Intellectual Property rich organizations can achieve in Cyprus an effective tax rate of lower than 2,5% from their IP exploitation and at the same time enjoy the protection afforded by the EU and all major international IP treaties and protocols.
Intellectual Property (“IP”) can be one of the most valuable assets of an organization. Choosing the right location for the centralization and management of IP is a very important strategic business decision. The ideal location to establish an IP structure is one that can serve the organization’s business strategies/model, safeguard and protect its IP and contribute to its tax optimization.
Cyprus offers an efficient IP tax regime coupled with the protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.
Coverage of intangibles
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.
Registrable IPs need not be registered in Cyprus to benefit from IP regime.
Tax benefits
- 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
Cyprus’ wide double tax treaty network and access to the EU Interest and Royalty Directive serve as additional means for the group to achieve tax optimization when it comes to IP exploitation through Cyprus.
* Direct expenses include finance costs to acquire/develop IP and annual tax amortization.
The new IP regime at a glance
- Reputable and fully transparent financial center;
- Full member of the European Union;
- Established holding company jurisdiction;
- Implementation of a new IP regime;
- Expected to stimulate the growth driving sectors of IP exploitation and Research and Development;
- Sound legal system based on Common Law principles and the conclusion of International Conventions on the Protection of Intellectual Property;
- The new IP Regime guarantees maximum protection and certainty for IP
Cyprus and the IP Protection
- Protection of the rights us dealt in Cyprus;
- Innovation and creativity are protected in Europe and Worldwide.
Cyprus and Patents
- A national patent certificate is granted by the Department of Registrar of Companies and Official Receiver;
- A European Patent certificate issued by the European Patent Office;
- An International Patent certificate under the provisions of the Patent Cooperation Treaty, administered by the World Intellectual Property Organization (WIPO).
Cyprus and Trademarks, Service Marks and Designs
- Registration under the provisions of Capital 268 offering protection at a National level;
- EU Regulation 207/2009 of 26 February 2009 on the Community Trademark and EU Regulation 6/2002 of 12 December 2001 on the Community Design offer via Cyprus uniform protection throughout the territory of the European Union;
- Cyprus is a signatory to the Paris Treaty on the Protection of Industrial Property, as administered by WIPO and a party to the Madrid Protocol, offers global protection of trademarks, service marks and design
Cyprus and Copyrights
- Copyrights are protected under Law N.59/76 on the Protection of Intellectual Property which offers protection at a National level;
- Cyprus is a signatory to the Bern Convention for the Protection of Literary and Artistic Works which covers a broad range of rights, including software copyrights;
- Guarantees protection to all the Convention member states with no further action being requir
Tax Benefits
- Cyprus has one of the most favorable tax system in Europe;
- 12,5% corporate tax rate;
- no withholding tax on outgoing payments (interest, dividends, royalties);
- no exit taxes;
- extensive double tax treaty network;
- ensures withholding tax optimization on incoming royalty payments that may arise from the contemplated IP arrangements;
- guarantees access to all EU Tax Directives;
Qualifying IP Rights
- Patents;
- Trademarks and service marks;
- Designs and models;
- Internet Domain Names;
- Software Copyrights;
- Secret Formulas;
- Know-how;
- WIP R&D;
- Client Lists;
- Rights related to scientific, literary or artistic work;
- Rights related to industrial or commercial work.
Example for the Taxation of Royalty Income
A Cyprus tax resident company derives royalty income amounting to €100.000 and incurs directly related expenses of €40.000. Under the new IP Regime the royalty income will be taxed as follows:
| Net Income from royalties | (100.000- 40.000) | €60.000 |
| 80% statutory exemption | 60.000x 80% | (€ 48.000) |
| Taxable Income | €12.000 | |
| Tax Liability | 12.000@12,5% | €1.500 |
| Effective tax rate | 2.50% |
Example for the Taxation of Disposal of IP Proceeds
A Cyprus tax resident company disposes an IP right for €1.000.000. The cost of acquisition was €500.000 and amortization was claimed for two years. Under the new IP Regime the proceeds from the disposal will be taxed as follows:
| Sales proceeds | €1.000.000 | |
| Less: Costs of acquisition | (€500.000) | |
| €500.000 | ||
| Add back: Amortization claimed | €200.000 | |
| €700.000 | ||
| 80% statutory exemption | 700.000x 80% | (€560.000) |
| Taxable income | € 140.000 | |
| Tax Liability | 140.000@12,5% | €17.500 |
| Effective tax rate | 1.75% | |