advantageous CIT.

 

[nurredon]

Hi everyone,

Thanks for your help. I wanted to share an update.

1. 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 shift to the IOM IP owner. This approach sidesteps the high-risk IP substance requirements, making it easier to meet the standard IP substance criteria.
2. I’ve also been exploring a potential setup 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.

As it stands, I think our options are (a) to manage the LOB risk by incorporating trading revenue/invoices, or (b) go “all in” on Georgia.

If anyone else has ideas, it’d be great to hear them. This is an intriguing topic!

 

[Marzio]

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 shift to the IOM IP owner. This approach sidesteps the high-risk IP substance requirements, making it easier to meet the standard IP substance criteria.

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.

I’ve also been exploring a potential setup in Georgia

Even if in theory it's a great idea, you have to keep your eyes and ears open about the political situation which could impact your business.

This is an intriguing topic!

Agree, don't forget to update us!

 

[nurredon]

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.

It's not for the LOB; it's to avoid triggering high-risk IP substance requirements in IOM. It has nothing to do with the LOB. The LOB issue is still there.

 

[Marzio]

It's not for the LOB; it's to avoid triggering high-risk IP substance requirements in IOM. It has nothing to do with the LOB. The LOB issue is still there.

Right, those are actually two separate issues.

Well at least you got your money's worth out of that consult.

 

[Propeller]

If i were in you i would probably consult with this guy.

From his site: "Between March 2015 and September 2017 he was a member of working party 6 of the OECD BEPS project where he personally took part in current amendments of the OECD transfer pricing legislation."

Who better than him can guide you with transfer pricing matters in Georgia?

He has been in business for a very long time right? I think I used this firm 8 years ago or so.