In October 2016, the Income Tax Law in Cyprus underwent changes concerning the Intellectual Property (IP) regime and the introduction of a new regime that corresponds to the latest international developments in the field of taxation of income from Intellectual Property.
The main changes to the IP regime include the introduction of transition rules to restrict the access of participants to the regime, ensuring that the current regime was terminated before June 30, 2021.
- 80% exemption on royalty income
According to the changes in legislation, an 80% exemption on royalty income (net of any direct expenses) arising from the exploitation of IP by a Cyprus company will apply. The remaining 20% will be subject to the corporation tax rate of 12,5%, resulting in an effective tax rate of 2,5% or lower. For the determination of net income from royalties, the law allows for deduction of expenditure incurred wholly and exclusively for the development or acquisition of the IP.
- Gains from the disposal of IP
A Cyprus IP holding company will also benefit from the 80% exemption provisions with regards to gains (after deducting direct expenses) arising from the disposal of the IP.
- 5 years amortization period
Capital expenditure related to IP acquisition or development may be deducted in the first tax year in which the expense was incurred as well as in the subsequent 4 years. That is, development or acquisition expenses are amortized over a period of 5 years. This in practice lowers the effective tax rate to less than 2%.
How can we help you:
- Establishment of an IP of a holding structure in Cyprus.
- For existing IP companies we can help with an effective tax transfer to an IP company in Cyprus.
- Estimating the market value of IP and the level of royalty income.
- Continuous support after the initial organizational phase.
Read more about our IP services here