Oneworld Global Business Services

Cyprus Intellectual Property (IP) & Royalties

CYPRUS COMPANIES / IP and Royalties

Cyprus a tax efficient EU Intellectual Property location

Royalties are the payments of license fees or commissions by one individual or entity to another for the use of Intellectual Property (IP). IP can take several forms:

  • copyrights which can include literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programs 
  • patented inventions
  • trademarks (and service marks), designs and models that are used or applied on products
Registrable IPs need not be registered in Cyprus to benefit from IP regime. The aim is to generate the income arising from these rights in the most tax efficient manner possible. The ideal candidate for royalty routing is a client who has a new IP right, when there is little difference between the fiscal book value and the real value of that right and it can be transferred to an offshore company at minimal value. Once the intellectual property rights are vested in this company they are then licensed to other, usually onshore, intermediary corporations.
 
The introduction of the new IP regime box in late 2012, means that there is no need for the use of the traditional offshore company as the ultimate parent company as the IP owner and the Cyprus entity being the collection agent.

Ideal IP location
 
IP can be one of the most valuable assets of an organization. Choosing the right location for the centralization and management of IP is a very important strategic business decision. The ideal location to establish an IP structure is one that one can serve the organization’s business  strategies/model, safeguard and protect its IP and contribute to its tax optimization.
Cyprus offers an efficient IP tax regime coupled with the protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.
 
Benefits of Cypriot IP
 
The new provisions provide exemptions from tax of income related to IP. More specifically:
  • 80 percent of worldwide royalty income generated from IP  owned by Cypriot resident companies (net of any direct expenses) is exempt from income tax
  • 80 percent of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses) is  exempt from income tax
  • effective tax rate of 2,5 percent or less
  • any expenditure of a capital nature for the acquisition or development of IP is claimed a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
All the above exemptions are also available for IPs acquired or developed before January 2012. In addition:
  • no withholding taxes on payment of royalties when distributed out of Cyprus, provided that the holder is not a Cyprus resident and the royalty is used outside of Cyprus
  • tax is only paid on the license fee retained by  the  Cyprus company
  • Cyprus has an extensive worldwide network of double tax treaties
  • the EU Directive on Interest and Royalties providing for nil withholding taxes between EU countries and which extends also to Cyprus
  • Cyprus corporate tax rate is at 12,5 percent, the  lowest within the EU
  • the license fee retained by the onshore intermediary company will typically be  5 percent
Cyprus is signatory to international conventions for IP
  • European Community Trademarks
  • Convention Establishing the World Intellectual Property Organization (WIPO)
  • The Madrid Agreement Concerning the International Registration of Marks (the Madrid Agreement) and Protocol to the Madrid Agreement
  • The Patent Cooperation Treaty
  • Berne Convention for the Protection of Literary and Artistic WorksParis Convention for the Protection of Industrial Property
  • Conventions for the Protection of Procedures of Phonograms Against Unauthorized Duplication of their Programs
  • WIPO Performance and Phonograms Treaty
  • Rome Convention for the Protection of Performers, Producers, of Phonograms and Broadcasting  Organizations
  • Trademark Law Treaty
  • WIPO Beijing Treaty on Audiovisual performances

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