I recently came across a post on LinkedIn that said the cast of Friends makes more money in syndication today than they did in the show’s final season in 2004 when they each earned $18 million for 18 episodes, writes George Ayiomamitis, Managing Director of Sovereign Trust (Cyprus) Ltd.
It said: “At the time of their syndication negotiations, the show executives agreed that each cast member would receive 2% of the show’s back-end profits. According to several reports, the hit series continues to generate massive revenue and makes Warner Bros around $1 billion every year. That means each cast member pulls in around $20 million every year.”
I have no way of knowing what structure Warner Bros or the stars of Friends have in place for its royalty streaming, but this post did serve to drive home the immense potential value of Intellectual Property (IP) – both for an organisation and for individuals.
Choosing the right location for the centralisation and management of IP is a highly important commercial decision. Cyprus offers a highly efficient IP tax regime that is coupled with the protections afforded by an EU Member State, as well as being a signatory to all major international IP treaties and protocols.
IP can take several forms: patented inventions; and copyrights, which can include literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications and software programmes.
Royalties are the payments of licence fees or commissions by one individual or entity to another for the use of IP. The aim is to generate the income arising from these rights in the most tax efficient manner possible. Cyprus can be very attractive for establishing a royalty company thanks to its competitive tax regime, access to EU Directives and its extensive network of Double Taxation Agreements (DTAs).
EU directives and regulations relating to IP protection apply and have been introduced into Cyprus domestic legislation. With a single IP registration process, IP rights owned by Cyprus companies enjoy full protection in all other EU Member States but IPs need not be registered in Cyprus in order to benefit from the IP regime.
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.
Sovereign Trust (Cyprus) can provide cost effective advice to clients on the acquisition, exploitation, use and enforcement of IP rights on both a domestic and cross-border basis. We can also provide strategic advice to both established and developing companies.