EU 2.5% Setup: A Legal Structure With Very Low Taxation

What the setup is based on

Several EU states support income from self-developed intangible assets through so-called IP box regimes. A large share of the qualifying profit is exempted, which drives the effective rate down sharply. These regimes follow the internationally agreed nexus approach, so they are recognised EU instruments rather than something on the edge of legality.

What is included

Included are the qualification test for your business model, the structural concept covering entity, substance and contract architecture, and introductions to the responsible local partners. On top of that come formation, registrations and the setup of ongoing bookkeeping. On request we support the structure permanently including deadlines and annual accounts.

Which income qualifies

Typical qualifying income comes from software, patents and comparable protected developments created inside the company. Pure trading margins, classic service revenue and many trademark rights fall outside. The stronger the link between your own development work and the income, the more robust the structure.

Substance and documentation

A mailbox will not carry this model. It requires genuine local activity, decision makers with real competence, contracts that match reality and records that allocate development spend to specific income streams. That documentation is built from day one, not reconstructed afterwards.

How the setup runs

First we review the business model, the revenue streams and existing contracts. Then comes the structural concept with a location recommendation, a substance plan and a timeline. Only then does execution start through the partners, followed by the build-out of ongoing administration.

Who this is not for

Not suitable for pure service businesses without their own intellectual property, or for anyone chasing a low headline rate without building anything on the ground. Equally unsuitable if you remain resident in a high tax country, where controlled foreign company rules will apply. If you do not want to carry the running cost of substance, a simpler structure serves you better.

Requirements

You need a business model with clearly identifiable intellectual property, a documented development history and the willingness to build genuine substance. The model only starts to pay off above an income level that carries the effort. Binding tax assessments come from licensed advisers in the relevant jurisdiction.

Frequently asked questions

Is an effective rate of 2.5 percent legal?

Yes, when it rests on a regular IP box regime and every condition is met. The rate applies only to qualifying income, while all other profits are taxed normally.

Does my agency or coaching business qualify?

Usually not, because classic service work does not create a qualifying intangible asset. There are better suited structures for those models.

How much substance is required?

Enough that value creation genuinely happens on the ground. What that means in practice depends on the country, your revenue and your model, and it is defined in the structural concept.

Can I keep living in Germany?

Then the model rarely pays off. German controlled foreign company rules and your personal liability can eat the entire advantage.

How long does the build take?

The entity exists within weeks, but credible substance takes longer. Realistically this is a project running over several months before the regime can be applied safely.

What if the rules change?

IP box regimes get adjusted regularly. We therefore build the structure so it still works without the special regime and monitor changes continuously.