CYPRUS EVOLVING INTO A LEADING INTELLECTUAL PROPERTY LOCATION
Cyprus is being promoted as a leading Intellectual property (IP) holding jurisdiction following the introduction of a favourable tax regime in relation to income generated from any type of IP. The new favourable IP regime enables the reduction of taxable profits in cases where a Cyprus company is the owner of the IP rights. Together with the wide Double Tax Treaty network offered by Cyprus, the guaranteed access to EU Directives, as well as a variety of tax benefits, Cyprus has become a very attractive jurisdiction for IP investment holding structures.
All types of intellectual property, as defined in the IP legislation, which were acquired or developed post 1 January 2012 qualify for the favourable tax treatment. This included patents, copyrights, software copyrights, trademark/service marks, business know-how, any rights related to scientific, literary, artistic or commercial work and other commonly used forms of IP.
The legislation provides for an 80% exemption on royalty income (net of any direct expenses) arising from the exploitation of IP by a Cyprus company. The remaining 20% will be subject to the corporation tax rate of 10%, resulting in an effective tax rate of 2% or lower. For the determination of net income from royalties, the law allows for deduction of expenditure incurred wholly and exclusively for the development or acquisition of the IP.
Gains from the disposal of IP
A Cyprus IP holding company will also benefit from the 80% exemption provisions in regards to gains (after deducting direct expenses) arising from the disposal of the IP.
5 years amortization period
Capital expenditure related to IP acquisition or development may be deducted in the first tax year in which the expense was incurred as well as in the subsequent 4 years, i.e development or acquisition expenses are amortized over a period of 5 years. This in practice lowers the effective tax rate to less than 2%.
It should be noted that no conditions, either in the form of a limited definition of IP, related party acquisitions and/or a minimum holding period are attached to the above advantageous tax regime.
Any profits realized from the exploitation and/or disposal or any other payments made can be performed in a tax efficient manner as a result of the below advantages:
- No withholding tax on dividend payments irrespective of the country of residence of the recipient;
- No withholding tax applicable on the payment of royalties from Cyprus;
- No withholding tax on payment of interest from Cyprus.
Cyprus offers unbeatable solution for investors who are seeking to minimize the taxation paid from income/gains related to IP holding using an onshore vehicle. This can be attractive for many type of businesses.