International tax planning for the entrepreneur: How to do it and why it's stupid not to!

This is indeed for you who have a company (or want one) and want to learn how to significantly reduce your taxes on what you sell and make money from.

This is for you who are selling anything online

It doesn’t matter what you sell – as long as you have a website or an online shop from which you promote and sell your fabulous products or services.

Do you already have or expect a yearly profit of €40,000 / $44,500 or more?

Why is this a requirement? Because, there are special profit opportunities for entrepreneurs and companies operating an online business that meet this requirement.

This is a tremendous opportunity for entrepreneurs who want to learn international tax planning.

International tax planning sounds complicated, but it’s not!

International tax planning simply means that you take advantage of existing tax agreements that make it possible for you to achieve a significant reduction in taxation on your profits, which most entrepreneurs simply don’t know how to do!

As a non-profit foundation helping entrepreneurs, we think this is somewhat sad, because it means that you have to sell more, earn more, and work much harder than you actually need to.

Let’s make four things absolutely clear:

International tax planning is not tax fraud.
This is not a loophole in tax regulations.
These are regular tax agreements that already exist but that most entrepreneurs aren’t aware of.
Most countries have entered this type of tax agreement.

This is how you can be covered by international tax agreements

We want you to know what international tax planning and royalties are all about, what these tax agreements mean for you, and how you can save mucho money.

You might wonder why a non-profit foundation for entrepreneurs is giving tax advice.

International tax planning is part of what we help entrepreneurs with. While we aren’t lawyers, we’re very creative minded and have partnered up with one of the most esteemed law firms, with some of the best international tax experts in the world.

The non-profit foundation’s purpose is to help entrepreneurs build their online businesses in the easiest and most profitable way possible.

We know how you should ingeniously promote yourself and your business. We know how you can ingeniously sell what you offer. We know how you should ingeniously outsource your life – and what you should be outsourcing immediately – as in today!

We also know how you should organise your life and your business platform regarding company formation and taxation, so that you make the most of your hard earned money.

That’s why the foundation also includes international tax planning as part of its educational activities.

Does this sound like something worth learning more about? If so, then listen up.

If you’re just about to start your online business, then don’t hold back. You might as well learn how to organise your business in the smartest way possible – from the very start.

What do we mean by international taxation?

This is a legal way to use existing approved tax rules and agreements signed between two countries. It’s as simple as that.

What is the difference between tax planning and tax evasion?

Tax evasion: Illegal
(also known as tax fraud)

Tax planning: Legal optimisation or minimising of one’s taxes
(tax optimisation, tax minimisation, tax reduction)

So what is international tax planning?

It’s done to avoid or reduce the following:

Taxes and duties.
Taxes on company profits.
Taxes on the transfer of ownership of a company.
Taxes on profits from investments.

What is the optimal solution for an entrepreneur?

It’s a corporate company setup which is the most tax efficient, flexible and cheap as possible.

You should always have a limited company for your activities. So what is a limited company you might ask? It is a type of company where you are not personally financially liable if everything goes bad. They are often named Limited, Inc, Corp, AS, GmbH, etc.

Let’s start with being tax efficient. You need to get yourself a royalty concept!

What’s a royalty concept?

It’s a payment for the right to use the copyright of a literary, artistic or scientific work.

You might already have heard of 7-11 stores, Amazon and McDonald’s. They’re also using royalty concepts. We have transformed the concept the big corporations are using into a simpler and more entrepreneurial-friendly concept.

What are royalties for exactly?

For example, a film, a book, software, a patent, a trademark, a design or model plan, a secret formula or process, information concerning industrial, commercial or scientific experience, and most importantly, for online entrepreneurs this also includes the use of a domain name.

Payments for the use of or the right to use industrial, commercial or scientific equipment can be made as a royalty concept. All the terms are specified in a royalty agreement.

What makes up a royalty agreement?

