Royalty. What it is? Regular franchise payments - why pay every month Royalties cash compensation for use

Royalty is a periodic payment financial compensation for the use of copyright various areas, patents, trademarks, know-how, that is, any intellectual property.

In order to minimize taxation when using intellectual property, most often this property is given into the possession of a tax-free offshore company (hereinafter referred to as the copyright holder).

This scheme is absolutely legal, does not contradict the law.

But these jurisdictions do not have Double Taxation Treaties with developed countries (including Russia), therefore, when royalties are paid directly to an offshore in the country from which the transfer will be made, there is a tax at source, in our case, this is a tax on the territory of the Russian Federation, the rate is - 20%, according to art. 309 of the Tax Code of the Russian Federation.

Tax Optimization in Royalty

To optimize taxation when paying royalties this scheme must include a transit intermediary registered in a country with which the Russian Federation has an Agreement on the avoidance of double taxation.

Theoretically, it can be a resident company, Austria, Finland, Sweden,.

But if we take into account the cost of registering and servicing companies, the availability of the most easy conditions for doing business, the tax rate, then the choice definitely stops in Cyprus.

Thus, the offshore right holder transfers to the Cypriot (resident) company - the licensee a license to use intellectual property, as well as the right to issue sublicenses.

Thanks to this chain of taxation, there is no withholding tax in Russia, thanks to the Double Taxation Treaty with Cyprus.

In Cyprus, the difference between received and paid royalties is taxed, the tax rate is 10%.

Accordingly, if this difference is reduced, then taxation can be reduced. Under Cypriot law, there is no withholding tax on outgoing royalties in Cyprus. Offshore also has no taxes on royalties and income.

Pitfalls of legislation

In order to avoid paying taxes at source in Russia, some requirements must be met, since royalties related to “other expenses associated with production and sale” (Article 264 of the Tax Code of the Russian Federation) must be documented and economically justified:

• A Cypriot company must provide a Russian company with a document confirming its location in Cyprus (clause 1, article 312 of the Tax Code of the Russian Federation). This document is the Tax residence certificate (and only this document!), certified by the Ministry of Finance of Cyprus, apostilled and translated into Russian. The period for which the status of residence of the company in Cyprus is confirmed must coincide with the period for paying royalties. The document must be provided prior to the payment of royalties.
• Also, according to Art. 1484 of the Civil Code of the Russian Federation, in order to attribute the payment of royalties to the tax base of expenses, it is necessary to use the object of intellectual property in any legal way - on signs, in advertising, applying a trademark to products, etc.
• According to Art. 1490 of the Civil Code of the Russian Federation, a license agreement between Russian and Cypriot firms must not only be concluded in writing, but also be registered in a special government agency Rospatent. Otherwise, the license agreement will be considered invalid.

VAT

Another important point is an VAT when paying royalties to a foreign company.

When Russian company acquires the rights to use intellectual property from a foreign company, then the foreign company must be a VAT payer.

Since Russia is recognized as the place of sale of these services (subclause 4, clause 1, article 148 of the Tax Code of the Russian Federation).

If a foreign company is not registered with the tax authorities of the Russian Federation, then the Russian company is obliged to act as a tax agent for VAT. That is, withhold VAT from foreign partners and pay to the budget simultaneously with the transfer of royalties.

VAT amounts can then be accepted for deduction (Article 171 of the Tax Code of the Russian Federation). According to sub. 26 p. 2 art. 149 of the Tax Code of the Russian Federation, the right to know-how, databases, industrial designs, computer programs, utility models, topologies of integrated circuits is not subject to VAT.

Royalty is a great way of tax optimization, where the use of trademarks and patents is economically sound. You should always make sure that the royalty rates do not deviate from the market ones.

All documentation must be meticulously maintained, and proof must always be at hand that the intellectual property is actually being used.

The companies of the licensee and sublicensee must not be affiliated structures.

These simple points will help to avoid unnecessary questions from tax authorities, and as a consequence - additional taxes.

The concept of "royalty" can be found quite often. What does it mean and what is it used for? Everyday life? Let's analyze this neologism in simple words.

The term "royalty" itself comes from a word from the medieval French. It sounded like roialte, which, in turn, came from the Latin word regalis, translated as royal or royal.

The modern concept of royalty refers to one of the types of royalty or temporary compensation (usually it is a monetary compensation) for the use of various patents, copyrights or even natural resources. It can also be used for other types of property.

Temporary deductions in the form of interest (the so-called "current deductions"), which are transferred to the license seller, are set in the form of any interest rates that are assigned taking into account the actual economic outcome of using a particular license.

Royalties can be paid in the form of some strictly fixed one-time payment, which gives reason to call it similar to certain types of rent.

Royalty (unlike regular commission) is not a one-time cash bonus.

Where is royalty most commonly used?

Royalty is usually used in economics and land law. Royalty is the same rent for the opportunity to use certain natural resources. Royalty is paid by the businessman to the owner of the land or subsoil.

What types of royalties exist today?

