Cyprus IP Tax Regime
The Cypriot IP Tax Regime is in line with the requirements of the BEPS Project of the OECD. In a nutshell, the regime provides tax incentives for research and development (R&D) activities, provided that they are carried out according to certain principles set out in the law. The effective company tax rate from qualifying IP Income can be as low as 2,5%. This generally applies to companies who either develop the IP themselves or outsource the development of their IP to an unrelated company. Companies who acquire the IP or outsource its development to a related party, can still benefit from the IP regime but to a lesser extent.
How It Works
The Nexus Ratio
The beneficial tax provisions of the IP Regime mainly apply to royalties and other income generated from the exploitation of patents, computer software and similar intangible assets. The Qualifying Profits generated from Qualifying Intangibles is multiplied by the Nexus Ratio and the resulting figure is eligible to an 80% tax exemption.
A compant that self-generates the IP or outsources its development to a non-related party, may have a high Nexus Ratio of up to 100%. On the other hand, a company that acquires the IP asset or outsources its development to a related party will have a much smaller Nexus Ratio, thus a much lower tax benefit.
The benefits of the IP Regime apply only to certain categories of ‘qualifying intangible assets’.
The categories of qualifying intangible assets include:
1.Patents, as defined in the Cypriot Patents Law
3.Other IP assets which are legally protected and
have certain characteristics (such as utility models,
orphan drug designations and other).
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