In May 2012 tax amendments were made that are significant for companies whose many activities relate to Intellectual Property.
• 80% of profits generated as royalties as exempted from corporate tax
• 20% are subject to the normal corporate tax rate of 12.5%
As a result, the effective tax rate of profit from Intellectual Property rights is 2.5%.
The definition of Patent & Intellectual Property Rights has been revised to relate to the meaning of the Local Patent Rights Law (1998), Intellectual Property Law (1976) and the Law relating to Trademarks.
These amendments make Cyprus particularly attractive and beneficial to IP holders and developers for registering their IPs and have attracted considerable overseas investment.
Intellectual Property Rights include the following:
• Local & International Registration of Intellectual Property
• Enforcement of Intellectual Property
• Licensing Intellectual Property and Technology
• Infringement & Passing off actions
• Advice on tax related matters
Transitional arrangements for intellectual property rights developed prior to 30 June 2016
Transitional arrangements for intellectual property rights were developed prior to 30 June 2016
The existing IP box regime, which was introduced in 2012 provides for 80% tax exemption of income from the use of a wide range of intangible assets. Coupled with Cyprus’ low corporate income tax of 12.5%, it gives an effective tax rate on such income of 2.5% or less. Taxpayers already benefiting from the existing scheme may continue to claim the same benefits until 30 June 2021, subject to certain conditions regarding assets acquired between 2 January 2016 and 30 June 2016.
New arrangements for intellectual property rights developed from 1 July 2016
The arrangements for assets developed after 1 July 2016 follow the modified approach. Qualifying assets are restricted to patents, software and other IP assets which are legally protected. Intellectual property rights used to market products and services, such as business names, brands, trademarks and image rights, do not fall within the definition of qualifying assets. Relief is geared to the cost incurred by the taxpayer in developing the intellectual property through its research and development activities, and costs of purchase of intangible assets, interest, costs relating to the acquisition or construction of immovable property and amounts paid or payable directly or indirectly to a related person are excluded from the definition of qualifying expenditure.
As was the case under the original scheme, 80% of the overall profit derived from the qualifying intangible asset is treated as deductible expense, preserving the effective tax rate of less than 2.5% on such income.
Conclusion from the new arrangement
The transitional arrangements secure the existing generous benefits for intellectual property developed before 30 June 2016 until 30 June 2021. While the range of assets and the categories of expenditure qualifying for relief after 1 July 2016 are more restricted than under the previous rules. Cyprus’s IP box still represents a very attractive option for taxpayers, with an effective tax rate of less than 2.5% on qualifying income.
We can offer expert advice and assistance on the acquisition, registration and protection of Intellectual Property Rights.
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