Increased tax deduction for Research and Development expenses

On 7 July 2022, Article 9(1)(d) of the Cyprus Income Tax (“IT’’) Law was amended to allow a tax deduction for expenditure incurred for scientific research and Research and Development (“R&D”). The said amendments were gazetted in the official Cyprus Government Gazette on Wednesday 20 July 2022.

After the amendments Article 9(1)(d) stipulates that:

Expensed R&D

Expenditure for scientific research and for R&D (as recognized by international accounting standards) incurred by a person (i.e. legal entities and individuals) that:  carries on a business, and has the economic ownership of the intangible asset which arises, or it’s possible to arise, from incurring such expenditure
is deducted for IT Law purposes.

Prior to the amendment any expenditure for R&D was allowed only if incurred by small and medium-sized innovative enterprises.

Capitalised R&D

Any such expenditure which is of a capital nature is tax amortised, in a reasonable manner, over its useful economic life (as per accepted accounting principles), with a maximum period of 20 years, and the taxpayer may elect each tax year how much of this allowance to deduct.

Prior to the amendment such capital-nature expenditure was tax amortised over a period of 6 years (i.e. the year in which it was incurred and the five subsequent years).

Other

  • For any such expenditure incurred during the years 2022, 2023 and 2024, including any such expenditure of a capital nature which is tax amortised in the manner described above, an additional allowance is granted equal to 20% of the expenditure incurred, which:
    • cannot be claimed in parallel with the 80% allowance on net profit under the Cyprus nexus Intellectual Property regime (i.e. cannot be claimed in parallel with Article 9(1)(k) of the IT Law), and
    • a person may elect, for each tax year, to waive claiming (in whole or in part).Prior to the amendment no such additional allowance was granted.

How can we help?

We are at your disposal to assist you with the relevant calculations should you fall within the scope of the above exemptions.

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