Intellectual Property (IP) can be one of the most valuable assets of an organization. Choosing the appropriate regime for the centralization and management of IP is a vital decision in order for businesses to achieve business development, effective IP protection and maximum tax optimization.
The House of Representatives in Cyprus has recently ratified the government’s proposed amendments to the Income Tax Laws, the aim of which is to bring the Cypriot IP legislation in line with the provisions of the OECD BEPS Action 5 and the new EU rules.
The advantageous IP tax regime that Cyprus offers along with the protection afforded by EU Member States and by the signatories of all major IP treaties and protocols is what makes Cyprus a highly friendly location for IP owners.
Existing IP Box Regime:
The existing IP Box (enforced in Cyprus in 2012) involves a wide range of intangible assets defined in Patents Law, Trade Marks Law and Intellectual Property Rights Law and provides that 80% of the gross income (following the deduction of all direct costs, including amortization and interest expense over a 5 year period) generated from the use of intangibles shall qualify for total tax exemption. In the event of resulting loss, only 20% of the loss can be surrendered to other group companies or be carried forward to future years.
The New IP Box Regime:
The rules and conditions based on the proposed amended law apply to assets which are created after 30 June 2016. The new provisions are summarized below:
-
Qualifying intangible assets
“Qualifying intangible asset” refers to an asset which was acquired, developed or exploited by a person in continuance of his business (excluding intellectual property related to marketing) and which is the result of research and development activities, whilst also includes intangible assets for which only economic ownership exists.
Such assets include patents, computer software and other IP assets that are non-obvious, advantageous or novel, provided that they do not generate annual gross revenues over €7.500.000.
“Qualifying profits” pertains to the proportion of the overall income equivalent to the fraction of the qualifying expenditure incurred for the qualifying intangible asset.
“Overall income” constitutes the gross income generated from the qualifying intangible asset during the tax year, less the direct costs.
“Qualifying expenditure” is defined as the amount of total research and development costs incurred in any tax year, exclusively for the development, improvement or creation of qualifying intangible assets (for example any direct costs, wages and salaries etc).
The obligation to keep proper books of account and records of income and expenses for each intangible asset binds any person who claims benefit under the new regime.
If you wish to take advantage of Cyprus’ IP Box Regime please contact our director, Savvas Shiatis at
SShiatis@oneworldweb.net for a complimentary consultation.