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Amendments to Intellectual Property Tax

27 Jun 2012

The House of Representatives of the Republic of Cyprus have recently voted on new amendments, with the intention of creating an appealing tax regime for intellectual property (IP) rights holding companies in Cyprus. Taxand Cyprus explores these amendments and examines the way in which these changes could effect businesses and the economy more widely.

Currently, a Cypriot company is taxed with the usual corporate tax (CIT) of 10% on the net profits from any income generated from intellectual property rights. The amendments to the law provide that 80% of any income generated from IP rights will be exempt from CIT; therefore only 20% of the profits generated from IP rights will be subject to CIT at the rate of 10%. The aforementioned tax treatment also covers any profit from the future sale of the IP rights.

Furthermore, the law permits the deduction of all expenses that are a result of the production of the royalty income. Therefore, the amount to be paid may be reduced even further. With regards to capital expenditure, it should be noted that the Cypriot IP company can write off any capital expenditure for the purpose of the acquisition or development of the IP rights. Such a write off will be permitted for the initial 5 years of use. Straight line capital allowances at the rate of 20% will be applicable for the first years of use as well as the following 4 years. Subsequently, having the above in mind, a Cypriot IP company will effectively be liable to a maximum tax of 2%, as it is only taxed on 20% of its profits in case of royalty income.

Taxand's Take

The amendments to the law will come into force once they are published in the Official Gazette, and companies should be aware that these amendments will have a retroactive effect as of 1st January 2012. It will be interesting to see if these amendments establish Cyprus as a beneficial intellectual property holding structure.

Your Taxand contact for further queries is:
Boris Lazic
T. +357 22 699 222

Taxand's Take Author