Cyprus Intellectual Property (IP) Box Regime

If you are the owner of an Intellectual Property asset (IP) you must carefully select the appropriate place to establish your business. The important factors include taxation, legal and development prospects in your business environment.

  • Cyprus has developed an auspicious Intellectual Property jurisdiction, namely the IP Box regime which is effective as of 1 July 2016.
  • Cyprus’ IP Box provides companies with the lowest effective tax rate at 2.5% (instead of the regular corporate income tax rate of 12.5%) .The Cyprus IP Box is comparatively superior to The Netherlands effective tax rates of 9%, Italy’s 13.91% and France’s 10%.
  • Qualifying IP Assets are those which were acquired, developed or exploited by a person within the course of their business and includes patents, computer software, and other non-obvious, useful and novel IP assets.

Tax features of the new IP Box and Comparisons with Other Countries

Intellectual Property in Cyprus

  • 80% notional tax deduction of net qualifying profit from IP (It offers one of the highest deduction rates of 80% with Hungary offering 50%,  Belgium 85%, Luxembourg 80%, and Netherlands offering no deduction)
  • 2.5% effective tax rate up to a maximum on qualifying profits of IP companies (Cyprus has the lowest effective tax rate)
  • Annual tax amortization of IP capped at 20 years
  • 0% tax on the gain from disposal of IP (capital nature transactions)
  • There is no overall limit of deduction, in contrast to Belgium, with 100% of pre-tax income, and Hungary 50% of pre-tax income
  • Foreign tax paid in a foreign country is available as credit against local tax
  • Income has to be determined under the ‘nexus approach’ as described in the OECD model
  • The taxpayer may elect to waive this allowance either in part or in whole for each tax year
  • Cyprus has a wide range of Qualifying Revenue: Royalty, licensing fees, compensation income, trading profits from the IP’s disposal, capital nature gains from the disposal not subject to any tax. There are less options in other European countries