Offshore and sale of company

[Colloden]

As I mentioned in another thread, I’ve started a company with the aim on earning a living from my own work rather that working for anyone else.
At the moment the software I’m working on is not finished and so unsalable, however I’m looking a few years ahead to when I might sell the company (assuming it is a success). The advice I’ve had so far from some business people is that I should offshore the intellectual property rights for the software before it’s completed (that is while it still has no value). The objective here is not to reduce tax on royalties (although that would be a benefit), but to reduce the tax in the event of the sale of the company.
The structure would be UK company licenses software into UK/anywhere else and pays royalties to offshore company in Malta/Gibraltar/Cyprus/BVI etc. If the business is to be sold then the buyer obtains the offshore company and less tax is payable than if the UK company where sold.
Does anyone have any experience of this or opinions on if this is even worthwhile?

[The Central Scrutinizer]

Consult a CPA and/or an attorney.

[Colloden]

Consult a CPA and/or an attorney.

I’ll certainly do that.
No one has any experience in this area?

[Dave Rogers]

I’ll certainly do that.
No one has any experience in this area?

I suspect that anyone with relevant experience would (a) be reluctant to give out advice for free that could command a significant price from a corporate attorney, and (b) prefer not to be held partly responsible for any losses incurred by you as a result of acting on advice given informally without proper disclaimers or caveats.

Dave

[Dr. Keith]

I suspect that anyone with relevant experience would (a) be reluctant to give out advice for free that could command a significant price from a corporate attorney, and (b) prefer not to be held partly responsible for any losses incurred by you as a result of acting on advice given informally without proper disclaimers or caveats.

Dave

That /\.

And, I think you are trying too hard. I don't know your specifics, but it seems like a lot of worry and expense to attempt to avoid a very speculative liability. My advice would be to focus more effort on making sure that your IP portfolio is solid. 'Cuase if it's not, your tax problems will be minimal.

Also, check with an accountant about how best to keep track of your time and expense in developing and protecting your IP. You may be able to offset some of your early gains.

And if, as, and when you are paying huge tax bills - think of how lucky you are to actually have the income to owe them. I know I never complain when my tax bill is in the five figures, it is far better than when I paid no taxes.

Side note: From my limited exposure to tax avoidance, it seems that some people will spend $100 to avoid a $90 tax. This is just absurd, but I've seen it happen. Also, many tax avoidance strategies fail. The loophole closes or the structure is ultimately not approved by the IRS, then you have to pay for both the strategy and the tax. And often some penalties. Not a fun day. But not my specialty, so don't take my word for it.

[Jaggy Bunnet]

As I mentioned in another thread, I’ve started a company with the aim on earning a living from my own work rather that working for anyone else.
At the moment the software I’m working on is not finished and so unsalable, however I’m looking a few years ahead to when I might sell the company (assuming it is a success). The advice I’ve had so far from some business people is that I should offshore the intellectual property rights for the software before it’s completed (that is while it still has no value). The objective here is not to reduce tax on royalties (although that would be a benefit), but to reduce the tax in the event of the sale of the company.
The structure would be UK company licenses software into UK/anywhere else and pays royalties to offshore company in Malta/Gibraltar/Cyprus/BVI etc. If the business is to be sold then the buyer obtains the offshore company and less tax is payable than if the UK company where sold.
Does anyone have any experience of this or opinions on if this is even worthwhile?

You need to take professional advice. Exactly how are you going to "offshore" the IP? How are you going to operate the company offshore? How are you going to ensure central management and control does not remain in the UK, meaning that no matter where you incorporate the company, it is still UK resident for tax purposes? Why do you think selling shares in an offshore company will result in lower tax than selling those in a UK company?

These are only a few of the questions you need to think about - are you sure you wouldn't be better putting your time into actually making the business valuable rather than worrying about reducing the tax bill on its ultimate sale?

[Colloden]

And, I think you are trying too hard. I don't know your specifics, but it seems like a lot of worry and expense to attempt to avoid a very speculative liability. My advice would be to focus more effort on making sure that your IP portfolio is solid. 'Cuase if it's not, your tax problems will be minimal.

A very valid point. :D



Also, check with an accountant about how best to keep track of your time and expense in developing and protecting your IP. You may be able to offset some of your early gains.


I’ll look into that, thanks.



Side note: From my limited exposure to tax avoidance, it seems that some people will spend $100 to avoid a $90 tax. This is just absurd, but I've seen it happen. Also, many tax avoidance strategies fail. The loophole closes or the structure is ultimately not approved by the IRS, then you have to pay for both the strategy and the tax. And often some penalties. Not a fun day. But not my specialty, so don't take my word for it.


Something I’m trying to avoid. Thanks for your advice.

....Exactly how are you going to "offshore" the IP?
With an IP transfer agreement

...How are you going to operate the company offshore? How are you going to ensure central management and control does not remain in the UK, meaning that no matter where you incorporate the company, it is still UK resident for tax purposes?

The offshore company would still be tax resident for UK purposes (care of HMRC ‘Mind & Management’ test), but would only be for holding the IP and receiving some peppercorn in royalties for its use.

My interest in this now is because the business is not yet viable. Transfer of IP that has no value will incur no tax, transferring it when the company is making money results in tax payable on the value of the IP (a process that can be taxed on an ‘arms-length’ appraisal of the IP value). So I’m reasoning then that now is the time to consider this, rather than later.

Taking professional advice has always been the thing to do, what I was looking for was general advice from anyone who has done similar. It looks like the view here is not to do it. Thanks for all your input.

[WildCat]

The loophole closes or the structure is ultimately not approved by the IRS, then you have to pay for both the strategy and the tax.
I'm pretty sure the OP lives in the UK, the IRS is irrelevant.

[Jaggy Bunnet]

The offshore company would still be tax resident for UK purposes (care of HMRC ‘Mind & Management’ test), but would only be for holding the IP and receiving some peppercorn in royalties for its use.

If the company is tax resident in the UK, why do you want to use an offshore company? What do you think this achieves? In what sense have you "offshored" the IP by transferring it to a UK tax resident company?

There are situations where it makes sense to transfer IP between different tax jurisidictions, which is why the advice is to talk to a professional. On the (very) limited info in this thread, I have no idea what benefit you think you achieve from what you are proposing.

[TriangleMan]

No one has any experience in this area?
I do (indirectly, I've worked in finance in two offshore jurisdictions).

Consult a good tax accountant and/or a tax attorney.

[Jaggy Bunnet]

I do (indirectly, I've worked in finance in two offshore jurisdictions).

Consult a good tax accountant and/or a tax attorney.

I do to, directly.

Your advice is correct.