Cyprus: The Tax Efficient IP Location - June 2021
In the modern world, intellectual property (IP) can be one of the most valuable assets of any organisation. Choosing the right jurisdiction to hold and develop IP is a key strategic decision for any company. It is essential that the chosen location is one that can serve the organisation’s business model, safeguard its IP and also optimise IP management in a tax efficient manner.
Business Development Director, Cyprus
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With an efficient taxation system, a healthy business environment, a diverse collection of international IP rights and taxation treaties, as well as compliance with EU, OECD, and WIPO standards, Cyprus provides a very safe and attractive IP destination for international businesses to securely and efficiently structure their IP assets. In particular, its recently updated IP Box regime provides opportunities for international companies and investors to gain immediate financial benefits and full international protection of these assets.
The main features of the Cyprus IP Box are:
- 80% of any profit resulting from the disposal of relevant intangible assets is disregarded for tax purposes.
- 80% of the profit earned from the use of intangible assets is deducted for tax purposes. This means that only 20% of IP income is taxed at the corporate tax rate of 12.5%. Cyprus-resident companies can see an effective tax rate on IP assets as low as 2.5%.
- 0% tax on capital nature transactions for disposal of intangible assets. The changes became effective from 1 January 2020 and the obligation to prepare a balancing statement upon a transfer or sale of an intangible asset is abolished.
- Capital expenditure related to IP acquisition or development may be deducted in the first tax year in which the expense was incurred as well as in the subsequent 4 years.
1. A strategic location offering high quality of life
Strategically located at the crossroads of Europe, Africa and the Middle East, Cyprus is the destination of choice for businesses looking to be connected across multiple continents and markets. In addition, affordable cost of living, low crime rates and a leading healthcare system make Cyprus an ideal jurisdiction for corporate headquartering.
2. An internationally recognised financial and fintech centre
Both the banking sector and the fully comprehensive FX industry in Cyprus are focused on technological development. Regulators and competent authorities take a positive pro-business approach to facilitating fintech activity – all of which offers optimal conditions for new and existing players.
3. A business innovation and acceleration hub
The Cyprus Exchange & Securities Commission launched the ‘Innovation Hub’ in 2018, a regulatory sandbox to enable a seamless transfer of information as to how existing regulation applies to new products or business models, whilst also helping identify what regulatory frameworks might need to be established to meet evolving needs.
4. A modern immigration framework
As a member of the European Union, citizens from all European Economic Area member states can freely work in Cyprus. In addition, under the new Immigration Framework initiative, tech companies are entitled to employ up to 15 third-country nationals as directors and middle management executives, and any number of qualified third-country nationals in possession of required ICT skills. There are no restrictions on the maximum duration of stay of third-country nationals, and employees with residence and employment permits have direct access to family reunification with their spouse and minor children, provided that the necessary conditions are met.
5. Personal income tax incentives
On top of various attractive tax rates for expatriates in Cyprus, tax residents of Cyprus may also receive either a 50% or 20% tax deduction on personal income tax, if certain conditions are met. The deduction can be granted for 10 years. Non-domiciled persons who become Cyprus tax residents can obtain tax exemption on dividends and interests for a period of 17 years. In addition, there is no estate duty, wealth tax, gift tax or inheritance tax in Cyprus.
What is Next?
The Cyprus IP Box regime is one of the most attractive in Europe and relocating a company’s headquarters to the island can come with significant benefits.
Our specialist team in Cyprus assists international businesses to take advantage of the favourable Intellectual Property Law of Cyprus and to protect their IP assets and the maximise the financial benefits for the company.