The tax consequences of moving Envato to the US
On October 20, 2015, Internet giant Envato announced a change in its corporate structure.
IT Lawyers from LAWBOOT Lawyers & Consultants offer you Envato action analytics, as well as recommendations for building your corporate structure in order to reduce tax costs.
Previously, Envato had one place of registration - in Australia.
Now, to receive payments from users from the United States, and making payments in favor of users from the United States, Envato will use the company registered in the US jurisdiction.
From January 1, 2016 , new rules will apply for Authors, service providers and affiliates (hereinafter referred to as Authors) who sell through the Envato Market.
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The change of the place of registration of the company led to certain tax consequences, which affected the Authors to a greater extent.
Change number 1.
The change was made by the Authors from US.
All US Authors must send to Envato W-9 Form
If the author does not submit the form, then from all sales through the Envato Market, the latter will hold 28% as a US Backup Withholding Tax.
Change number 2.
In connection with the change in the corporate structure, in carrying out sales by non-US Authors to American users through the Envato Market, Envato is obliged to withhold the royalty tax from payment.
To withhold tax means to deduct it from the author's profit and pay instead of the author.
Summarize! Royalty tax withheld from:
a) non-US Authors
b) Who made the sale through the Envato Market
c) And while the buyer was a US resident.
Tax rates depend on the residence of the Author, and can be from 0% to 30%.
You can see the rates by clicking on the link in the right column - “Copyrights”
All non-US Authors must submit to Envato
individuals - form W-8 BEN ,
legal entities - form W-8 BEN-E .
If the Author does not submit the form, then from all {even if the buyer is not from the US} sales through the Envato Market will hold 28% as a US Backup Withholding Tax.
So:
What will happen if the author is a resident of Ukraine and is registered as a FLP or a legal entity in Ukraine and filed a W-8 form?
A 10% tax on royalties will now be deducted from sales to US residents.
What will happen if the Author is a resident of the Russian Federation and is registered as an individual entrepreneur or a legal entity in the Russian Federation and filed a W-8 form?
The royalty tax will NOT be withheld now. 0% rate.
What will happen if the Author is a resident of the Republic of Belarus and is registered as an individual entrepreneur or a legal entity in the Republic of Belarus and submitted a W-8 form?
A 0% tax on royalties will now be charged on sales to US residents.
What to do if the Author wants to use the company outside of his country?
The most optimal way to work with Envato since January 1, 2016 is to register a company in Cyprus.
Currently, Cyprus legislation allows you to make an effective income tax rate of 2.5% (and less) using the IP BOX, which we will discuss in another article.
At the same time, most of the profits from Cyprus will flow to an offshore company, which can be considered as an additional plus.
A good tool, right ?!
But it is worth noting that now OECD is trying to change the legislation of Cyprus regarding IP BOX, royalties and tax burden may be above 2.5%.
UPDT: it is rumored that those who used such a structure in Cyprus before June 2016 will be able to use it for another 5 years (but these are only rumors)
At the moment it is not known whether the BEPS plan will enter into force, and whether it will enter at all!
But, in order to apply a zero tax rate on royalties, your company must be a resident with a Cyprus Tax ID.
Contact LAWBOOT Lawyers & Consultants and we will be happy to help you get such a tool!
We always “hold our nose to the wind” in matters related to jurisprudence in the field of IT.
For wordpress developers, we have a special offer!
Email us for details.
IT Lawyers from LAWBOOT Lawyers & Consultants offer you Envato action analytics, as well as recommendations for building your corporate structure in order to reduce tax costs.
Previously, Envato had one place of registration - in Australia.
Now, to receive payments from users from the United States, and making payments in favor of users from the United States, Envato will use the company registered in the US jurisdiction.
From January 1, 2016 , new rules will apply for Authors, service providers and affiliates (hereinafter referred to as Authors) who sell through the Envato Market.
')
The change of the place of registration of the company led to certain tax consequences, which affected the Authors to a greater extent.
Change number 1.
The change was made by the Authors from US.
All US Authors must send to Envato W-9 Form
If the author does not submit the form, then from all sales through the Envato Market, the latter will hold 28% as a US Backup Withholding Tax.
Change number 2.
In connection with the change in the corporate structure, in carrying out sales by non-US Authors to American users through the Envato Market, Envato is obliged to withhold the royalty tax from payment.
To withhold tax means to deduct it from the author's profit and pay instead of the author.
Summarize! Royalty tax withheld from:
a) non-US Authors
b) Who made the sale through the Envato Market
c) And while the buyer was a US resident.
Tax rates depend on the residence of the Author, and can be from 0% to 30%.
You can see the rates by clicking on the link in the right column - “Copyrights”
All non-US Authors must submit to Envato
individuals - form W-8 BEN ,
legal entities - form W-8 BEN-E .
If the Author does not submit the form, then from all {even if the buyer is not from the US} sales through the Envato Market will hold 28% as a US Backup Withholding Tax.
So:
What will happen if the author is a resident of Ukraine and is registered as a FLP or a legal entity in Ukraine and filed a W-8 form?
A 10% tax on royalties will now be deducted from sales to US residents.
What will happen if the Author is a resident of the Russian Federation and is registered as an individual entrepreneur or a legal entity in the Russian Federation and filed a W-8 form?
The royalty tax will NOT be withheld now. 0% rate.
What will happen if the Author is a resident of the Republic of Belarus and is registered as an individual entrepreneur or a legal entity in the Republic of Belarus and submitted a W-8 form?
A 0% tax on royalties will now be charged on sales to US residents.
What to do if the Author wants to use the company outside of his country?
The most optimal way to work with Envato since January 1, 2016 is to register a company in Cyprus.
Currently, Cyprus legislation allows you to make an effective income tax rate of 2.5% (and less) using the IP BOX, which we will discuss in another article.
At the same time, most of the profits from Cyprus will flow to an offshore company, which can be considered as an additional plus.
A good tool, right ?!
But it is worth noting that now OECD is trying to change the legislation of Cyprus regarding IP BOX, royalties and tax burden may be above 2.5%.
UPDT: it is rumored that those who used such a structure in Cyprus before June 2016 will be able to use it for another 5 years (but these are only rumors)
At the moment it is not known whether the BEPS plan will enter into force, and whether it will enter at all!
But, in order to apply a zero tax rate on royalties, your company must be a resident with a Cyprus Tax ID.
Contact LAWBOOT Lawyers & Consultants and we will be happy to help you get such a tool!
We always “hold our nose to the wind” in matters related to jurisprudence in the field of IT.
For wordpress developers, we have a special offer!
Email us for details.
Source: https://habr.com/ru/post/297408/
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