The changes to the Cyprus “intellectual property box”
Changes to Cyprus’ IP regime were incorporated into the Income Tax Law and brought into force in October 2016 in order to bring its provisions on taxation of income from the use or sale of intangible assets into line with the “modified nexus” approach.
This approach, was adopted by the OECD and the EU and allows a taxpayer to benefit from an intellectual property taxation regime, commonly known as an IP box, only to the extent that it can show material relevant activity, including a clear connection between the rights which create the IP income and the activity which contributes to that income.
Taxpayers already benefitting from the old scheme which was introduced in 2012 and provides for 80% tax exemption of income from the use of a wide range of intangible assets may continue to claim the same benefits until 30 June 2021, subject to certain conditions regarding assets acquired between 2 January 2016 and 30 June 2016.
The New Scheme for intellectual property assets developed after the 1 July 2016 follow the modified nexus approach and is related to qualifying assets which are restricted to patents, software and other IP assets which are legally protected. Intellectual property rights used to market products and services, such as business names, brands, trademarks and image rights, do not fall within the definition of qualifying assets. Relief is geared to the cost incurred by the taxpayer in developing the intellectual property through its research and development activities, and costs of purchase of intangible assets, interest, costs relating to the acquisition or construction of immovable property and amounts paid or payable directly or indirectly to a related person are excluded from the definition of qualifying expenditure.