By: Ralph Wichtmann, Managing Director at Sovereign Trust

With Intellectual Property (IP) globally being considered one of the most valuable assets that a company can own, it’s no wonder that many countries have implemented extensive legislative and regulatory provisions, to protect IP created domestically. In many instances, these provisions also have cumbersome requirements to externalise IP that is created within their borders.

South Africa is no exception and many an entrepreneur who has wished to sell their IP to an offshore investor or obtain inward investment into their company, has undergone the somewhat painful process of obtaining the required approvals from the SA Reserve Bank and sign off from SARS.

It’s important to bear in mind that transferring and licensing South African IP to a non-resident is subject to the SA Reserve Bank approval, which can be a time-consuming and costly process, says Sovereign Trust South Africa, Managing Director Ralph Wichtmann.

There are strict exchange control regulations in place governing the sale or assignment of IP to non-residents. If IP has already been created, it is important to determine where the IP was created and what exactly it consists of, as the process of transferring the IP to a non-resident can be simplified if the IP was originally created outside South Africa. In that case, the IP laws of the relevant jurisdictions will govern the transfer of the IP to non-residents.

That’s why the choice of jurisdiction to establish your company, pertaining to your entrepreneurial venture is crucial. The right jurisdiction can hold many benefits, such as extensive legislative and infrastructural protection for IP, a competitive fiscal regime, reduced or no exchange control when selling IP or obtaining investment, as well as access to favourable trading terms should the jurisdiction of the company be based for example in the European Union.

“IP is the most valuable asset of the information age. It’s critical that entrepreneurs and start-ups take the time to develop a proper IP strategy up front, as this will play a major role in the way they raise money or sell their business in the future,” says Wichtmann.

Should the entrepreneurial venture be correctly structured, this will greatly assist in international business expansion, access to fiscal advantages and estate planning, as well as prevent exchange control regulations which could hinder the transfer when a potential buyer comes knocking. That is why it’s important to get suitable offshore structuring advice before creating the IP, and if possible, determine upfront the target market or buyer of the IP.

“A jurisdiction which has well developed IP laws and a business-friendly environment like Singapore, for example, can assist in making venture capital or similar investing all the more attractive, especially if your IP is in a competitive market segment,” says Wichtmann.

When choosing an offshore jurisdiction, one should also consider whether the company will be licensing the IP to other users, who will have to pay royalties. The country from which the royalty fee is paid might impose a withholding tax on such payments, so it is important to confirm that the jurisdiction where your company is incorporated, has signed double taxation avoidance agreements with those countries. This can significantly reduce the withholding taxes imposed.

Once the IP is owned by an offshore company, it should then be registered to prevent any copying, abuse by potential competitors or disgruntled employees.

Even if your IP is intended solely for the local SA market, proper business structuring is still required to hold the IP, and to ensure it does not form part of your estate’s assets. This will be especially important when the IP grows in value, says Wichtmann.