Cyprus ‘Intellectual Property Box’
Changes to Cyprus’ IP regime were incorporated into the Income Tax Law (ITL) and brought into force in October 2016. The new ‘Intellectual Property Box’ regime provides for favourable tax treatment in relation to income generated from any type of IP rights, patents and trademarks as well as providing for generous capital allowances for acquisition and development of such rights.
Cyprus offers an 80% income tax exemption for worldwide royalty income generated from IP owned by Cypriot resident companies, net of any direct expenses. The remaining 20% will then be subject to the standard corporation tax rate of 12.5%, to give an effective tax rate of 2.5% or less.
It is important to note that the 80% exemption also covers capital gains upon disposal of IP. This allows the owners of the IP rights not only to enjoy tax benefits on the income generated from the use of such rights, but also provides for a tax efficient exit route in the future.
Cyprus imposes no withholding taxes on payments to non-tax resident persons (companies or individuals) in respect of dividends, interest and royalties used outside Cyprus, irrespective of whether the recipient of the payment resides in a treaty country or not. In addition, the EU Directive on Interest and Royalties provides for zero withholding taxes between EU countries and Cyprus also has an extensive worldwide network of double tax treaties.
This provides for excellent profit repatriation opportunities and, when combined with the use of Cyprus companies and its IP regime, positions Cyprus as an ideal IP holding jurisdiction.