IP Box Regime Cyprus

Introduction

The IP Box Regime (also known as patent box, innovation box or simply as IP box) is a tax regime offering incentives regarding Research and Development (R&D) activities in the form of lower taxes on revenues acquired from patents, licences, royalties, sales or transfer of qualified IP assets compared to revenue acquired from other commercial sources.

Cyprus, being a hub for business and investment, now offers one of the most  enticing IP Box Regime, gaining attention from businesses / organisations not only in Europe but across the world as well. The scheme in question was first introduced in Cyprus in 2012 and then amended in 2016 to align with OECD guidelines and the BEPS action plan.

Key Features of the Cyprus IP Regime

• Qualifying Assets (QA): What is considered as qualifying assets under the regime are patents, copyrighted software programs, utility models and other intangible assets that might not be obvious yet are legally protected.
• Qualifying Income (QI): What arises from utilizing IP such as royalties, capital gains from the disposal of IP, embedded IP income occurring from the sale of products or services along with compensation after IP infringement is regarded as qualifying income.
• Reduced Tax Rate: Under the particular scheme, an 80% exemption is applied on profits derived from qualifying assets resulting in a decrease of the corporate tax from 12.5% to 2.5%.
• Eligible Individuals: Individuals are considered eligible should they be taxpayers who are tax residents of Cyprus, Permanent Establishments (PEs) of non-tax residents that are tax residents and PEs from overseas nations that are liable to pay tax in Cyprus.

 Benefits of the Cyprus IP Box Regime

• Incentives for Innovation: Reduced tax rate enables companies to invest in research and development further, leading to innovation, growth and the creation of IP assets.
• Competitive Advantage: Reduced tax, one of the lowest in Europe, assists in the company’s growth and increases its competitiveness globally by enabling them to re-invest the after-tax return on IP activities.
• Financial Planning: Under the particular regime, effective long-term financial planning can be attained.
• Simplified Compliance: Reduced administrative burden and straightforward guidelines make the regime appealing to both local and foreign investment.
• International Standards: Alignment with EU and OECD guidelines leads to the regime being internationally accepted.

Key Compliance Requirements

• Detailed records of the development and utilization of qualifying IP assets are preserved.
• All transactions regarding IP assets are properly conducted and documented.
• An illustration that all essential IP related economic activities,R&D activities included, do occur in Cyprus.

How Auditnet can help:

Our team of experts can assist with the complexities of the regime ensuring that your portfolio grows while being in compliance with necessary guidelines.

Services Offered:

• Identifying and Structuring of IP assets: Our team helps in identifying qualifying IP assets and shaping them in such a way that maximizes tax benefits.
• Applying Tax Ruling: All necessary information is gathered and submitted to the Tax Department, in order to acquire tax binding ruling to ensure the tax treatment of your IP income is dealt with clarity, reducing the risk of a dispute with the Tax Department.
• Compliance and Reporting: Ongoing compliance and reports guarantee that your business remains highly-regarded.
• Strategic Tax Planning: Advice in regards to tax planning is provided aiming at preserving an optimum tax position.

How to obtain a Tax Ruling in Cyprus:

• Preparation: Auditnet Ltd will gather all necessary information and documentation related to your IP assets and income.
• Submission: We will prepare and submit a detailed letter to the Cyprus Tax Department, outlining the nature of the IP assets and the expected
• Review: The tax authorities will review the application and may request additional information or clarification.           
• Issuance: Once the review is complete, the tax authorities will issue a tax ruling that confirms the tax treatment of the IP income.

Conclusion

The Cyprus IP Box Regime is a unique opportunity to reduce tax liabilities on income acquired from intellectual property.

At Auditnet Ltd, we have the expertise and experience to guide you through the entire process, from identifying qualifying IP assets to obtaining tax rulings and ensuring ongoing compliance.