Cyprus IP Tax Regime

Intellectual Property

Tax efficient structuring of software, patents and other IP

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.

Highlights

Effective Tax Rate:
The effective tax rate on qualifying income can be as low as 2,5%, which is one of the lowest in the EU.
Eligible Assets:
Assets eligible to fall under the IP Regime include, computer software (including games), patents and similar intangibles.

Eligible Income:
Income eligible under the IP Regime includes, royalties, license fees, proceeds on disposal (excluding capital gains) and embedded income.
BEPS Approved:
The Cypriot IP Regime is in line with the BEPS Project and EU Regulations. Advance Tax Rulings can be obtained upon request.

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.

Qualifying Assets

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

2.Computer software

3.Other IP assets which are legally protected and
have certain characteristics (such as utility models,
orphan drug designations and other).

A “qualifying intangible asset” is defined as an asset which was acquired, developed or exploited by a person within the course of carrying out a business and it represents intellectual property which is the result of research and development (R&D) activities and includes intangible assets for which only economic ownership exists. The definition of qualifying intangible assets specifically excludes business names, brands, trademarks, image rights and other intellectual property rights used for the promotion of products and services.