In late 2016, the Cypriot Parliament approved the laws amending the Income Tax Law with respect to the application of the Cypriot Intellectual Property Regime also known as Cyprus “IP Box” Regime.
The following categories of Intellectual Property qualify under the Cyprus Intellectual Property Law:
- Scientific work/projects, and
- Literary projects including computer programs, and
- Music works/projects, and
- Works of Art including photographs of all kinds, and
- Movies, and
- Data bases, and
- Sound Recordings, and
- Broadcasting, and
- Publications of previously unpublished works, and
- Relating rights (artistic performances).
Please note that according to the provisions of the Law on Intellectual Property the following do not qualify as intellectual property:
- Projects / items that have not been expressed in writing, recorded, listed, registered in any way by electronic or other means, or otherwise displayed in some material form, and/or
- Are not original.
- It is understood that a work is original if it is a personal intellectual creation of its creator and not a copy of an already existing work or draft or model of work. Recognition of protection does not depend on the application of any additional criteria
The legislation in place is aligned with the provisions of the OECD BEPS Action 5 of the Base Erosion and Profit Shifting, (BEPS) plan on Countering Harmful Tax Practices more effectively, considering Transparency and Substance.
Provisions for The New IP-Box Regime
The provisions of the new legislation comply with the modified “nexus approach” which intends to ensure that, in order for a significant proportion of IP income to qualify for benefits, a significant proportion of the actual R & D activities must have been undertaken by the qualifying taxpayer itself.
The law allows as a tax-deductible expense an amount equal to 80% of the qualifying profits earned from qualifying intangible assets.
For each tax year the taxpayer may elect to claim the whole, part or no allowance. In case of a resulting loss, only 20% of the resulting loss could be carried forward or surrendered to other group companies.
Qualifying intangible asset: means an asset which was acquired, developed or exploited by a person in furtherance of his business, (excluding intellectual property associated with marketing), and which is the result of research and development activities and includes intangible assets for which only economic ownership exists.
The provisions of the new IP Box Regime apply only to:
- Patents as defined in the Patents Law,
- Copyrighted software programs, and
- Other intangible assets that are non-obvious, useful, and novel (meaning where the person utilizing them in furtherance of a business does not generate annual gross income of more than €7.500.000 from all intangible assets, (€50.000.000 for a group of companies).
These assets must be certified by a relevant authority either in Cyprus or abroad.
Business names, (including brands), trademarks, image rights and other intellectual property rights used to market products and services are not considered as qualifying intangible assets.
Maintaining Books and Records
Any person who claims benefit under the above Regime is obligated to maintain books and records for income and expenditure for each qualifying intangible asset.
One may utilize the Cyprus IP BOX regime with considerable gains.