Tax Reductions and Exemptions to Cypriot Intellectual Property
Cyprus has recently made changes to its tax legislation, making it much more competitive in terms of its Intellectual Property tax regime.
The House of Representatives in Cyprus passed these changes on the 24 May 2012 and are retrospectively effective from the 1st January 2012.
Amendments were made to the legislation of Cypriot Income Tax, reinforcing the Royalty and Holding structure within the country, and broadening the coverage of all types of Intellectual Property. The Patent Rights Law and Intellectual Property Law are now implemented alongside the Trademarks Law to protect your patent and Intellectual Property (IP) rights of each of the following:
- Patents
- Trademarks
- Copyrights
- Software
- Trade Secrets
- Expertise
- R & D
In terms of tax rate deductions this has positively impacted Intellectual Property royalty rights and capital allowances.
Royalty profits now have a maximum tax rate of 2%. This means profits achieved from intangible asset and Intellectual Property rights have a huge 80% exemption. Only 20% of this profit is then taxed at the standard Corporate Tax rate. This is 12.5%, but will work out to just a 2% tax effective rate when applied to royalty profits.
This exemption also applies to the sale profits of intangible asset and Intellectual Property rights.
Expenses that are directly related to achieving such profit, as well as capital allowances, may be deducted from the taxable net profit of the royalty income.
If you do not directly own the rights to the Intellectual Property and intangible assets from which you receive your royalty income, but are licensed to do so by another company, the tax exemptions still apply.
Capital allowances are provided on the capital expenditure created while buying, selling or developing Intellectual Property or tangible asset rights. This is applicable at a rate of 20%. The taxable income deductions as shown above also apply, so again the effective tax rate is 2%. Capital allowances are provided in the first year of the sale or development of Intellectual Property or tangible asset rights and then the following four years.
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