IA & IP Income Tax Law Amendments: A new structuring product from Cyprus
Cyprus recently amended its income tax laws to introduce exemptions relating to income from intangible assets (IAs) and intellectual property (IP) rights, to create what is commonly referred to as an "IP rights box". The amendments became effective January 1, 2012, and apply to all expenditure for acquisition as well as development of qualifying assets incurred by a person carrying on a business. IP projects are ideal for cross-border planning because of the mobility of IP rights, which can be easily transferred between different jurisdictions and tax systems.
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Summary of the Main Changes Introduced
Capitalization and Tax Deductible Capital Allowances
The cost of acquiring as well as developing a relevant IA or IP right held by a Cyprus company may now be capitalized and amortized for tax purposes on a straight-line basis over five years. Under the previous regime, tax allowable amortization was based on the estimated useful life of the underlying asset.

Exemption of Profits from Exploitation and of Gains on Disposal
Eighty percent of profits earned from the use of relevant IAs and IP rights (including any compensation for infringement), and of gains realized on disposal, are tax exempt in Cyprus.

The Lowest Effective Tax Rate in Europe
The taxable profits subject to the 80% exemption are calculated after allowing for costs borne exclusively in generating the relevant income. These include:
  • Tax deductible amortization of the assets (as described above)
  • Financing costs for their acquisition or development
  • Any other directly attributable expenses.
Applying the Cyprus corporate income tax rate of 10% results in an effective tax rate, after allowable deductions, of well below 2%, which is the lowest available from comparable regimes in other reputable financial centers of the EU.
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The Benefits
Structure Simplification
Significant tax savings can be achieved by placing ownership of the relevant assets directly in the hands of a Cyprus tax resident company. This does away with the need to have a person in a low or zero tax jurisdiction acting as the ultimate owner and licensor, thus reducing bureaucracy and maintenance costs.

Added Substance
Structure simplification in turn provides added substance, as it:
  • Eradicates intermediary licensing parties whose business substance, other than as a vehicle to avoid tax, may prove difficult and costly to achieve;
  • Places the ultimate holder–licensor in Cyprus, which is an OECD white-listed jurisdiction with a tax regime fully approved by the European Union.
Added Tax and Legal Benefits
With Cyprus’s ever-expanding network of double tax avoidance agreements (currently with 46 countries), its full implementation of EU Directives, including the Royalty Directive, and its attractive tax system, the new regime provides very attractive opportunities for structuring the exploitation of relevant assets. Among them:
  • Transfer of the relevant assets to Cyprus from existing holders will not result in any Cyprus tax implications and, in most cases, no foreign tax implications as usually the immediate preceding and ultimate holder is usually situated in zero-tax jurisdictions.
  • Regime benefits are available immediately on transfer of ownership of the assets.
  • Treaty protection and implementation of EU Directives will result in reduction or even elimination of withholding taxes on the royalty income of the Cyprus IP holder.
  • Dividends emanating from such profits earned by a Cyprus tax resident company paid out to non-tax-resident shareholders are exempt from any form of Cyprus taxation.
Finally, jurisdictional and legal protection are enhanced because IAs and IP rights are well defined and protected by:
  • Cyprus’s common law system and relevant statutes
  • Implementation of EU regulations and Directives
  • Cyprus’s full participation in and conclusion of relevant international bodies and conventions.
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How Amicorp Can Assist You
In business since 1992, Amicorp operates in 28 countries globally. We specialize in business and knowledge process outsourcing to provide innovative solutions to meet our clients’ individual needs.

In cooperation with globally recognized professional intermediaries, Amicorp assesses and becomes thoroughly familiar with your requirements and assists through its extensive experiences in IP structure design. We then assume structure implementation, management and ongoing maintenance on a fully integrated turnkey basis, inspiring your confidence in us and ensuring your complete peace of mind.

For further information on using Cyprus limited companies for your structuring requirements, please contact your nearest Amicorp office or Amicorp Cyprus directly:
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Apollon Athanasiades
Amicorp Cyprus

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