Amendments to Cyprus Intellectual Property Box Regime
Cyprus is an attractive low tax jurisdiction which offers a wide range of tax and other benefits to international businesses. One of these benefits, is the favorable taxation of Cyprus in relation to the Intellectual Property (IP) legislation. In October 2016 the Cyprus Parliament voted a new legislation, which amends the Intellectual Property (IP) regime as per the provisions of the Organization for Economic Co- Operation and Development’s Base Erotion and Profit Shifting Action 5, and the European Union rules, retrospectively as from July 2016.
CURRENT IP BOX REGIME AND TRANSITIONAL ARRANGEMENTS
The existing IP Box regime which was introduced in Cyprus in 2012, relates to intangible assets which are defined in the Patents Law, the Trade Marks Law and the Intellectual Property Rights Law. A Cyprus company can apply for the benefits of the Law if is the owner of a qualifying IP, If the IP is included in the definition of the mentioned legislation and, If the qualifying assets generate taxable income for the company.
In such case, the 80% of the gross income of the intangible assets is excluded, following the direct cost deduction including amortization (more than 5 years) and interest costs. The remaining 20% is then subject to the normal corporate rate of 12,5%, thus reducing the effective tax rate to 2,5%.
The amendments to the Legislation provide transitional provisions for entities who have entered the existing IP Box regime, which enables them to continue benefit from the existing IP Box regime until 30 June 2021 with respect to intangible assets with the following criteria:
- Were acquired before 2 January 2016; or
- Were acquired directly or indirectly from a related person during the period form 2 January 2016 until 30 June 2016 and which assets at the time of their acquisition were benefiting under the IP Box regime or under a similar scheme for intangible assets in another state;
- Were acquired from an unrelated person or developed during the period from 2nd January 2016 until 30th June 2016
For the qualifying IP that had been acquired directly or indirectly from a related person during the period from 2nd of January 2016 until 30th of June 2016, and which do not fall under the above provisions, there are also transitional provisions until 31st of December 2016.
PROVISIONS FOR THE NEW IP BOX REGIME
The Law contains the rules and conditions which are applicable for assets which are developed after 1st of July 2016.
QUALIFYING INTAGIBLE ASSETS
Qualifying intangible asset or IP means an asset which was acquired, developed or exploited by a person in the course of his business (excluding intellectual property associated with marketing) and which is the result of research and development activities and includes intangible assets for which only economic ownership exists.
Qualifying intangible assets are restricted to:
- Patents as defied in the Patents Law
- Computer Software
- Other IP assets which are legally protected and are utility models or are nonobvious, useful and novel, where the person which utilizes them in furtherance of a business does not generate annual gross revenues exceeding Euro 7.500.000 (in case of a group of companies not exceeding Euro 50.000.000)
It is important that the business names (including brands), trademarks, image rights and other intellectual property rights used to market products and services which used to benefit from the existing regime will not be considered as Qualifying intangible assets in the new Regime.
Qualifying profits means the proportion of the overall income corresponding to the fraction of the qualifying expenditure, plus the uplift expenditure, over the total expenditure incurred for the qualifying intangible assets.
QE + UE x QA Where: QE: Qualifying Expenditure
OE UE: Uplift expenditure
OE: Overall Expenditure
QA: Overall Income
While the range of assets and categories of expenditure that qualify for relief after 1st of July 2016 are more restricted than under the previous rules, the new regime still represents an attractive option for taxpayers.
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