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Where would you locate the IP in the following case?
- Thread starter GodsGiftToThisGroup
- Start date
Based on https://ocbfconsulting.com/best-jurisdiction-for-ip-holding-company-a-2024-guide/ , it seems like Cyprus is good jurisdiction for what I want. Sure, it's not 0% tax. The 2.5% will require us to do some bookkeeping. But, as long as the company is low income, whenever we don't have time to deal with bookkeeping, we can just pay 2.5% of gross minus salaries, without bothering to record every single small expense, essentially paying more taxes than we will owe in order to save time.
Cyprus doesn't require a director living in the island. Besides, while not my first choice, it's a place I wouldn't mind at all living in.
As to the timeline, if everything goes to plan, I am expecting to need the Cyprus LLC is in spring 2026. 15 to 18 months from now. So, it's not too early to think about it. Like I said, I need an entity into which Yacine will assign intellectual property before he starts the development of the initial most likely (but not necessarily) throw away web applicatiion. For three reasons:
1) I need to give Yacine an incentive to work for $1 a year, to do the best job he can and create as little technical debt as possible during the development.
2) I need Yacine to have a strong incentive to run the SAAS business to the best of his abilities, while my remote involvement will be less than 10 hours a week.
3) As a US Citizen, if Yacine assigned the intellectual property to me before its development, and I later assign it to a non US company after it has been developed, I would be inviting the IRS and a whole lot of hurt into my life.
For the above three reasons, the IP entity needs to precede the development of the IP.
Cyprus doesn't require a director living in the island. Besides, while not my first choice, it's a place I wouldn't mind at all living in.
As to the timeline, if everything goes to plan, I am expecting to need the Cyprus LLC is in spring 2026. 15 to 18 months from now. So, it's not too early to think about it. Like I said, I need an entity into which Yacine will assign intellectual property before he starts the development of the initial most likely (but not necessarily) throw away web applicatiion. For three reasons:
1) I need to give Yacine an incentive to work for $1 a year, to do the best job he can and create as little technical debt as possible during the development.
2) I need Yacine to have a strong incentive to run the SAAS business to the best of his abilities, while my remote involvement will be less than 10 hours a week.
3) As a US Citizen, if Yacine assigned the intellectual property to me before its development, and I later assign it to a non US company after it has been developed, I would be inviting the IRS and a whole lot of hurt into my life.
For the above three reasons, the IP entity needs to precede the development of the IP.
Have you read this
https://www.soneverse.com/cyprus-audit-requirements-a-comprehensive-guide/
The audit is going to cost you 2000 per year. Minimum.
Are we taking about doing node.js code he will write here? I would not worry much about this.
I don't know. I know how to develop, in Java, desktop applications that do NOT interact with databases.
I have no clue how to interact with databases. I have very little idea how to develop a web application. I have no idea what node.js is used for.
Thanks Daniel for the SAAS templates.
I am leaning right now towards forgetting about creating two companies. I am leaning towards asking the Algerian government grant the "startup" label to my project, then, if that label is granted, forming a single Algerian company to hold the IP AND eventually do the operations (i.e. run the SAAS service). A 2023 Algerian law introduced simplified procedures to forming companies for which the government grants the "startup" label.
The above solution will put the IP at risk. But it will also be of minimal costs if the project ends up to be a total flop. As in it never really gets off the ground.
That seems like a manageable risk.
Good. That seems like the much bigger risk here.
And honestly, once it's up and running, you can still add a US company that resells the service.
You could probably also just set up a US LLC or UK Ltd. (both are cheap) and then just sell the IP to another company later.
You shouldn't think about this at all right now, you should think about building a product.
You want to find a solution for that fit's your revenue and not look at much at what others do. The revenue is still small but if you think you can grow it 2x or even 3x while later on 10x it would make sense to plan already now.
@EliasIT with all due respect, I agree with you. But in his case, he does not expect it to grow beyond 100k.
US LLCs are great for non US Citizens living outside the United States. They are terrible for US Citizens to hold IP that they might later want to transfer to a non US entity.
