The intellectual property (IP) associated with a business name or system can be one of its most valuable assets – but only if it is properly protected. Any business that wishes to establish a national or international identity should take steps to protect the use of its name, logo or other IP, such as patent rights, formulae/processes, designs, trademarks, franchises, licence agreements, “know-how” and copyrights. Given the importance of IP to modern businesses, Sovereign has established an intellectual property division that specialises in registration, monitoring, advice and proactive assistance. In 2012 Cyprus introduced a package of incentives and tax exemptions relating to income from intellectual property rights, aimed at stimulating investment in research and development. The new provisions provide exemptions from tax of the income related to IP, including IP acquired or developed before 2012, as follows:
- 80% of worldwide royalty income generated from IP owned by Cypriot resident companies;
- 80% of profit generated from the disposal of IP owned by Cypriot resident companies;
- Capital expenditure for the acquisition or development of IP can be claimed as a tax deduction in the year in which it was incurred and the immediate four following years.
The amount subject to tax under the new rules is calculated by deducting the write down allowance, the costs (including interest) of financing the acquisition or development of the assets and any other direct expenses from the revenue earned. Applying the Cyprus corporate income tax rate of 12.5% produces an effective tax rate of 2.5% of the net income.