A Guide to Tax Planning Offshore IP Services

Tax Planning Offshore IP Services

If the business owners are planning to move offshore with their IP services, then the offshore organization must have favorable elements to support it. No more shroud companies, no more nomination for directors, no more forging the IRS, proceeding to business offshore these days require a genuine office, employees, and work being done offshore.

Follow the guide to learn about setting up an offshore company and opening an offshore bank account to enjoy the benefits.

Steps to take the business offshore

Here are the steps to guide an entrant before taking the business offshore in a tax yielding and resourceful manner:

Step 1: Prepare a tax discounting business plan

Most of the businessmen take their business offshore for the reason that they desire lower costs, i.e., both tax as well as overhead. When the eyeballs are on the overhead cost, then the focus should be on the workforce.

Most countries have lesser wages than the US. The problem would be employing excellent English speaking workers, and the amount of difficulty faced will depend on the quantity of work involved.

For instance, it would be simpler to find English speaking personnel if operating a call center. Still, the company is a software development business that involves IP assets that are taken offshore. It requires experienced engineers and finding the right person will be a difficult task.

Secondly, there are two kinds of tax plans, one for SMEs that emphasize the Foreign Earned Income Exclusion and more extensive business enterprises that wield the transfer pricing model. Relocating a large business offshore is a complicated situation such that companies with net profits of $1 million and above need a more sturdy tax plan, and this is mainly the case the offices are in the US and offshore.

Companies like these move offshore using a transfer pricing model that disperses income to the foreign subsidiary based on the total value added by that division.

[Read: Business Outlook and Intellectual Property in Greece | 2019.]

Step 2: Pick-up the country of operation

Now the company has chosen a tax policy, choose the best-suited jurisdiction to the company requirements for administering the business activities and plans. The chosen country should have a consistent tax scheme according to the company requirements that don’t levy a tax on foreign-sourced IP assets.

If the operation and plans are carried out properly, the subsidiaries can be operated tax-free in many jurisdictions.

Balanced against tax and overhead is the quality of life can be by spending some extra time and effort preparing a checklist of potential jurisdictions and writing down the pros and cons of each jurisdiction. Every business preferences are different, so keeping this in mind curtailing tax depends on the country of operation and incorporation.

Step 3: Manifest an organization in the country of operation

By this time, the priorities are pretty straightforward, and a location has been decided as to where the business will be set up, so it’s the perfect time to establish a corporation. It is recommended not to use an LLC or other structures.

A corporation would be suitable so that earnings can be retained offshore. The corporation can also control payroll, office rent, and local expenses.

Step 4: Embody a corporation in a subsequent tax-free jurisdiction

A second corporation can be established in a second country to charge clients and minimize the taxes in the country of operation. Provided the nation’s tax structure, the jurisdiction may simply tax profits brought in by the company.

If the corporation breaks-even at the end of the financial year, there will be no taxes levied upon. Also, a second offshore corporation in a tax-free jurisdiction is a crucial factor in minimizing international taxes as it won’t make a change for the US. Still, it must decrease or terminate taxes in the country of operation.

Step 5: Move the IP into a distinct body

The intellectual property should be moved as soon as possible, and doing this will ensure asset protection and significant tax benefits, specifically for non-US sales. But the pitfall to this is that IP built in the US must be traded to the offshore company at a reasonable market price, which means that you must value the IP and pay up taxes in the US on the sale.

So, if the business is in the initial phases of moving offshore, setting up an IP holding company and having the IP outside of the US is a great option, and in return, this excludes the transfer tax issue.

Step 6: Arrange banking accounts and credit cards

Moving business offshore requires multiple bank accounts, one in the country of operation for local incidentals, one in the billing country, and one probably in the United States.

Step 7: In-house accounting and record maintenance

The US IRS has every right to inspect the offshore business, and similarly, when the business file the foreign corporation returns on Form 5471, then US accounting standards must be applied. For this reason, it is a lot better to have an in-house bookkeeper so that it can be simple and straight.

Step 8: Find US tax compliance

Now that the business is offshore, ensure to keep up with your US tax filing compulsions, i.e., it is expected to report the foreign corporations and international bank accounts to the IRS each year. The most crucial offshore tax form is the Report of Foreign Bank and Financial Accounts, Form FinCEN 114, denoted as the FBAR.

[Read: A Guide to Intellectual Property Rights in UAE 2019.]

Other international tax filing responsibilities:

  • Form 5471 – Information Return of US Persons concerning Certain Foreign Corporations.
  • A foreign organization or limited liability company should survey the default orders in Form 8832, Entity Classification Election, and conclude whether to make a political decision to be treated as an enterprise, association, or dismissed substance.
  • Form 8858 – Information Return of US Persons concerning Foreign Disregarded Entities.
  • Form 3520 – Annual Return to Report Transactions With Foreign Trusts.
  • Form 3520-A – Annual Information Return of Foreign Trust.
  • Form 5472 – Information Return of a 25% Foreign-Owned US Corporation.
  • Form 926 – Return by a US Transferor of Property to a Foreign Corporation.
  • Form 8938 – Statement of Foreign Financial Assets was introduced in 2011 and must be filed by anyone with significant assets outside of the United States.


Failure to file these forms can expose the business to all kinds of fines and risks, so doing it correctly is the key to success. I hope you’ve got a better idea from this article about how to take your IP business offshore.

Our proficient experts at Business Setup Worldwide are at your service to guide you through all your queries. Contact us today to start your offshore company at once and plan accordingly that would make your profits grow inherently.

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