In May 2012 the amendments made to the income tax law in Cyprus brought a new regime for taxation of profits arising from intellectual property rights. This paved the way for Cyprus to become one of the most attractive jurisdictions for holding intellectual property rights.
Cyprus is signatory to a number of international conventions and protocols governing the protection and enforcement of intellectual property. The country’s sound legal and regulatory framework makes it an ideal choice for international corporations that want a regulated jurisdiction with enforceable property rights and enhanced tax advantages.
With a broad network of double tax treaties, and the added assurance and security of being a full member of the European Union, Cyprus can offer the ideal structuring solution for international intellectual property asset holdings and management.
The Cyprus IP box offers exceptional tax advantages compared to other European countries which have similar incentives. Businesses with revenue generating assets, or ones which are embarking on development of new technology and engaged in research and development, can consider the merits of operating out of Cyprus. First class asset protection and generous tax benefits mean that Cyprus can offer the ideal springboard to any size company expanding their international operations.
In order to benefit from the IP tax treatment, assets need to be held by a Cyprus company and qualify as an IP asset under the definitions of the relevant Cyprus IP laws. It is not, however, a requirement for IP assets to be registered in Cyprus, and hence registration of the IP asset can take place in any jurisdiction.
Cyprus has a sound legal framework based on the English legal system and the principles of common law and equity. The legal system has been developed to safeguard IP rights under various pieces of local legislation, and also at the European Union and international levels.
The laws in Cyprus concerning intellectual property are the following:
- The Intellectual Property Law 59/76 (as amended by Laws 63/77, 18/93, 54/99, 12/2001, 128/2002 & 2004, 123/2006 and 181/2007)
- The Patent Rights Law 16 (I) 1998
- The Trademarks Law Cap 268 (as amended by Laws 63/62, 69/71, 206/90 & Circular No 5062)
- The Partnerships and Trade Names Law, Cap 116 (as amended by Laws 77/77, 54(I)11, 146(1)/2011 & circular No 3374)
The Cyprus Registrar of Companies acts as receiving office for the European Patent Office. Cyprus has adopted a number of protocols and signed agreements for the protection of intellectual property. These include membership/signatory to:
- World Intellectual Property Organization (WIPO)
- The Madrid Agreement Concerning the International Registration of Marks and Protocol to the Madrid Agreement
- The Patent Cooperation Treaty
- Paris Convention for the Protection of Industrial Property
Through the new IP Box, there is 80% exemption on corporate tax profits derived from use of the intellectual property. The remaining 20% is taxed at the current corporation tax rate of 12.5%, making the effective rate of tax 2.5%. In some cases this can also be reduced further.
During the disposal of intellectual property, 80% of capital gains are exempt from tax, with the remainder taxed at 12.5%. By carrying out a share disposal of the holding company rather than the asset, this can further reduce the tax on capital gains to nil, since there is no tax on profits made from sales of shares in Cyprus (provided the company does not hold Cyprus real estate).
There are also significant cash flow benefits as a result of the new writing down allowances for intellectual property: 20% straight line writing down allowances starting from year of development or acquisition is now permitted. Bringing cash flow advantages especially for high valued assets.
Cyprus is signatory to over 50 double tax treaties, a number of which have no withholding tax on royalty income and others ranging typically between 5% and 10%. As a result, this makes Cyprus an ideal jurisdiction for administering IP.
FOCUS ON CYPRUS
In todays globalized world Cyprus has established itself as one of the most attractive jurisdictions for international tax planning. A member of the Eurozone, the island has linked its global network of double taxation avoidance treaties with outstanding holding, shipping and intellectual property regimes, and one of the lowest tax rates in the European Union, set at a flat rate of 12.5%.
This powerful combination includes the following advantages:
- Full participation exemption for tax resident companies on dividend income, subject to non-stringent conditions
- No Cyprus withholding taxes on payments of dividends, interest or royalties irrespective of recipient
- No taxation on profits from the sale of securities (no minimum holding period or (percentage)
- Unilateral tax credit relief irrespective of the existence of a tax treaty OECD white labelled, Cyprus has aligned its taxation system with EU and OECD requirements on elimination of harmful tax practices, and has implemented procedures enabling the exchange of tax information in its local legislation and double taxation agreements.
Cyprus has implemented strict Anti-Money Laundering legislation in line with international conventions and has consistently achieved high rankings between EU Members in terms of compliance with AML guidelines and practices, as evaluated by Moneyval and the Council of Europe.
With an abundance of professionals and a highly skilled workforce, as well as an average of 300 days of sunshine in a year, Cyprus is the ideal head office location to a number of global corporations and conglomerates. Offshore discoveries of oil and gas also give Cyprus the opportunity to transform itself into the energy hub of the Eastern Mediterranean.
For more information on how to set up business in Cyprus, or structuring your international intellectual asset holdings on Cyprus contact: