IP-intensive companies and R&D activities are key drivers of growth and employment. To attract such companies in Cyprus, the Cyprus IP Regime was modernized in line with the requirements of the BEPS Project of the OECD. The revised regime provides tax incentives for research and development (R&D) activities, provided that they are carried out according to certain principles set out in the law.
If properly structured and by taking advantage of the Cyprus IP Regime provisions, the effective tax rate of a Cyprus IP company can be as low as 2,5%. This generally applies to companies who either develop the IP themselves or outsource the development of their IP to an unrelated company. Companies who acquire the IP or outsource its development to a related party can still benefit from the IP regime but to a lesser extent.
The IP Regime mainly applies to royalties and similar income generated from patents, computer software and similar intangible assets. The overall qualifying income generated from qualifying intangibles is multiplied by the Nexus Ratio and the resulting figure is eligible to an 80% tax exemption.
Effectively, a qualifying taxpayer that generates the IP or outsources its development to a non-related party, would have a high ratio up to 100%. On the other hand, a taxpayer that acquires the IP asset or outsources its development to a related party would have a much smaller ratio, thus a much lower tax benefit.
WE CAN HELP
We can review your situation and advice you how to qualify under the Cyprus IP Regime. Moreover, we can handle the relevant tax compliance and track your IP calculations in line with relevant regulations and calculate your IP deductible expense.
Head of Tax Services