The Cyprus IP Regime
Since May 2012 Cyprus has adopted a new Intellectual Property (IP) regime which has constituted Cyprus into a leading IP location.
The main features of the IP regime are outlined below:
– Effective tax rate 2,5%; 80% tax exemption applies on net royalty income or capital gains upon disposal of IP, arising from a wide range of IP rights reducing the effective tax rate from 12,5% to 2,5%
– Notional deduction of 80% is applied on net profits, following the deduction of directly related expenses and amortization.
– Deduction of expenses allowed for the acquisition and development of
- Directly related costs
- Interest expense on loan obtained for acquiring or developing the IP
– Amortization of capital costs equally split over a five year period (for IP rights developed or acquired after 1.1.2012)
– No recapture system for previously generated losses -20% of such losses can be carried forward for a period of 5 years
Qualifying IP rights include
– copyrights including designs/ models, internet, domain name, software copyrights, secret formulas, know – how work in progress R & D, clients lists, data base, rights relating to scientific, literary or artistic work, industrial or commercial work
– Which are developed or acquired by the cyprus IP company
– Registered in any country but being the property of the Cyprus IP company.
– Royalty Income
– Gains from sale of IP
– Damages for IP infringement
– Practical example of taxation of IP income and capital gains
Taxation of Royalty Income (Practical Example)
A Cyprus tax resident company derives royalty income amounting to EUR 100.000 and incurs directly related expenses of EUR 40.000. Under the new IP Regime the royalty income will be taxed as follows:
|Net Income from royalties||(100.000-40.000)||€60.000|
|80% statutory exemption||60.000×80%||(€48.000)|
|Tax Liability||[email protected],5%||€1.500|
|Effective tax rate||2,5%|
Taxation of Disposal of IP Proceeds
A Cyprus tax resident company disposes an IP right for EUR 1.000.000. T he cost of acquisition was EUR 500.000 and amortization was claimed for two years. Under the new IP Regime the proceeds from the disposal will be taxed as follows:
|Less: Costs of acquisition||(€500.000)|
|Add back: Amortization claimed||€200.000|
|80% statutory exemption||700.000×80%||(€560.000)|
|Tax liability||[email protected],5%||€17.500|
|Effective tax rate||1,75%|
IP protection in Cyprus
Although the tax benefits for Cyprus IP companies are granted irrespective in which country IPs are registered as long as the IP is the property of the Cyprus may also be considered as one of the countries to register the IP as it offers a comprehensive system that guarantees that IPs are satisfactory protected both at a European and an international level.
Trade marks / Service Marks/ Designs
As far as Trademarks/ Services Marks and Designs are concerned, protection is granted in the following ways:
– Registration under the provisions of capital 268 offering protection at a National level.
– European Regulation 207/2009 of 26 February 2009 on the Community Trademark and European Regulation 6/2002 of 12 December 2001 on the Community Design offer via Cyprus uniform protection throughout the territory of the European Union.
– Cyprus is a signatory to the Paris Treaty on the Protection of Industrial Property, as administered by WIPO and a party to the Madrid Protocol, offers global protection of trademarks, service marks and designs.
– Copyrights are protected under Law N.59/76 on the Protection of Intellectual Property which offers protection at a national level.
– Cyprus being a signatory to the Bern Convention for the Protection of Literary and Artistic Works which covers a broad range of rights, including software copyrights. This guarantees protection to all the Convention member states with no further action being required.
As far as patents are concerned, a new invention is protected in the following ways in Cyprus:
– A national patent certificate is granted by the Department of Registrar of Companies and Official Receiver.
– A European Patent certificate issued by the European Patent Office.
– An international Patent certificate under the provisions of the Patent Cooperation Treaty, administered by the World Intellectual Property Organization (WIPO)