I have a web startup offering web-based SW applications (think Salesforce or Elance) and no physical products. What are the legal considerations if the website is hosted in, say, the UK but I live in a tax-free country?Will I have to pay tax to the Uk Government just because the website is hosted on a server in the UK?Can I have a company based at an attorney in the UK but owned by an offshore company? Is there a framework to think through this? Are you aware of any document on the web that addresses this issue? Thanks.
Corporate / Incorporation Lawyer
These are very complicated questions. Much has to do with which jurisdiction you reside in, which jurisdiction you are thinking about having the entity domiciled in and which jurisdictions you intend to do business. Under US law, most courts have held that if you have a significant web presence and sell your products to people in various US states and other countries you will be subject to the laws of the juridictions where you a) are incorporated, and b) do business, e.g., sell your product. The US takes the position that you must report and pay tax on any income earned from any source worldwide however you will be entitled to a credit for taxes paid to other governmental taxing authorities. The laws of various European countries vary in their own approach to these issues so the question is very fact sensitive. In any case, I would highly recommend that you form two (2) entities, probably LLCs or their equivalent, with one entity owning the intellectual property which you generate and use in your business, and the second one to actually operate the business and make sales and which would obtain a license from company no. 1 to use the IP in exchange for a royalty payment or license fee. I would be happy to discuss this with you in greater detail, in the event you wish to do so.
Paul J. Schoff, Esq.
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