Our team handles disputes relating to patents, trademarks, copyright and design. Cyprus, being sensitive enough over intellectual property rights, offers a wide range of legal protection. Any Intellectual Property registered within the Republic of Cyprus, can fall under the Rules of the New Cyprus IP Box Regime in relation to any intellectual property assets developed after the 30th of June, 2016.
The Cyprus Income Tax Law with respect to the application of the Cypriot intellectual property regime (the IP box regime was recently amended and has been aligned with the recommendations OECD Action 5. The law requires for the IP right to be a Qualifying IP, to be owned by a Cyprus registered company and it should be used for the production of taxable income.
According to the tax law, any intangible asset that is protected by the IP laws of Cyprus will be considered as a Qualifying IP Right for the purposes of the favourable tax regime such as patents, computer software, utility models etc. It is noted that an IP right registered outside Cyprus, on a European or International level is still protected by the IP laws of Cyprus.
The ownership of the Qualifying IP may come either through purchase of an existing IP Right or through the development of the IP Right by the Cyprus company. The acquisition of the existing IP can be done either by cash or as a contribution in the share capital of the Cyprus company.
Further, the Cyprus IP Holding Company should use the Qualifying IP Right for the production of taxable income. This means that the IP Holding Company must be an operating company and that the IP Right should be licensed to other parties in exchange for royalty income.
The maximum tax rate for royalties received by the Cyprus IP Holding company is limited to 2.5%. According to the law 80% of the "Royalty Profit" generated from Qualifying IP will be considered as an expense for corporation tax purposes. The remaining 20% will be subject to the normal corporation tax rate of 12.5% rendering the maximum effective tax rate to 2.5%. For the purpose of determining the "Royalty Profit" the law allows the deduction from the resulting royalty income of all direct expenses incurred wholly and exclusively for the production of royalty income. Following the deduction of these direct expenses there is the application of 80% deemed expense on the resulting income.