The implementation of the so called IP Box has effectively established Cyprus as one of the most attractive regimes when it comes to the safeguarding and tax optimisation of the rights stemming from the ownership of Intellectual Property.
“Intellectual Property” means creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce and the IP Box legislation was enacted to provide incentives and tax exemptions for the stimulation of innovation and development.
Recent amendments were enacted in order to bring the national legislation in line with the OECD Base Erosion and Profits Shifting Action 5 and the relevant European Union rules, effective as from the 1st of July 2016.
It should be noted that transitional provisions were included in order for persons and entities enjoying the benefits of the previous regulations to continue claiming the benefits until the 30th of June 2021.
The provisions of the new IP Box are as follows:
“Qualifying intangible asset” is defined as an asset which was acquired, developed or exploited by a person in furtherance of his business, (excluding intellectual property associated with marketing) and results from research and development activities and includes intangible assets for which only economic ownership exists.
These assets are:
- patents as defined in the Patents Law
- computer software
- other IP assets that are non-obvious, novel, and useful, where the person which utilizes them in the further development of a business which does not generate annual gross revenues exceeding €7.500.000 (or €50.000.000 for a group of companies)
The following are not considered qualifying intangible assets: business names (including brands), trademarks, rights to public presence, image rights and other intellectual property rights used to market products and services.
Qualified intangible assets must be certified as such by a Specialized Firm abroad.
For the calculation of the taxable profits, a deemed deduction of 80% is applied to the qualifying profit arising from the exploitation of qualifying intangible assets as defined above. The below formula is used to calculate qualifying profits:
Qualifying Profits = Overall Income x [(Qualifying Expenditure + Uplift Expenditure) / Overall Expenditure]
Capital gains which arise from the disposal of qualifying assets are not included in Qualifying Profits and are exempt from income tax in full.
Furthermore, the wide network of double tax treaties ratified by Cyprus offers a uniquely advantageous opportunity for structuring the efficient exploitation of Intellectual Property rights through the utilisation of vehicles such as the Cyprus company (a company whose control and management is exercised in Cyprus) and the Cyprus International Trust.
Cyprus is a member of the World Intellectual Property Organization and has ratified among others the Paris Convention, the Berne Convention, the Madrid Agreement & Protocol, the Patent Cooperation Treaty and the European Patent Convention, and due to its advantageous geographical position serves Europe, the Middle East, Asia and Africa as a regional business hub.