Taxation of remuneration (licence fee)

1. Copyright


Copyright and the related items are governed by the Copyright Act.

Copyright subsists in literary, artistic and scientific works. Copyright in a literary, artistic and scientific work arises upon the creation of the work by the author of the work. Moral rights and economic rights constitute the content of copyright. The moral rights of an author are inseparable from the author’s person and non-transferable. The economic rights of an author are transferable as single rights or a set of rights for a charge or free of charge (section 4, subsections 11 (1), (2) and (3) of the Copyright Act).

Works shall be used by other persons only in the case of transfer (assignment) of the author’s economic rights by him or her or on the basis of an authorisation (licence) granted by the author except in the cases prescribed in Chapter IV of this Act, if the use of the work is permitted without the author’s consent (subsection 46 (1) of the Copyright Act). An author’s contract shall be concluded between the author and a person who wishes to use the work. An author’s contract may be entered into to use an existing work or to create and use a new work. Upon use an existing work on the basis of a licence agreement, the provisions of the Law of Obligations Act concerning licence agreements apply to the author’s contract (subsection 48 (3) of the Copyright Act). Upon creation and use of a new work, the provisions of the Law of Obligations Act concerning contracts for services apply to the author’s contract (subsection 48 (4) of the same Act).
 

2. Taxation of remuneration (licence fee)


2.1 Remuneration received for the right to use or for the transfer of the right to use an existing work


Pursuant to the Income Tax Act, income tax is charged on consideration for the right to use a copyright of a literary, artistic or scientific work (including cinematographic films or videos, recordings of radio or television programmes or computer programs), or on consideration for transfer of the  right to use above, received as royalties (subsection 16 (2) of the Income Tax Act). Primarily, the remuneration that the author receives upon use an existing work is charged on the basis of the said provision (mentioned in subsection 48 (3) of the Copyright Act). The royalties mentioned in subsection 16 (2) of the Income Tax Act are charged according to the principle of gross income, i.e. that no expenses can be deducted from the income. Upon an existing work the expenses have been made earlier and the author receives the so-called passive income. Income tax is withheld upon payment of royalties according to subsection 41 (7) of the Income Tax Act and social security contributions are not imposed on the royalties.

NB! Income tax is charged on royalties pursuant to the procedure described above and such royalties are not charged as income derived from the transfer of property on the basis of the contract of purchase and sale.
 

2.2 Remuneration received in the case of creation and use of a new work


Pursuant to the Income Tax Act, income derived from a natural person’s independent economic or professional activity, including the creative activity, is charged as business income (subsection 14 (2) of the Income Tax Act).

If an author’s contract for creation and use of a new work has been concluded between the author of the work and a person who wishes to use the work (mentioned in subsection 48 (4) of the Copyright Act) and the person has created the work independently, not depending on anyone, has made expenses in the course of creating the work, for example, has bought instruments, paid for services, borne the risks, etc. then this has elements of business and the remuneration shall be charged as business income.

Business income of a registered undertaking is charged according to the principle of net income, i.e. expenses related to the business can be deducted from the business income.

Income tax, social tax and contributions to mandatory funded pension pursuant to the procedure provided by the Funded Pensions Act shall be imposed on the net business income, if the sole proprietor is an obligated person.

If the author of a work has been entered in the commercial register of the register of a Contracting State to the EEA Agreement, then the user of the work need not pay the income tax on it (clause 40 (2) 3) of the Income Tax Act) or social security contributions. The sole proprietor pays the said taxes himself/herself. At the desire of the sole proprietor his/her business income may also include the royalties mentioned in § 16 of the Income Tax Act (subsection 14 (4) of the same Act). 

If the author is not a registered sole proprietor, then income tax shall be imposed on the remuneration received for the creation of a new work (mentioned in subsection 48 (4) of the Copyright Act) as gross income regarded as remuneration received on the basis of a contract for services under the law of obligations (subsection 13 (11) of the Income Tax Act).

The user of a work must withhold the income tax from the remuneration paid on the basis of the contract for services under the law of obligations (subsection 41 (3) of the Income Tax Act).

Social tax, unemployment insurance premiums and contributions to mandatory funded pension pursuant to the procedure provided by the Funded Pensions Act shall also be imposed on the remuneration paid on the basis of the contract for services under the law of obligations, if the payment is made to an obligated person.

 

01.06.2018