Cyprus IP Box Regime

Technology and innovation can be very helpful in solving many crucial global issues. The Republic of Cyprus undertake successful steps to ensure that it is in the maelstrom of events. Taking into account the necessity to promote innovative conceptions and radical technological developments, in 2016 the Republic of Cyprus implemented a competitive IP Regime offering tax exceptions to income from Intellectual Property (“IP”). 

The Cyprus IP Regime has been reviewed by the EU Code of Conduct and has been assessed as fully compatible with EU standards. 

The Cyprus IP Regime is applicable to Start-ups, established international IT and technology companies, and innovative businesses may qualify for the Cyprus IP Regime. 

IP Box System is identified also as a patent or invention box, or intellectual property box. In wide meaning it is a corporate tax system is applied by numerous countries for promotion activities in the realm of research and elaboration by dint of income taxation acquiring from licenses, royalties, patents, selling or shifting of qualified  
IP assets that suggest much lower taxes in comparison with other financial earnings. 

Intellectual Property is the most valuable and essential asset that each company can have. It encompasses products of mental activity, i.e.: 

  • Computer programs; 
  • Inventions of algorithms and formulas; 
  • Designing and innovations; 
  • Commercial secret; 
  • Know-how; 
  • Manufacturing techniques; 
  • Marketing approaches; 
  • Works of art; 
  • Samples, images, commercial names. 
  • Client lists 
  • Work in progress R & D 

The aforementioned assets can’t be bound to any geographical place and they are easy to remove without substantial expenses. 

The advantage of this limberness is used by 85% of transnational companies to decrease the total tax burden by distributing the essential IP assets to the companies that are operating in countries with a high level of security of Intellectual property. 

  • 80% exoneration of proficient profit from using Intellectual Property assets;
  • 4/5 of the revenue obtained from the exploiting of immaterial assets is deducted for tax aims. Thus, just 20% of IP earnings after deduction of the expenses of obtaining the revenue is mentioned during the calculation. In this way, applying the lowest in the whole EU tax at the rate of 12,5% provides the efficient tax at the rate of 2,5%. 
  • 0% tax on the income from the implementation of IP assets as the bargains of capital character.  On the 17th of July 2020, the Law of the Income Tax was amended and added, in particular, Section 9 (1) (I) of this Law has been changed with a bill approved by the Cypriot House of Representatives These changes concerned the part of intangible assets. Particularly, if the deliverance of immaterial assets is a bargain of the capital character, then consequently obtained income is not taxable. Amendments came into force from the 1st of January and envisage the cancellation of preparing the balance report upon the transmittal or selling of the intangible assets. 
  • Not less than 20 years of amortization. Capital expenses connected with acquiring or developing Intellectual Property assets can be removed during the first tax year when such expenses took place, as well as in ensuing years. It means, that expenditures on acquiring and designing are amortized during the next 20 years. Practically, it will help to decrease the tax rate to 2%. 

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