Let’s take a quick example:

Company A has the ownership of a concept.
Company B would like to (re)sell the concept that Company A has.
A royalty agreement is signed between Company A and Company B.
Company B pays Company A for using the concept (the royalties) by paying a percentage of the profits or turnover.

In other words, and to give you a more hands on example:

Your company owns the concept of… let’s say a website selling fancy shoes.
Another company of yours – let’s say in Spain – also wants to sell the fancy shoes to the entire European market.
A royalty agreement is signed between your company owning the concept and the other company in Spain.
The company in Spain pays 98% of the profits earned from all sales as royalties sent to your company (who owns the concept).

Can I have two companies in my home country signing a royalty agreement?

Yes, but then it will be within the normal company tax rate and you would for sure like to pay as little company tax as possible. So, that’s not the way to go.

You need to have a company in the country where you actually sell your products or services – (this usually being the country in which you live) – and then another company in another country where the taxes on royalties are significantly less.

What’s a tax treaty?

Before looking at which country you should use; you need to know how it can legally be done in order to reduce the taxes on your company taxes and in the end, your royalties.

A tax treaty between two countries is a tax agreement specifying how taxes should be handled when there are cross-border activities. The agreement also clearly specifies how taxation on royalties shall be handled between associated cross-border companies (your two companies).

What does a tax treaty say about taxation on royalties?

The country sending the royalties may not tax them if the country receiving them will tax the royalties.

This means that if you set up a company owning the royalties in one of the many tax havens like the British Virgin Islands, Bahamas, Isle of Man, etc. that have no taxation at all – then most countries where the profit is made will tax the royalties in full.

Also, with all the internationally negative focus on zero tax offshore tax havens, our advice for most entrepreneurs is not to use this, and go with the solution recommended here.

Does this mean that I cannot entirely avoid taxes on royalties?

Yes, as explained – if the royalty tax is 0% in the country receiving the royalties then the country sending them will have to tax them.

But you can reduce the royalty tax to a minimum by using the country with the lowest royalty tax rate.

How much in taxes do I then have to pay on my royalties?

Each country in the world decides by themselves how to tax company profits and royalties. Most countries use the same tax rate on royalties as they do on regular company profits.

But there are a few exceptions. First, let’s have a look at the most popular countries and their company tax rate from which most entrepreneurs operate their business.

Armenia: 35%
Austria: 25%
Belarus: 18%
Belgium: 33.99%
Bulgaria: 10%
Canada: 26.5%
China: 25%
Czech Republic: 19%
Denmark: 22%
Egypt: 22.5%
Estonia: 20%
Finland: 20%
France: 33.33%
Georgia: 15%

Germany: 29.72%
Greece: 29%
Hungary: 19%
Iceland: 20%
India: 34.61%
Ireland: 12.5%
Italy: 31.4%
Latvia: 15%
Lithuania: 15%
Malta: 35%
Norway: 25%
Poland: 19%
Portugal: 21%
Romania: 16%

Russia: 20%
Serbia: 15%
Singapore: 17%
Slovakia: 22%
Slovenia: 17%
South Africa: 28%
Spain: 25%
Sweden: 22%
Switzerland: 17.92%
Thailand: 20%
Ukraine: 18%
U. A. Emirates: 55%
United Kingdom: 20%
USA: 40%

Source: KMPG

If your country isn’t on the list, please be sure to contact us and we and the law firm can advise you accordingly on what to do.

What countries have a special tax rate on royalties?

The countries that have a special tax rate on royalties are:

Luxemburg: 5.75%
The Netherlands: 5%
Lichtenstein: 2.5%
Cyprus: 2.5%

As we want both the lowest royalty rate and also the lowest operational cost, Cyprus is the country to choose. Operating a company and getting everything set up in Lichtenstein has almost double the cost compared to Cyprus.

Also, for various other tax advantage reasons, Cyprus is the recommended choice as the country is a full member of the European Union and Lichtenstein is not.

