In May 2012, Cyprus introduced changes in Income Tax law which
constitutes Cyprus as the ultimate royalty jurisdiction, enabling it to compete
successfully with other established jurisdictions. The main features of the
Cyprus IP box are outlined below:
IP Box benefits
- The amendment to the Income Tax Law is effective from January 1st
2012 and apply to all categories of
intellectual property, including the rights set out in the Patent Law of 1998
as amended, the Intellectual Property Rights Law of 1976, as amended and the Trade marks Law.
Cap as amended, covering all IP assets, including patents, trademarks
copyrights, formulas, designs, know-how and processes. - The new tax regime provides for favorable tax treatment in relation
to income generated from IP rights, by exempting from corporation tax 80% of
royalty profit, i.e. only 20% of the IP income after deducting all costs
relating to the generation of the income is subject to 12,5% corporate tax. Thus
the effective tax rate of a Cyprus royalty company is 2,5%. - In the event that IP related costs and deductions exceed revenue earned
from IP assets the loss may be offset against other income for the year or future
profits. - The 80% exemption also applies for
capital gains arising in case of disposal of the IP. But in this case, a full
tax exemption from capital gains tax applies, if the shares of the IP Company
are sold. - The cost of acquisition or
development of an IP right acquired by a Cyprus company, maybe capitalized
and written off on a straight line basis over 5 years giving an annual writing
down allowance of 20%.
The Cyprus IP box regime
applies to a wider range of income than any other European scheme, most of
which restrict benefits to income from patents and supplementary patent
certificates. There is no cap on benefits, there is no requirement regarding
self-development of the IP and there are no restrictions on where the
expenditure on acquisition or development of IP is incurred. Furthermore, full
exemption can be relatively easily obtained in Cyprus by holding the IP assets
in a separate company and disposing of the shares in the company, as described
above.
Conclusion
As analyzed above, Cyprus offers the most flexible and favorable tax
regime for “IP box”. In most cases, immediate economic and tax
savings can be accomplished by transferring intellectual rights currently held
by entities located in low or no-tax jurisdictions to Cyprus resident companies
in order to take advantage of the new exemptions. The transfer of IP rights
into a Cyprus company will not attract any form of taxation in Cyprus and the
new benefits and substantial exemptions will become available as soon as the
asset is transferred.
The Cyprus IP box provides attractive opportunities for structuring
the exploitation of IP assets through Cyprus and in particular through the use
of Cyprus-resident IP owners, especially in conjunction with Cyprus extensive
network of double tax treaties, under which withholding tax on royalty income
is either eliminated or substantially reduced.
By Marios Efthymiou
Managing Director
Dinos Antoniou & Co Ltd
Limassol, Cyprus