Symeou & Konnaris LLC, Ειδήσεις, New tax relief for investors in small and medium sized innovative enterprises


New tax relief for investors in small and medium sized innovative enterprises

The tax relief for investors in qualifying small and medium-sized innovative enterprises was approved by the Parliament on 2 December 2016 and entered into force on 1 January 2017.

The provisions are included in the new section 9A of the Income Tax Law and aim to foster investments in start-up companies and innovative companies in Cyprus. The tax benefits include a deduction of the cost of a qualifying investment from the investor's taxable income of up to a maximum amount of 50% of the taxable income or €150,000, whichever is lower.

The benefit may be allocated and distributed in a five-year period; thus, any cost above the 50% limit may be carried forward for deduction against the taxable income of subsequent years, subject to the above limitation.

For an investment to be deemed qualifying, the investee must be a small or medium-sized innovative enterprise doing business in Cyprus which meets the conditions set out in article 21(5) of Commission Regulation (EU) 651/ 2014 of 17 June 2014, as follows:

• It must be an unlisted company not operating in any market.
• If operational, it has been operating in any market for less than seven years.
• It is a "follow-on investment," requiring an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographical market, is higher than 50% of its average annual turnover for the preceding five years.

Designation as a small or medium-sized innovative enterprise requires the approval of the Ministry of Finance.

To be considered innovative, a company must have spent 10% of its operating capital on research and development in at least one of the last three years, as verified by an external auditor. For start-up companies with no financial history, the assessment will be made on the basis of a business plan.