What makes Cyprus even more interesting?

In Cyprus, the cost to operate and maintain one or many of your royalty concepts can be deducted by the 2.5% royalty tax.

Therefore, your total tax will often be lower than the 2.5%, and for some entrepreneurs it will be as low as around 1%.

Should you then move to Cyprus?

That would be wonderful but you don’t have to – unless you want to! The law firm that we’ve partnered up with will set up a regular limited company that you (or one of your existing companies) will own fully 100%.

Let's make a calculation

Let’s use our previous example of the web shop selling lovely shoes sold from Spain.

Please note: In the calculation we use Euros. If your business is based in a country with a different currency simply replace the Euro with your currency. It works for everyone.

Calculation without royalty setup: Spain
Turnover: €200,000
Costs: €-40,000
Profit: €160,000
Company tax: €40,000 (25% tax)
Final profit: €120,000

Calculation with royalty setup: Spain
Turnover: €200,000
Costs: €-40,000
Profit before royalties: €160,000
Royalty fee: €-156,800 (98% of profit)
Profit after royalties: €3,200
Company tax: €800 (25% tax)
Final profit: €2,400

Calculation with royalty setup: Cyprus
Royalties: €156,800 (from Spain)
Costs: €-7,280
Profit: €149,520
Royalty tax: €-3,738 (2,5% tax)
Final profit: €145,782

So what is the difference?

Without a royalty setup:
Tax: €40,000
Profit: €120,000

With a royalty setup:
Tax: €4,538
Profit: €148,182

The difference
You’ll typically have a 15-20% larger profit depending on your level of costs and the company tax rate on where the profit originally came from. We just gave you an average example here. The more you make the more you save. And then there are other great advantages on top of that, more on that later.

How much can be charged as royalties?

In most tax treaties it’s stated that a royalty scheme can only be used if the payment between the one paying and the owner of the royalties is done on regular market terms.

Normally, the royalty fee is set for 80-98% of the profit, or 30-60% on the turnover. The law firm will figure out what’s best for you.

A few requirements when using a royalty setup

If selling from within the European Union, the mother company (in our case the Cyprus company) must own a minimum of 10% of the daughter company (the company in Spain in our example above). It’s easiest to simply let the Cyprus company own the daughter company 100%.

Some EU countries require that your company will have to be a specific type of company, and that the first royalty payment is to be executed one year after signing the royalty agreement.

For tax reasons, you also need to have a real person living in Cyprus to be the director of your Cyprus company. The law firm will – together with you – recruit the right person and will be hired part time at the company. This will be a real person signing your company’s contracts, etc. – not a stranger to you.

The last thing that is important is that your new Cyprus company will be operational with real activities. Just having the company with only the royalty agreement in line is not enough these days, and will not be considered a real company with commercial activities.

That’s why we partnered up with a local Cyprus online marketing agency specialising in helping entrepreneurs succeed with their online business. Their skilled expert team will be hired part time – 10 hours a month – at your Cyprus company. This for you to use for graphics and videos, social media, creation and maintenance of your website, customer service, online ads, search engine optimisation, and much more. If you need more assistance you can simply pay for more hours.

More flexible advantages when using the solution

Your profits in the Cyprus company can be used tax-free for other projects, which include purchasing a property anywhere in the world. You also have the opportunity to invest them tax-free on the stock markets and pension schemes because all returns from these types of investments are with zero tax in Cyprus.

Only a few countries within the European Union have this type of legislation. You can of course also pay out an amount to you as the owner (called dividends), and that money will be taxed in the country in which you are a resident.

There are also great advantages if you receive royalties from others. For example, if you write a book on Amazon, publish music on iTunes, or receive royalties from anywhere else. The royalties will go directly into your Cyprus company which pays the low 2.5% royalty tax.

It is also possible for you to make an interest free loan from your company funds to yourself personally though loan a company. This simply by paying a low fixed fee to the lawyers. This is very financially attractive compared to personal loans with high interest rates.