1. One type of royalty is a percentage of turnover. The percentage of turnover is paid from the franchisee to the franchisor. This type of royalty is paid based on the results of the work of a company or enterprise for a certain time period.
2. Another type of royalty is a percentage of margin. In order to understand this concept, you should learn about what the concept of "margin" means. Margin is a value that expresses the difference between several specific indicators. The percentage of margin is most interesting to those franchisees who set different markup levels on goods. Usually a percentage of the margin is used where the franchisee is able to fully control pricing policy in sales.
3. The third type of royalty is called fixed. A fixed royalty is a payment tied to an agreement and having a strictly fixed percentage of all sales. The amount of a fixed royalty is usually tied to the cost of the franchisor's services or the number of companies and the number of clients served.

Copyright and Royalty

The term "intellectual property" refers to a patent, trademark, or any work of art. Usually royalties in copyright are paid literally for each publication or any reproduction to the public. Also, we can talk about the distribution or other way of using a particular work of art.

Royalty in music

Musical royalty has a number of links to private ownership. Typically, "private owners" refers to composers and songwriters. It is these people who may be the owners of the copyrights to the musical works they have created. Only they have the right to license musical compositions for execution.

Recording companies use certain sets of copyrights and even royalties. This is necessary for the implementation of recordings and their subsequent digital transfer. In this matter, much depends on local or state legislation.

By the way, music receives all the necessary copyright protection immediately after it has been recorded. However, music is not protected from copyright infringement.

Print rights

Sheet music is also a form of music, so royalty rules also apply to them. After royalty payments began to be used with sheet music, they appeared in several other formats.

It is important that the music performed by the singer (or group) requires the performance of the written form of music. If this condition is observed, then the authenticity of the origin of the music will be lost. The process of loss occurred with folk songs, which were disseminated precisely in oral form.

Royalty today is an important part of the legal system in the field of licensing various rights and even natural resources. It is almost impossible to do without royalty today.

Using the subject of a license agreement. In practice, ROYALTIES are set as fixed rates as a percentage of the value of net sales of licensed products, their cost, gross profit, or are determined per unit of output.

Glossary of financial terms.

Royalty

Royalty is a license fee in the form of periodic interest payments, which are set in the form of fixed rates based on the calculation of the actual economic result use of the license and are paid by the licensee at agreed intervals.

In English: Royalty

Synonyms: Royalty

See also: License agreements

Finam Financial Dictionary.

Synonyms:

See what "ROYALTY" is in other dictionaries:

royalty- For each premium product released for sale, the OCOG pays a royalty. The procedure for paying royalties is detailed in each agreement with a marketing partner. The Partner is obliged to fully report on this issue to the OCOG. [Department… … Technical Translator's Handbook

Royalty- Royalty (royalty) - 1. Compensation regularly paid for the use of a patent, copyright, property of another person in the form of a certain percentage of deductions from the volume of income, sales of products, its cost, ... ... Economic and Mathematical Dictionary

- (eng. royalty) periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights were used ... ... Wikipedia

- [English] royal power; deductions to the author] econ. 1) periodic deductions for an invention or KNOW-HOW purchased under a license, paid to the licensor (LICENSOR) within a certain period specified in the license ... ... Dictionary of foreign words of the Russian language

License fee, license fee; payment, remuneration, deduction, payment Dictionary of Russian synonyms. royalties noun, number of synonyms: 6 remuneration (26) … Synonym dictionary

- (English royalty) compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents were used, ... ... Law Dictionary

See Royalty Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms

- (English royalty, from medieval French roialte, from Latin regalis royal, royal, state), a type of license fee; periodic interest payments (current charges) to the license seller, ... ... Modern Encyclopedia

See ROYALTY. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary

Royalty- (English royalty) 1) a periodic license payment for the use of inventions, patents, know-how, book publishing, movie rentals, etc.; 2) rent for the right to develop natural resources, paid by the entrepreneur to the owner of the land ... ... Encyclopedia of Law

Books

• Normative-legal bases of selection and seed production. Textbook, Berezkin Anatoly Nikolaevich, Minina Elena Leonidovna, Malko Alexander Mikhailovich. The main purpose of the proposed study guide is a consideration legal framework breeding and seed production, systems for collecting selection fees (royalties) for the use of protected ...

18Jan

What is Royalty

Royalties are an official payment to the owner of tangible or intellectual property for the use of it, a patent, work or other property.

What is ROYALTY - meaning, definition in simple words.

In simple words, Royalty is a certain amount of money that must be paid to the rightful owner of the rights to any property. In other words, you can say that if you want to use someone's patented idea or technology, franchise, musical or artistic work for the purpose of making money, then you need to pay royalties to its rightful owner. For example, if you need to use any copyrighted material (), then from the point of view of the law, this becomes possible only after agreeing all legal and financial aspects with the copyright holder. Otherwise, the use of such material will be illegal, which may lead to legal action.

