SARS has recently taken a lot of interest in the taxation of intellectual property.
So it's important for you to ensure you structure your royalty payments in the best possible way so as to avoid trouble with Mr. Taxman. Don't try fly under the radar, because more and more people are being caught out nowadays.
Having said that, here are 4 tips to keep in mind when considering royalty payments...
1. Illegally expatriated intellectual property
Where intellectual property was, at any time, created or owned by a South African and given to a foreign entity without exchange-control approval, royalty payments made to such a foreign licensor
can't be deducted.
2. Roll-up licences
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If an international licence includes provisions for continuing modifications (Research and Development), as well as any technical services, make sure to divide and allocate the 'royalty' among payments for:
· The use of the intellectual property;
· The technical services provided; and
· Continuous Research and Development activities.
3. Software licences
In using the Organisation for Economic Co-operation and Development (OECD)
guidelines, very few 'royalties'
that are paid in terms of software licences are in fact royalties and so such amounts aren't subject to withholding tax.
4. VAT on royalty payments
It's important to keep in mind that:
VAT is levied on all domestic licences;
VAT is only payable on 'incoming licenses' where the license isn't a VAT vendor or won't be using the licensed rights in her 'Vatable' enterprise; and
VAT isn't payable for 'outgoing licenses'.
*So, those were 4 tips to keep in when considering royalty payments.
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