Royalties are the payments of license fees by one individual or entity to another for the use of intellectual property (IP). IP can take several forms;

• patents that protect inventions or new processes;
• trademarks that relate to the names of products or their design and packaging;
• copyright, which are attached to any original creative idea expressed in words or pictures;
• image rights etc.

IP can be transferred from a highly taxed company to a Special Purpose Vehicle (SPV), situated in a low tax country, for tax-friendly subsequent resale or licensing to the home country and/or other countries. As such, the bulk of the profits arising from the utilization of the IP is realized outside the originator's country with minimum tax implications, although exit taxation in the country of the originator/transfering company always deserves consideration.

Royalty payments are often subject to withholding taxes. Therefore it is of big importance that the jurisdiction where the SPV is set up maintains a good network of double tax treaties, which can lead to reduction of or even exemption from such taxation over payments made to the SPV.

Examples of suitable jurisdictions are Cyprus, Malta and the Netherlands.