ER Team News

20
Jun2019
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Cyprus Intellectual Property

Cyprus Intellectual Property:  IP has become one of the fastest developed sectors of the economy in many countries in the last few years. This is due to the increasing need for protection. Protection of the intangible assets owned by an individual or a legal entity. The term Intellectual Property is wide enough to cover a range of intangible assets. Such as Copyrights, Patented inventions and Trademarks. Choosing the ideal location for establishing an IP structure is important.

As an IP holder you want to ensure the protection of your IP.  And take advantage of the tax incentives offered by the chosen jurisdiction. Further information we provide in relation to Cyprus Intellectual Property in other parts of the site. Cyprus is one of the most beneficial EU jurisdictions.  A Cyprus company is allowed  to hold any IP rights. Such as patents, trade names, trade marks etc without limitation. If you need information on Cyprus Company Registration please follow this link.  A Cyprus IBC can accept Nominee Director or Nominee Shareholder.  It can also hold a Bank Account.

The Cyprus Intellectual Property Box Regime

Cyprus is a member of the EU. Cyprus is a party to the Madrid Protocol.  And a signatory to the Paris Treaty on the Protection of Industrial Property. It offers protection of the IP on a national, European and International level. Cyprus Intellectual Property law, offers a wide Double Tax Treaties network with more than 65 countries.

On the 1st January 2012, Cyprus has implemented a new Cyprus Intellectual Property Box Regime. This is  aiming to offer an attractive tax regime to the IP holders. At the same time to provide the greatest protection of IP on a national and international level. The new Cyprus Intellectual Property Box Regime provides many tax exemptions. They benefit the IP holders. They are the following:

  • The worldwide royalty income you from IP is exempted from income tax at the rate of 80%.
  • Profit you derive from the disposal of IP is exempted from income tax at the rate of 80%.
  • Effective Tax rate of 2.5% if you qualify for this plan.
  • You can carry losses forward indefinitely.
  • You get provision of amortization period of 5 years.
  • A Cyprus company now can own and license a Cyprus Intellectual Property asset directly. No need to establish a company in a low or no tax jurisdiction. As a result, a more efficient and a cost-effective procedure has been introduced.

On 14 October 2016, the Cypriot House of Representatives have passed amendments to the Income Tax Law. They did this in order to align the Cyprus Intellectual Property tax legislation with EU. Especially with the provisions of Action 5 as concluded by the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Provisions of the Cyprus Intellectual Property Box that remain the same:

  • 80% exemption of qualifying profit income you receive from IP rights after deducting direct expenses
  • 80% exemption of profit from sale of the qualifying IP rights
  • 5 year amortization period

Transitional Arrangements

IP assets benefiting until 30 June 2021:

Taxpayers benefiting from the current IP regime shall continue to apply its provisions until 30 June 2021.  As long as the intangible assets in question have their generated income. Or it and its development are completed as at 30 June 2016. This is  subject to certain conditions where the intangible assets were acquired prior the 02 January 2016 up to 30 of June 2016.

The Modified “Nexus Approach” provides that for an intangible asset to qualify for the benefits of the new regime, there needs to be a direct link between the qualifying income and the qualifying expenses contributing to that income.

A. Qualifying Intangible Assets (QIAs)

QIAs are the assets which you acquired, developed or exploited within the course of carrying out your business. It is a result of research and development (R&D) activities. This definition excludes business names, brands, trademarks, image rights and other IP rights. 

The Qualifying profit (QP) is comprised of the proportion of the Overall Income (OI) derived from the Qualifying Expenditure (QE). To that you can the Uplift Expenditure (UE) divided by the Overall Expenditure.

C. Accounting Records

Persons claiming benefits under the new regime have the obligation to maintain proper books of accounts. Also records of income and expenses for each intangible asset. The new Cyprus IP Box regime was introduced to address the concerns over the application of the nexus approach. 

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