Intellectual Property Rights

In May 2012, Cyprus has introduced an intellectual property rights tax regime for companies whose one of their main activities is intellectual property. The intellectual property rights tax regime is effective from 1 January 2012.

The basic provisions are as follows:

  • An 80% deemed deduction applies to the net profit from the use or disposal of such intangible assets, including the compensation from irregular use.
  • The statutory deduction equal to 80% applies on the profit after deducting all direct expenses including amortisation of the assets, interest expense to finance the acquisition or development of the assets.
  • The cost for the acquisition or development of the intangible assets, being of a capital nature, is equally amortised over a five years period, starting in the year of purchase / development.

This means that the effective tax rate for intellectual property rights derived profit is 2.5%, as only 20% of the profits will be subject to the normal corporate tax of 12.5%.

In an effort to fully align the existing IP regime with the parameters of the relevant OECD recommendations of the BEPS Action 5, on 14th October 2016 amendments to the current Cyprus Intellectual Property (IP) regime have been adopted, with effect from 1 July 2016.

The amendments do not change the effective tax rate of 2.5% as currently imposed under the current IP regime. Among the measures under the revisions to the IP tax regime are:

  • Grandfathering provisions for certain IP asset acquisitions
  • Transitional arrangements, allowing the provisions of the current IP tax regime to continue to apply through 30 June 2021
  • Changes to narrow the definition of what is a “qualifying” IP asset
  • A modified nexus approach
  • Rules for foreign permanent establishments

The above should be used as a source of general information only. It is not intended to give a definitive statement of the Law and is subject to the Disclaimer.

For further details on these issues, please do not hesitate to contact us.