Another excellent example for understanding the meaning of the word "Royalty" can be the organization of the work of a world famous restaurant chain. fast food McDonald's. The fact is that formally most restaurants are not owned by McDonald's Corporation, but they all pay royalties for using their franchise. In simple terms, the parent company sells a “license” to use its brand, subject to compliance with corporate requirements and standards.

Rates and types of royalty.

The most common occurrence when compiling royalty amounts is a percentage of gross sales. This usually ranges from five to nine percent. Thus, this is a beneficial aspect for both the owner of the rights and the one who uses them. There are also franchisors who determine the amount of royalties in the form of a specific fixed figure.

In this material:

AT modern business there are trends that allow you to open your own business with minimal risks with the help of a franchise. When calculating future income and expenses, an entrepreneur has to evaluate a variety of circumstances and trends. To begin with, you should master the market terminology and clearly understand what royalties are and under what conditions this type of payment is used. When opening your own business, you always need the so-called start-up capital. The size of this capital can reach impressive sizes. The specific amount is determined by the field of activity and many other circumstances.

Royalty - the etymology of the term

People began to engage in financial and economic activities from the very first day from the creation of the world. Many terms and concepts were born in certain historical conditions, and have come down to our time, practically without distortion. Today, not every businessman knows that royalties can be called rent for the use of an office. Every inventor dreams of royalties for a patent. In other words, royalties are a regular payment for the provision of services. Or a trademark. Although this definition conveys only part of the full meaning of this term. In order to present the versatility of this concept, one must pay attention to historical roots.

Royalties are regular payments (usually monthly) that the franchisee (franchise buyer) pays to the franchisor (franchise seller) for the use of their brand and technology.

The term royalty comes from in English. This word in English transcription the payment to the king was indicated for the fact that he deigned to give one of his subjects the right to use the land and resources that are in its depths. This simplified example brings the modern entrepreneur closer to understanding the processes that make up a business. The concept of royalty is used in the following circumstances:

• when paying rent;
• when collecting a fee;
• when paying for the use of subsoil;
• when withdrawing a share of the profit for the use of someone else's property.

In everyday practice, businessmen are well aware of the royalty franchise, which is paid for the provision of a trademark or brand.

What are royalties paid for?

Russian civil law built on patterns that are taken from the experience of civilized countries. All business entities, regardless of their form of ownership, must strictly follow the established rules when paying for the right to use licenses for inventions, film rentals, book publishing, goods, patents, and innovations. The calculation of the amount of payment is carried out in accordance with a bilateral agreement. Many years of practice shows that it is not so easy to choose a base in order to determine the amount of deductions. As a result of many years of practice, a certain system has developed that can be used as an example when concluding an agreement.

Percentage of profit or turnover

The calculation of royalties based on the profit received by the enterprise has certain disadvantages. The amount of profit received is influenced by many diverse factors. As an example, experts cite an unsuccessful advertising campaign. According to all forecasts, the volume of sold products should have increased, but an inaccurately targeted campaign only brought losses. As a result, instead of profit, the company suffered significant losses. In fact, a franchise buyer can always inflate his salary, rent and other expenses and always show a loss, although in fact he will work in profit. Therefore, royalty is often paid on the company's turnover.

Margin Percentage

In this case, the franchisee pays a percentage of the sales margin. Under this option, the franchisee is generally able to set or control the wholesale and retail prices of the products or services provided.

Fixed amount

There are franchise options with a clearly fixed monthly or annual amount.

Advertising payments

Often in franchise presentations, you can see an additional payment in the form of advertising royalties. This is the fee for the franchise buyer to promote and advertise the brand under which he works. Usually these deductions are already included in the percentage of royalties, but sometimes they are taken out separately.

By the way, some companies sell a franchise without a lump-sum fee and royalties. They earn only on the supply of products for their franchisees.

Intellectual Property License

Every educated person has an idea about intellectual property. Examples of this type of property include the following:

• literary work;
• musical composition;
• computer software.

For each edition of his book, the writer receives a fee. Just like the composer. In order to legally perform a piece of music, free royalties are paid to the composer. In this case, it's a one-time usage fee. In the intellectual sphere, a complex mechanism of relationships operates between users and right holders. The calculation of the amount of deductions does not have a general formula.

In everyday life, Internet users are faced with the need to pay free payments when using software. A striking example of this is the acquisition of anti-virus programs. The vast majority of users believe that the fee for licensed software packages is too high. Copyright holders, on the contrary, are convinced that the fee is unreasonably low. Each side has its own calculation and its own evaluation criteria. Copyright is by far the most difficult to implement in practice. When a person receives a patent for an invention, he can show it to a limited circle of people. It is impossible to hide a new poem or melody in this way.

By obtaining a patent for intellectual property created by one's own mind, a person expects to improve his financial situation. The calculation in this case is simple and clear. However, the amount of the fee received does not always satisfy the right holder. In order to balance your needs and opportunities, you need to navigate the current legislation and know the real market conditions. Citing precedents from foreign practice, one should always make adjustments for local conditions and circumstances.

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