Cyprus IP Box Regime: The “Right Time” for structuring the exploitation of IP assets
Intellectual property is increasingly becoming one the most valuable assets of business. Thus, choosing the appropriate regime/location for structuring the exploitation of IP assets is vital in order for business to achieve business development, effective IP protection and maximum tax optimization.
Time for Action
The IP Box regime of Cyprus provides a very attractive legal and financial framework for businesses who are structuring the exploitation of IP assets through Cyprus. Business that register their IP assets in Cyprus by 30 June 2016 or by 31 December 2015 ( for assets which are directly or indirectly acquired from related parties) will be able to take advantage of Cyprus current IP Box Scheme until 30 June 2021.
Companies considering investing in intellectual property should proceed immediately as there is limited time to enter into the current IP Box Scheme and qualify to benefit out of it.
Cyprus IP Box Regime: Effective Tax Rate at 2.5% - Lowest in Europe
Cyprus offers an advantageous regime for business investing in IP rights. The IP box Scheme put in place with effect from 1st January 2012 was a package of incentives and tax exemptions concerning income from intellectual property rights, intended to urge investment in research and development. The Cyprus corporate income tax rate at 12.5% would normally apply to the 100% of net profits produced. However, following the applicable tax exemptions, only 20% of the profits will be taxed, reaching an effective rate of 2.5% per annum. At 2.5% , this rate is considerably lower that the respective percentage in other countries offering similar IP Box’ schemes, including Luxembourg at 5.7%, the Netherlands at 5% and the United Kingdom’s Patent Box’ regime at 10%.
Proposed Structure
A Cyprus company licenses its IP to its operating foreign Company and in return it receives royalty income. The 20% of the net royalty profits will be taxable in Cyprus under corporation tax (12,5%) producing a maximum effective tax rate of 2,5%.
The effective IP tax regime of Cyprus in conjunction with the protection offered by EU and all major IP treaties and protocols in which Cyprus is signatory is what makes Cyprus highly attractive for the acquisition or development IP assets.
Qualifying IP rights/ What kind of intangibles does the Cypriot IP Box cover?
The Cyprus IP Box regime applies to a wide range of IP rights falling within the meaning of the Patent Law, the Intellectual Property Rights Law and the Trademarks Law. More specifically by not exhaustively “the list” includes intangible assets such as:
- Copyrights taking the form of literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, firms, broadcasts, published editions, databases, publications, Software programs, etc.
- Patented inventions etc.
- Trademarks and service marks, designs, models , etc.
Tax incentives
1) 80% of any income generated from IP owned by Cypriot resident companies (net of any direct expenses) is exempt from income tax.
2) 80% of profit generated from the disposal of IP Cypriot resident companies (net of any direct expenses) is exempt from income tax.
3) Any expenditure of a capital nature for the acquisition and /or development of IP can be claimed as a deduction in the tax year in which it is incurred and the immediate four following years on a straight- line basis
For an IP to secure the above benefits the taxpayer should be the owner of the IP, officially registered either in Cyprus or abroad, and the IP should be used in the production of income.
International Network
Cyprus offers maximum protection and certainty for IP owners due to the ratification of all major IP treaties and protocols.
In addition to asset protection, Cyprus’ wide network of double tax treaties will considerable reduced foreign withholding taxes on royalty income.
