There are many types of remuneration: wages, salaries, wages or fees. For certain job categories, so-called royalties are also a form of income. Usually a royalty is paid in artistic works, but companies can also receive royalties. Think of the case in which they hold a license or a patent; royalties derive from the exploitation of the copyright of the license or patent. The extra amount received will vary based on the success of your work or service. In this context, a royalty approaches the concept of commission. So what does royalty mean?
- Who perceives royalty?
- What are royalties?
- Royalties taxation
Who perceives royalty?
When it comes to royalties, it is possible to distinguish between two groups that benefit from this form of payment: individuals and companies. On the one hand there are the artists , such as musicians and writers, who are paid in part or exclusively through royalties. In Italy, the body responsible for collecting payments for the use of intellectual property and the redistribution of the related proceeds is SIAE , the Italian Society of Authors and Publishers.
On the other, to be protected by copyright, and therefore to be subject to royalties, there are also patents and licenses, which belong to companies . So often the directors of the board of directors of companies or other managers who hold important positions within a company receive royalties. In this way, you should be more motivated to contribute to the success of the company, because the amount of royalties is directly linked to the income derived from the use of the patented or licensed product or service.
What are royalties?
In the corporate sector royalties are additional revenues, directly related to the success of a company. From a fiscal point of view, pursuant to article 23 of Presidential Decree no. 600/1973 , those who pay royalties at the time of payment are required to apply a withholding tax of 20% to the amount paid to the author residing in Italy; in the event that the author resides abroad, the withholding tax rises to 30%. The percentage of royalties, which is received on the patent or the granted license, is established in a contract .
Royalty: royalties are variable, extra compensation generated by self-employment. Those who carry out creative activities, such as musicians and writers, usually perceive them, but they also receive them, within the company, CEOs, managers and other employees of the board of directors, when the exploitation of the copyright of a product license or patent.
Royalty and commission
There could be confusion between royalties and commission, but they are two different concepts. In fact, a commission applies to the achievement of a sale and is paid directly to the employee who is committed to the success of the service. In the case of royalties, we always mean additional compensation that derives from the overall result of a company and not from the result of a single service.
In this way, the total income of managers is closely linked to the success or failure of the company . The decisions and actions taken by all employees influence the future of the company.
Royalty and copyright
In general, royalties are generated by works protected by copyright and at company level they can derive from software. However, very often the resulting payments are part of the company’s income and are therefore not considered as royalties. For greater clarity, below is a simple table that identifies when the income derived from a software can be assimilated as royalty or business income.
|Copyright exploitation right||Transfer of part of the rights to the software, excluding the right of ownership|
|If the transfer of rights to the software is illegal, the payments are royalties||Assignment of all rights relating to the software|
|Purchase of software for personal or commercial use|
|Copyright transfer, in whole or in part|
|Concession in use of the program, without the possibility of duplication or reproduction|
|License extensions within an enterprise|
|In mixed contracts, technical assistance does not generate royalties|
As can be seen from the table, a company does not always receive royalties, but the determination of the payments that are part of the income of a company or a royalty depends on the individual cases.
There are two ways to tax the transfer of copyright: as self-employed income or under different income. If the remuneration (royalty) is received directly by the author, then the income is considered generated by self-employment . To calculate the tax base for the withholding tax, a flat-rate, variable deduction is applied to the remuneration received, which is expressed as follows:
- Deduction of 40% of the royalty , if the remuneration is received by subjects under the age of 35 ;
- deduction of 25% of the royalty , if the remuneration is received by subjects over 35 years of age .
After deducting this percentage from the royalties, the amount will be taxed in the tax return and the withholding tax will be applied here. Taxation based on personal income tax will then take over.
Royalties fall into the ” different income ” category , if the recipient is not the author of the work himself. Here too there are two types of deductions:
- Flat-rate deduction of 25% (similar to that of the author), in the event that the rights were acquired for consideration by the subject who receives the royalties;
- No deduction , in the event that the rights were acquired free of charge and therefore royalties are taxed in full.
To keep in mind is that for royalties , a receipt is provided and, with some rare exceptions, VAT is not applied to the compensation generated by intellectual property.