Money from licensing data to an AI company is often treated as royalty income for tax purposes, because the buyer pays for the right to use something you keep owning. How you record it in your accounts depends on what the license grants, and a one-time history license and a monthly refresh term can follow different patterns.
This is general information, not tax or accounting advice. Rules differ by country and state, and the details of your contract matter, so talk to your accountant before you sign and before you book the income.
License or sale: the first question
Most data deals are licenses. You keep the data, and the buyer gets defined rights to use a copy for a period: training, fine-tuning or evaluation, with a ban on resale and re-identification. Our licenses work this way, with an end date and deletion terms.
A license and a sale can be taxed differently. A transfer of ownership, or of all substantial rights, can be treated as a sale with its own gain calculation, while license payments are usually taxed as royalties. The label on the contract doesn't decide this alone; your accountant will look at what rights actually pass to the buyer. If a buyer asks for broad exclusivity, a perpetual term or the right to resell, raise it with your accountant before you agree, because those terms can change the analysis.
How the money arrives
Data deals usually produce two kinds of payment:
| Payment | When it arrives | What it pays for |
|---|---|---|
| History license | Once, after the license is signed | All past records up to the first run |
| Refresh payments | Each month a batch is accepted | New records added since the last run |
In our model, payouts record your share of each license and period, so each payment can be traced to one license and one month. That makes the bookkeeping easier: each line has a buyer, a dataset and a period. Our page on recurring data revenue explains how refresh payments build.
Revenue recognition under US GAAP
Companies that report under US GAAP follow ASC 606 for revenue from licenses of intellectual property. The standard separates two kinds of license, as Deloitte's ASC 606 roadmap explains:
- A right to use the IP as it exists when the license starts. Revenue is generally recognized at a point in time.
- A right to access IP that the licensor keeps changing during the term. Revenue is generally recognized over time.
A one-time license to a fixed history of records looks like the first kind. Ongoing refresh deliveries, where you send new data every month, need their own analysis; they may be separate deliveries recognized as each batch is accepted. Your accountant will decide how your contract fits.
There is also an exception for royalties that depend on the customer's own sales or usage. Under the sales- or usage-based royalty exception, that revenue is recognized only when the sales or usage happen. Most data licenses we see have fixed prices for the history and for each refresh, so this exception may not apply, but it matters if a buyer proposes paying a percentage of something.
Smaller companies that keep cash-basis books will simply record the payments when received. Ask your accountant which basis applies to you.
Cross-border payments and withholding
Many AI labs are in the US, and many sellers are not. When royalties cross borders, the paying country may withhold tax.
For payments from the US to foreign recipients, IRS Publication 515 says royalties from US sources are generally subject to 30% withholding unless a tax treaty reduces the rate. A treaty between the US and your country may lower it if you file the right form (usually a W-8BEN-E for a company). Get that form right before the first payment, because recovering over-withheld tax later is slow.
The reverse can also apply. If your country taxes royalties paid abroad, or if a buyer outside the US pays you, check the rules on both sides.
Whether a payment counts as a royalty or as a fee for a service can change the withholding answer. Data licenses are usually royalties, but contracts that bundle data with consulting or custom work can blur the line.
Sales tax and VAT
Indirect tax depends on where you and the buyer are and how the data is delivered.
- In the US, sales tax on digital products and data varies by state. Some states tax electronically delivered data or information services and others don't.
- In the UK and EU, a license to a business customer in another country often falls under the customer-location rule with the reverse charge, so the buyer accounts for the VAT. Domestic sales follow different rules.
Your invoice should describe what you supply accurately (a license to use a dataset for a stated term) so your accountant can apply the right rule.
Costs you can track against the income
Preparing data takes some time even when a broker does most of the work. Keep records of:
- Legal fees for reviewing contracts and the license
- Staff time spent on exports and approvals
- Any infrastructure cost of running the SDK
Whether and how these are deductible is a question for your accountant, but having them organized makes the conversation short.
Questions to bring to your accountant
- Is this license income royalty income in our country, and at what rate is it taxed?
- Will the buyer withhold tax, and which form do we need to file to claim treaty rates?
- Do we recognize the history license at a point in time and refresh payments monthly?
- Do we owe sales tax or VAT on this supply, and what should the invoice say?
- Does any term in the draft license (exclusivity, perpetual rights, resale) change the answer?
See what the license could be worth
Before the tax question, you need a number. The valuation calculator gives a range for your systems and history, and the seller hub explains how deals are structured and paid.
Frequently asked questions
Is data license income taxed as royalties?
Often, because the buyer pays for the right to use data you keep owning. The answer depends on your country's rules and the rights the contract grants, so confirm it with your accountant.
Will a US buyer withhold tax from my payment?
If you are outside the US, royalties from US sources are generally subject to 30% withholding unless a treaty lowers the rate, according to IRS Publication 515. Filing the correct W-8 form before payment is how you claim a treaty rate.
Are monthly refresh payments recurring revenue for accounting?
They recur in cash terms, since each accepted batch pays its refresh price. How you recognize them under ASC 606 or your local standard depends on the contract, so ask your accountant how to book them.
Does the commission come out before or after tax?
Your payout is your share of what the buyer pays, after our commission. Tax on that payout is yours to report under your own rules. Ask your accountant how any withholding on the buyer's payment affects your share.