Cyprus IP Box

The heavenly island of Cyprus is known for its sandy beaches, clear blue sea and sunny skies, as well as being a rising force in the financial services sector and its low company tax regime (for example, about a half of the corporate tax in Israel!). 

That's a great starting point to every company that wishes to create additional applications for saved capital such as furthering R&D or investing in any kind of property (intangible and tangible).  But that's not all Cyprus offers to companies and especially for foreign (non-Cypriot) technology companies. Cyprus offers such companies a special tailored program that allows them to enjoy significant tax discounts, beyond Cyprus's already attractive tax regime. This program is called "The Intellectual Property (IP) Box" scheme.

In short, the IP Box scheme, as amended and applied from 1st July 2016 onwards is aligned with the provisions of Action 5 of the OECD’s Base Erosion Profit Shifting (BEPS) project. 

The IP Box complies with the provisions of the modified "nexus approach", whereby for an intangible asset to qualify for the benefits of the regime, there needs to be a direct link between the qualifying income and the qualifying expenses contributing to that income. 

As a result, an amount equal to maximum 80% of the qualifying profits earned from qualifying intangible assets can be allowed as a tax-deductible expense.  The qualifying intangible assets for the scheme's benefits include patents (as defined by the Cypriot Patent Law), computer software and other IP assets that are new, non obvious, and useful.  Lately, Israeli technology and innovation-oriented companies have shown an increased interest of the Cypriot IP box’s benefits and began analyzing their IP assets and commercial and licensing practice in order to qualify with the scheme’s demands. 

While accompanying, mentoring and consulting executives, start-ups and technology companies in building and reconstructing their IP and innovation strategies, one must address the aspect of various territories that offer incentives and benefits for building a thorough IP strategy, among many other aspects.  At this point we want to stress out the fact that the IP Box even though it is simple in its explanation it needs proper professional tax planning and record keeping. In addition, a tax ruling in advance is always advisable. 

* This article is not a legal advice and should be considered and/or relied upon as such. 

For further reading and an example: https://dmarinou.com.cy/cyprus-intellectual-property/.