CYPRUS NEW INTELLECTUAL PROPERTY TAX REGIME
Cyprus recently reformed its Intellectual Property (“IP”) tax regime by introducing an 80% tax exemption on IP related profit. This now constitutes the island as one of the most attractive and preferred IP locations in the EU and worldwide and reduces the effective tax rate on IP income to less than 3%.
Tax benefits of Cypriot IP companies
The new provisions provide exemptions from tax of income related to IP. More specifically:
• 80% of worldwide royalty income generated from IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
• 80% of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
• any expenditure of a capital nature for the acquisition or development of IP is claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
• All the above exemptions are also available for IPs acquired or developed before January 2012
1.The law is effective from the tax year 2012 onwards.
The IP tax regime covers a wide range of intangibles including:
• Copyrights, which may take any of the following forms: literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes
• Patented inventions
• Trademarks (and service marks), designs and models that are used or applied on products
The above is a non-exhaustive list.
2. Registrable IPs need not be registered in Cyprus to benefit from IP regime.
3. Further benefits include no withholding tax on dividends paid by the Cyprus company to foreign shareholders and owners. There is also no withholding tax on interest paid and royalties rights payments (for income not generated in Cyprus).
4. Cyprus extensive double tax treaty network and the adoption of the EU tax Directives means that IP income can be received in Cyprus with zero or very low withholding tax from third countries. Even in this case where there is a withholding tax in the third country this tax can be used as a tax credit on any tax arising in Cyprus.
5. A Cyprus company which owns an IP right can protect its asset in different ways. For example it can obtain a National, European or International patent certificate or register any trademarks or designs under local law provisions, EU regulations or the Paris treaty and Madrid protocol which Cyprus is a party of. Copyrights are also protected by local law and the Bern convention member states.