Cyprus Intellectual Property Tax Changes

Changes have been brought in to construct a more beneficial tax regime for Intellectual Property in Cyprus. This includes a huge 80% reduction on Intellectual Property rights.

Liberalising the tax regime to bring it up to favour with other countries has created a particularly favourable situation for the profits of intangible asset and Intellectual Property rights and capital allowances.

Royalty profits are now taxed at a minimum of 2%. This is as a result of an 80% exemption from the new tax regime. Only 20% of the profits received from the royalties of intangible assets and Intellectual Property are taxed at the general Corporate Tax rate of 12.5%. However, there are various other tax regulations to consider, and so the effective tax rate is just 2%. As well as continuous royalties, the new tax exemption also applies to the sale and profit of intangible assets and Intellectual Property.

Expenses and capital allowances can be deducted from the taxable income received from the royalty if they are directly related to generating the income.

Where you are licenced by a third party to use Intellectual Property and receive an income from the rights without specifically owning the rights to the IP, the tax exemptions still apply.

Capital allowances are authorised similarly to the way royalty profits are taxed. For the capital expenditure of buying or using Intellectual Property and intangible assets, capital allowances are authorised at 20% annually. This begins in the first year and continues for the succeeding four years.

Again the deductions applicable to the taxable income include additional deductions and so the effective tax rate is just 2%.

The changes as described above have been made to Cypriot Income Tax legislation by the House of Representatives and have been made retrospectively effective from 1st January 2012.

Patent and Intellectual Property rights are now protected under the Patent Rights Law, Intellectual Property Law and the Trademarks Law, to cover all types of Intellectual property. This includes:

  • Trademarks
  • Copyrights
  • Patents
  • Trade Secrets
  • R & D
  • Software
  • Know How