In today’s modern world, Intellectual Property is one of the most valuable assets of a business, hence the decision to choose a country to host its IP, is indeed a very important and strategic one. A suitable jurisdiction must have a legal regime affording protection, safety and certainty. Moreover, because of the IP’s mobility to use across various countries, proper planning is crucial to mitigate international tax leakage and optimise its after-tax cash flows.
Cyprus has a developed legal system employing principles of UK common law. Since 2004 it is a full Member State of the EU, it has adopted all EU Directives and is compliant with the EU Acquis Communautaire. It complies with transparency requirements and features on the White List of the OECD. Furthermore, it has signed a number of bilateral agreements for the protection of investments with many countries and has an impressive network of double taxation treaties covering over 40 countries seeking continually to expand it; The above in combination with the conclusion of international conventions for the protection of IP (inter alia the Paris Convention, WIPO; Bern convention; the Madrid Agreement; the Patent Cooperation Treaty) and modern IP laws ensure protection and certainty for IP companies.
Since 2012, Cyprus has enacted a very beneficial IP box regime, giving IP owners significant tax benefits, as outlined below:
IP box in a nutshell:
- 80% exemption on income from the exploitation of IP (royalties, damages, gains from disposal);
- Gross IP income reduced by direct expenses incurred for the production of such income;
- Wide range of qualifying IP rights(see below);
- Qualifying IP can be purchased or developed internally;
- An accelerated amortization period of 5 years instead of amortization over the lifespan of the IP;
- Carry forward of losses indefinitely;
- Corporate tax liability of 12.5% on net profits;
- No withholding of tax on the payment of royalty income to a third party as long as the IP is not used in Cyprus;
- Double tax treaty benefits in foreign countries for tax resident companies on royalty income and unilateral credit in Cyprus on any foreign tax paid in Cyprus;
- The effective tax rate based on the above may be reduced to below 2%.
The IP regime is applicable to existing and acquired or developed IP after January 1st, 2012 as defined in the following Cyprus laws:
- Patent law
- Intellectual Property Law
- Trademark Law
The above laws cover inter alia copyrights, patents, trademarks, service marks, software, trade secrets; client/database lists; designs/models; internet domain names; software copyrights; secret formulae, rights related to scientific, literary, dramatic, artistic or scientific works, movies, sound recording, broadcasts; published editions and publications; rights related to industrial or commercial work.
How we can help you:
Clerides Anastasiou Neophytou LLC is a leading law firm in Cyprus specialising in corporate, commercial, and tax law and M&A transactions. We are top ranked in tax law and highly recommended in corporate and M&A by well-known international agencies ranking law firms worldwide. Our associates and staff shall be pleased to assist you with efficient, high-value cost-efficient services to help you structure your transactions in Cyprus.
Our tax team can assist you with:
- efficient tax structuring;
- Advise as to qualifying IP and expenditure;
- corporate set –up and corporate services;
- Amortisation issues;
- Transfer-pricing issues;
- tax rulings and negotiations;
- tax opinions;
- Transfer of IP and initial set up;
- VAT issues;
- Ongoing corporate support after the initial set up.