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Where would you locate the IP in the following case?
- Thread starter GodsGiftToThisGroup
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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.
You really have to stop now. Go build something and figure stuff out later, don't be a wantrepreneur.
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 .
I totally agree, OP need to develop his software first and then establish a business from it.
I don't know. And, for what I have in mind, it doesn't matter that much regarding the decision to proceed or not to proceed. Success has many forms.
TLDR: it's possible for the project to never generate a dime in gross revenue, and for me to consider it to have been a success, and to be glad I did it.
Now, the TL version:
Let me give you an example. About 10 years ago, a 20 or so Filipina girl (let's call her Liz) that I had contacted through oDesk needed to do a one semester CS project in order graduate from the University of the Philippines (the best university in the Philippines), Los Banos campus (the second best campus). Liz had her own project in mind: a Chrome extension. I offered to pay her $1/hour to develop that extension if she assigned the IP to me. She agreed. Her department approved the project, and approved me to be "the company" hosting it. Liz developed an alpha version of the extension, got an A in the project course, and graduated cum laude. At graduation, I offered her a couple of options. One of the options was to turn the alpha version of the extension into a real product, commercialize it, and she will be paid based on the commercial performance of the extension. Another option was to improve a web site of mine that was grossing $10k/year (that was a breakeven, as it was being run by another Filipina working for $3/hour, and I wasn't being paid) for $2/hour. She chose the $2/hour option (I later raised her to $3/hour). She did that for six months, then found a job as a game developer, and left.
To me, even though that extension never made me a dime, I consider that to be a success. It only costed me a couple of hundred dollars, and I gained a good virtual assistant for six months.
A year later, I tried to do the same thing with another 21 year old going to the Diliman campus of the University of the Philippines (UP). Diliman is the best campus for UP. Let's call him Jim. I don't remember whether it was a project "course" or an internship. But when Jim asked the CS department of UP Diliman whether he can do that project or internship with me, the department said no. They said they only allow projects or internships that are hosted by a company from a list of pre approved companies. Since I was just "working" (I used quotes, because I was working fewer than ten hours a week from home) as a sole proprietor, and had no intention to establish a company for whatever I had in mind at that time (the same website that was grossing $10k/year, and that a year later dropped to $5k/year), Jim and I didn't do anything together.
Fast forward to today. I have located online a 19 or 20 year old student going to this school: https://www.esi.dz/ . He is the one I am referring to as Yacine. I believe he doesn't know much, but has good potential. I haven't actually contacted him. I am trying to build a proposal before contacting him. I don't want to contact him first with an initial proposal and then, if he says yes, change too many things. If you can read French, you can see at https://www.esi.dz/presentationesi/ that students spend four years in the classroom, but that they don't get a degree at the end of the four years. They need to spend another fifth academic year (9 months) doing a project in a company or laboratory.
If Yacine agrees to develop the MVP for the product I have in mind for $1 ($1 for a whole year - the 9 months internship, plus the 3 months summer preceding it), and if a structure costs me only a thousand dollars or two, and if the MVP enables Yacine to become a good developer and graduate with honors, and if the MVP never generates a dime for either of us, but Yacine agrees to work for me six or more months for $6/hour and, in the first six months, enhances TLSoft (an internal use only Java desktop application that I developed and am using to buy tax lien certificates), then I would consider the whole ordeal to have been a success. So, questions about the existence of a market or its saturation are irrelevent at this point. They will only become relevant in summer 2028, after Yacine's graduation.
Algeria is a hyper bureaucratic country that loves paperwork. I am fairly confident that if Yacine told his school CS "I have been contacted online by this whacky guy with a history of failed online projects, who has annoyed OCT moderators so much that they are considering banning him, and who is asking me to work for a dollar on one of his whacky ideas for which he doesn't even know whether there is market or whether the market is saturated, and wants you to approve him to host my 9 months project", they will say no. Just like the CS department of UP Diliman had said no to Jim and I.
But, I am hoping that if there is a legal entity somewhere named Goofer Software (not the real name), with a nice web site https://goofersoftware.com (which Yacine will have developed in summer 2026, before asking ESI's CS depratment to approve us), we might have a shot at the department saying yes (just like the CS department of UP Los Banos said yes, even though it was just me doing business in my own name).
That's a non starter. For several reasons:
1) I don't want to develop the project myself.
2) The most I am willing to pay someone else to do it is Algeria's minimum wage. Right now, that's $147/month. It will most likely be around $150 a month during the 2027/2028 academic year.
3) Even the $150/month, I am only willing to pay it to a high potential developer who has a non short term monetary incentive to do as best job as he can. An incentive such as wanting to graduate from a CS school with honors or high honors. AND the potential to profit if the project becomes a success. I believe that paying someone to develop software for me is a very bad idea. Cartoonist, investor and business owner Scott Adams said he paid Indian companies twice to develop software for him. The money was paid out in exchange for all sorts of promises and, in both occasions, he said he got nothing of value in return. In part, that's why I am hoping to not even pay $150/month to the developer. Unless required by law or by his school, I am hoping to pay him $1/year.
4) I want to be fair to the developer. Whether I am paying him $150/month or $1/year.
5) https://www.esi.dz/'s CS department needs to approve the project.
I don't believe I can accomplish all of the above without first forming a company. In fact, I don't even believe I can accomplish # 5 without first forming a company. For the reasons explained on my most recent post before the present one. And, without #5, #2, #3 and #4 will crumble.
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