What does it cost to set this all up?

On your behalf, we’ve negotiated a special discount for you, the ambitious entrepreneur. We know all about spending your money the right way. We also believe that this knowledge should be affordable for you.

Some entrepreneurs choose to pay the foundation for a mentorship, in combination with setting up their tax efficient company structure, but this is totally optional. Fill out the form on the page to know more.

The special discounted prices below, are to be paid directly to the provider.

Getting started
Start-up cost: €4.700 / $5,235
(paid up front)

The start-up costs cover all expenses for all the legal work, the company formation of a limited Cyprus company (with no capital required), various payments to the local registrar, and all necessary registration costs. Also included is the set-up of a business bank account with online banking, creation of the legal royalty agreement, obtaining an EU VAT number, and hiring you a local director.

Quarterly costs
Company & director: €1,250 / $1,385
Online marketing staff: €570 / $635
Total quarterly: €1,820 / $2,020
(paid quarterly in advance)

The quarterly costs cover all ongoing company maintenance fees, including paying your local director’s salary, address service and mail handling, the royalty accounting, and quarterly and yearly reporting to the tax authorities. Finally, it covers the yearly government company fee and the required audit report done by an external auditor. And then of course, the online marketing team 10 hours a month.

Conclusion
The total yearly cost per ongoing year is only €7,280 / $8,070. This cost covers everything and that is no matter how much profit you earn.

As we mentioned in the very beginning – this solution is financially attractive for entrepreneurs if you already have or expect a yearly profit of €40,000 / $44,500 or more.

Who is the foundation?

The non-profit Ricco Mortensen Foundation has, at the heart of its mission, to motivate, inspire and help entrepreneurs effectively build and run a successful online business through educational activities including lectures, books, educational programs, events, bootcamps, mentorships, etc.

Ricco Mortensen is an expert in online business and entrepreneurship, and also a known speaker and author. He’s the Chairman of the Board of the Ricco Mortensen Foundation.

Thousands of people have witnessed Ricco’s teachings – learning how to successfully run an online business, which includes the setup of companies, tax optimisation, website creation, search engine optimisation, social media strategies, email marketing, online advertising, user behaviour, conversion optimisation, outsourcing, payment solutions, and clever ways to do anything and everything imaginable.

Who is the law firm?

The foundation has partnered up with the full service law firm, Parparinos Milonas Corporate & Legal Consultants located in the capital of Cyprus, Nicosia. They are one of Europe’s most esteemed teams of tax lawyers and business advisors with the right mind-set – especially for online entrepreneurs.

Andreas Ioannou is a certified and registered lawyer at the law firm and the head of the corporate department specialising in international business, internet law and all corporate and entrepreneurial matters.

With his team’s great knowledge and expertise in company formation, banking, international taxation, offshore structure and handling international clients – you, the ambitious entrepreneur, are in the best hands.

Who is the online marketing agency?

We also partnered up with the full service online marketing agency Anykii, that is also located in the capital of Cyprus, Nicosia. They are highly skilled online marketing experts who know all about bringing the best results (and money) to your business through online activities.

A skilled project manager will be handling and planning all your online marketing needs. He or she will be your one point of contact and is responsible for the coordination and execution of the many tasks with the rest of the skilled expert team.

The project manager’s long time experience in handling entrepreneurs and complex online businesses will help you outsource your life, and make it possible for you to focus on the important matters that only you should do.

This is how you get started

We have prepared everything for you to get started in the simplest way possible.

Simply fill out your name and email address and we’ll send you more details and information on how to get started. If you just want to know more, feel free to fill out this form as well.

You’ll be able to book a call with a consultant by phone or Skype (free of charge), to discuss and plan the company setup that’s right for you and your business.

There are absolutely no obligations until you accept (in writing) to proceed with your chosen company setup.

We are already waiting to help you.