From my quick search, a UK Ltd. holding IP is required to file tax returns. A non starter for a most likely low revenue venture.
How about an Anguilla company? Is there a way to form one there for under $1,000, maintain it for under $500 a year, and open a bank account that is good enough for me to wire money there from the United States and get debit cards?
I know I can Google the above. And I have. But do you have personal experience with them?
They do require keeping financial records. But no filing of such records is required.
Let me give you some advice.
Program Code
I would highly advise you to have your friend programming the software alone. Do not take in external programmers. If he is a guy with capabilities, he will have a much easier task changing anything in 5 to 10 years from now.
I would also advise to limit the number of external libraries to the minimum. Chances are that there will be updates, changes etc. and the library becomes unsupported by the time you go live. Better write your own code that you can maintain.
Intellectual Property
We are not talking about an operating system where 1000 people are working on it for 5 years. You can just write it and one things would eventually kick off, you do a "code rewrite" (you do not actually do anything) and place the "new" code in a company built for this. Nobody is going to track a one-month-project by some seond-year student (aka sophomore in the US).
That all being said, just focus on your work. Things are small enough that there will never be any big discussion about company goodwill, exit tax, etc.
Program Code
I would highly advise you to have your friend programming the software alone. Do not take in external programmers. If he is a guy with capabilities, he will have a much easier task changing anything in 5 to 10 years from now.
I would also advise to limit the number of external libraries to the minimum. Chances are that there will be updates, changes etc. and the library becomes unsupported by the time you go live. Better write your own code that you can maintain.
Intellectual Property
We are not talking about an operating system where 1000 people are working on it for 5 years. You can just write it and one things would eventually kick off, you do a "code rewrite" (you do not actually do anything) and place the "new" code in a company built for this. Nobody is going to track a one-month-project by some seond-year student (aka sophomore in the US).
That all being said, just focus on your work. Things are small enough that there will never be any big discussion about company goodwill, exit tax, etc.
It turns out I don't need an entity for the first two reasons. Both can be accomplished with a Pre-Startup Founder Agreement. See https://www.forbes.com/sites/tinabaker/2011/09/19/pre-startup-founder-agreements/ and https://www.google.com/search?q=pre...EwMTQ3ajFqNKgCALACAQ&sourceid=chrome&ie=UTF-8 .
Reason number 3 remains though. If Yacine and I form a non US entity after an MVP has been developed and assign the MVP to that entity, I would have to declare the value of my 50% share of the MVP on my tax return and pay taxes on it as if I had sold that 50% interest in an MVP. See https://tax.weil.com/insights/treas...r these rules, when a,over the useful life of
for more details.
I have heard one person in a seminar for startups say that if you have an MVP and you never made money from it, you can just incorporate and consider that MVP to be the property of the company and no tax authority will be the wiser. But I would rather follow the law than get around it.
I heard an online marketer on YouTube say this for his website(s) and other online marketing material after he moved outside the US and created a non US entity. He said he redeveloped them from scratch for his new non US entity. I am not sure how legal that is.
If you got your hands on Microsoft Word's code, copy/pasted it into your own files and made some minor modifications to create your own word processing software product, and Microsoft found out, they would most likely sue you. It doesn't seem to me like the IRS would consider that doing similar thing from files a US Citizen owns to files a non US entity owns not be a simple transfer of intellectual property, even if that code is modified a little.
Sure, the IRS will most likely not find out. But that doesn't make it legal.
I wouldn’t recommend that he tries to reinvent the wheel and write everything from scratch.
This is especially true for areas like cryptography and database operations, where his code can produce significant security vulnerabilities and often be far less efficient.
For a student, the code quality is probably bad, and they will shake their head , because of their code in 1-2 years and will need to rewrite it .
Instead, focus on using libraries that are well-maintained, have strong community support, or are backed by reputable companies.
But seriously , you are planning too far ahead .
Is there even a market for your Saas ? Is the market saturated ? If , yes how are you going to distinguish yourself from your competitors . Do you have an edge ?
You will also have to invest much more in marketing , as USA is the most expensive geo in the whole word to target for marketing .
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