Cyprus IP Box Regime

Cyprus IP Box Regime
for Intellectual Property

Explore the Cyprus IP Box regime for intellectual property, offering favourable tax benefits. Boost your corporate tax strategy today!

Explore tax benefits for startups and technology companies

The Cyprus IP Box Regime provides a unique opportunity for technology companies to gain considerable tax benefits linked with intellectual property assets developed in Cyprus. Companies can improve their overall financial performance by exploiting this efficient intellectual property tax environment to optimise the tax treatment of qualified intangible assets.

At Christos Makrides and Associates Ltd, our team of chartered accountants and tax consultants is dedicated to providing you with the necessary tools and accounting and legal support needed throughout the IP Box application process.

What is the Cyprus IP Box Regime in Cyprus?

The Cyprus IP Box Regime is a tax structure that encourages the creation and exploitation of intellectual property (IP rights) in Cyprus. This system offers a lower effective tax rate on income derived from qualified intellectual property assets, such as patents and copyrights.

By creating a solid legal framework under Cyprus law, the regime guarantees that enterprises may conduct research and development operations with confidence while benefiting from preferential taxation. This unique strategy establishes Cyprus as a top location for IP-centric businesses and other technology Companies.

What is a qualifying intangible asset?

A qualifying intangible asset for the IP tax regime in Cyprus can be:

patents, as defined in the Patents Law: computer software or other IP assets which are legally protected and fall within one of the following categories:

– utility models, intellectual property assets which protect plants and genetic
-material, orphan drug designations and extensions of protections for patents
-non-obvious, useful and novel, where the person utilising them in furtherance of a business does not generate annual gross revenues over €7,500,000 from all intangible assets (€50,000,000 in case of a group of companies), which are certified as such by an appropriate authority, in Cyprus or abroad.

Nexus formula in IP Box Regime

The nexus fraction calculation under the Cyprus IP Box Regime is critical in assessing the tax benefits offered to enterprises. This formula evaluates the relationship between income earned from intellectual property assets and the fraction of Research and Development (R&D )costs paid in Cyprus. Companies can maximise their gains from the regime by using this nexus portion. It promotes local innovation and research while guaranteeing conformity with existing Cyprus tax legislation, resulting in continuous economic growth in the region.

Benefits of the Cyprus IP regime

The benefits of the existing IP Cyprus regime are numerous and significant. Companies can enjoy an effective corporate tax rate that is among the lowest in Europe, allowing for substantial savings on IP income.

Additionally, the regime provides deductions for expenses related to the development of qualifying IP assets, further enhancing the attractiveness of establishing operations in Cyprus. This tax regime supports not only local businesses but also attracts foreign entities seeking to capitalise on Cyprus’s strategic location and favourable tax legislation.

up to 0 %

Exception of qualified profit from the exploitation of IP assets on the gain from disposal of IP assets as a capital nature transactions.

80% of the profit made from the use of intangible assets is deductible for tax purposes. As a result, only 20% of IP income is calculated after deducting earning expenditures. Thus, applying the Cyprus corporate tax rate of 12.5%, which is among the lowest in the EU, yields an effective tax rate of 2.5%.

0 % tax

On the gain from disposal of IP assets as a capital nature transactions.

According to the Income Tax Law and the Cyprus IP tax legislation, if the sale of intangible assets represents a capital transaction, the subsequent capital gain should not be taxed. The requirement to provide a balancing statement upon the transfer or sale of an intangible asset is eliminated.

0 years

Maximum amortisation period.

Capital expenditures for intellectual property acquisition or development may be deducted in both the first and subsequent tax years. That is, development or acquisition costs are amortised over a maximum of 20 years. This can reduce the effective tax rate to less than 2%.

IP BOX Comparison between Cyprus and other countries

When comparing the IP Box system in Cyprus to those in other nations, it is clear that Cyprus has a very effective IP tax policy. Many governments levy higher tax rates or rigorous regulations, which can stifle innovation, whereas the Cyprus regime applies to a wider pull of companies.

In contrast, Cyprus offers a flexible framework that applies to a broader variety of qualifying intellectual property rights. This comparative advantage makes Cyprus a suitable location for enterprises and tech companies wishing to optimise their IP tax treatment while also benefiting from important IP treaties and protocols.

Country

Effective Corporate Tax Rate

Qualifying IP Assets

Cyprus

2.5%

Patents, computer software, utility models, other IP assets such as non-obvious, useful or novel rights.

Belgium

4.44%

Patents and supplementary patent certificates, copyrighted software.

Hungary

4.5%

Patents, utility model protection, copyrighted software.

Cyprus IP Box Regime