The Cyprus IP regime

Cyprus is an attractive location for the establishment of an IP holding and development company, offering an efficient tax rate as well as the legal protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.

Background

Cyprus IP regime is fully compliant with international developments in the tax treatment of IP income and the OECD’s guidance. The IP regime has been reviewed by the EU Code of Conduct and has been assessed as fully compatible with EU standards.

Benefits of the Cyprus IP regime

80% of the profits qualifying for the regime are exempt from tax. With a corporate tax rate of 12.5%, this can result in an effective tax rate of as low as 2.5%.

Relevant details of the regime

Under the Cyprus IP regime, 80% of the qualifying profits generated from the qualifying assets is deemed to be a tax deductible expense for qualifying taxpayers. In calculating the qualifying profits, the new regime adopts the ‘Nexus’ approach. According to this approach, the level of the qualifying profits is positively correlated to the extent the claimant performs R&D activities to develop the qualifying asset (QA) within the same company.

Qualifying assets

Qualifying assets under the new regime include:

• patents,
• copyrighted software programs, and
• other intangible assets that are non-obvious, useful and novel.

Qualifying assets do not include trademarks and copyrights.

Qualifying persons

Qualifying persons include Cyprus tax resident taxpayers, tax resident Permanent Establishments (PEs) of non-tax resident persons as well as foreign PEs that are subject to tax in Cyprus.

Other intangible assets

Other intangible assets that are used in the business of a taxpayer and do not qualify for the IP regime may still benefit from other provisions of the Cyprus tax law. In particular, capital allowances and/or notional interest deduction (NID) may be available to these assets, which will help reduce the overall effective tax rate of the company. Examples of such assets include trademarks, copyrights and other intellectual property assets.

Capital allowances

As from July 2016, the capital costs of intangibles (excluding goodwill and qualifying assets as defined in the IP regime) are tax deductible in the form of capital allowances. The cost is spread over the useful life of the asset with a maximum useful life of 20 years.

Notional Interest Deduction (NID)

NID may be available on assets introduced in a Cyprus company through equity which are employed in the production of taxable income.

Highlights about Cyprus

Location

Cyprus is the third largest island of the Mediterranean, strategically linking Europe, Africa and Asia.

EU Membership and Currency

Cyprus has been a member of the EU since 1 May 2004. Its currency is the Euro since 1 January 2008.

Total Area, population and principal cities

The total area of Cyprus is 9,250 km2 with a coastline of 648 km and a population of 858,000.

The principal cities of Cyprus

are Nicosia (the capital), Limassol, Larnaca and Paphos.

Languages

The official language is Greek, although English is the principal business language and is spoken by the large majority of the people on the island.

Political System

Cyprus is a Presidential Democratic State.

The Executive authority is vested in the President, who is elected for a five-year term by Cypriot citizens, and is exercised by a Council of Ministers appointed by the President.

The Legislative authority is exercised by the House of Representatives, whose Members are elected by Cypriot citizens every five years. The administration of Justice is exercised by the Judiciary, which is a separate and independent body.

Infrastructure

Cyprus offers excellent road, air and sea transport solutions and services. Cyprus has two multi-purpose deep-sea ports, located in Limassol and Larnaca. The two modern international airports, in Larnaca and Paphos, offer their services to approximately 10 million visitors per year, connecting the island to popular transit hubs throughout the world including Athens, Vienna, London, Dubai and Moscow.

Lifestyle

In Cyprus, one can enjoy a high standard of living. Cyprus is well known for its rich culture, the hospitality of its people, its sunny weather, clean and beautiful beaches and an abundance of outdoor activities. At the same time, Cyprus offers an ideal place to raise a family with good education and healthcare systems and one of the lowest crime rates within the EU.

Education

Cyprus has over 20 reputable English speaking primary and secondary schools. In addition, Cyprus offers internationally recognised colleges and universities. The island ranks among the highest in the EU in respect of university graduates in proportion to its population.