Common IP holding structure
- Wyoming holding LLC owns the IP (patents, trademarks, copyrights, trade secrets)
- Operating LLC pays royalties to holding LLC for IP usage
- Royalty rate at arm's length (market rate)
- License agreement documenting terms
- Both LLCs maintain proper corporate formalities
Tax treatment
- Royalty income from US licensees: US-source FDAP, 30% default withholding
- Treaty rates often reduce to 0% to 15% (via Form W-8BEN-E)
- Royalty income from foreign licensees: not US-source, not US-taxed at holding LLC level
- Form 5472 reports related-party royalties (if licensee is your operating LLC)
- IP transfer to holding LLC at formation: structure carefully to avoid taxable transfer
Benefits of separation
- Operating LLC liabilities do not reach IP (charging-order protection)
- IP can be sold or licensed independently
- Estate planning: IP value separated from operating business value
- Privacy: ownership of IP not publicly tied to your name
- Multi-jurisdiction royalty optimization with treaty planning