Intellectual Property (IP) Services
Cyprus is a member of the World Intellectual Property Organization (WIPO) and a member of other International Conventions and Treaties and in recent years it has become an attractive jurisdiction for companies who are owners of Intellectual Properties.
The definition of Patent & Intellectual Property Rights was revised to relate to the meaning of the Local Patent Rights Law (1998), Intellectual Property Law (1976) and the Law relating to Trademarks. These amendments make Cyprus particularly attractive and beneficial to IP holders and developers for registering their IPs and have attracted considerable overseas investment.
Intellectual Property Rights include the following:
• Local & International Registration of Intellectual Property
In May 2012 tax amendments were made that are significant for companies whose many activities relate to Intellectual Property. For example:
80% of profits generated as royalties as exempted from corporate tax
20% are subject to the normal corporate tax rate of 12.5%
As a result of the above regulations, the effective tax rate of profits from Intellectual Property rights is 2.5%.
TRANSITONAL ARRANGEMENTS FOR IP RIGHTS PRIOR TO 30 JUNE 2016
The existing IP box regime, which was introduced in 2012 provides for 80% tax exemption of income from the use of a wide range of intangible assets. Coupled with Cyprus’ low corporate income tax of 12.5%, it gives an effective tax rate on such income of 2.5% or less. Taxpayers already benefiting from the existing scheme may continue to claim the same benefits until 30 June 2021, subject to certain conditions regarding assets acquired between 2 January 2016 and 30 June 2016.
NEW ARRANGEMENTS FOR IP RIGHTS AFTER 1 JULY 2016
The arrangements for IP assets developed after 1 July 2016 follow a different approach as follows. Qualifying assets are restricted to patents, software and other IP assets which are legally protected.
Intellectual property rights used to market products and services, such as business names, brands, trademarks and image rights, do not fall within the definition of qualifying assets. Relief is geared to the cost incurred by the taxpayer in developing the intellectual property through its research and development activities, and costs of purchase of intangible assets, interest, costs relating to the acquisition or construction of immovable property and amounts paid or payable directly or indirectly to a related person are excluded from the definition of qualifying expenditure.
As was the case under the original scheme, 80% of the overall profit derived from the qualifying intangible asset is treated as deductible expense, preserving the effective tax rate of less than 2.5% on such income.
The transitional arrangements secure the existing benefits for IP developed before 30 June 2016 until 30 June 2021. While the range of assets and the categories of expenditure qualifying for relief after 1 July 2016 are restricted compared to previous rules, but still the Cyprus IP box represents a very attractive option for taxpayers, with an effective tax rate of less than 2.5% on qualifying income.
In cooperation with legal and tax advisers, Relikor can offer specialized services for clients with revenues from ownership of IP rights to take advantage of the above beneficial tax regulations.