Structuring IP through Cyprus Company

2015-01-08

The new regime provides very attractive opportunities for structuring the exploitation of IP assets through Cyprus resident owners of IP, especially in the context of Cyprus’s extensive network of double tax treaties under which foreign withholding taxes on royalty income are either eliminated altogether or substantially reduced. In most cases immediate economic and tax savings can be achieved by transferring intellectual rights to Cyprus resident companies in order to take advantage the new exceptions.
The amendments of the Income Tax Laws are effective from 1 January 2012 and apply to all expenditure for the acquisition or development of intangible assets incurred by a person carrying on a business, including all IP that falls within the meaning of: -Patent law of 1998 as amended -Intellectual rights law of 1976 as amended - Trademarks Law, Cap. 268 as amended.

More specifically the IP tax regime covers a wide range of intangibles including:Patents,trademarks/service marks,designs/models, internet domain names,software copyrights, secret formulas, knowhow, work in process R&D, lists, rights related to scientific, literary or artistic work, rights related to industrial or commercial work.
The above is a non-exhaustive list.

Tax Benefits

1. Five year amortization period
Capital acquisition or development of IP can be claimed as tax allowable deduction allocated equally in the tax year in which the expenditure was incurred and the four subsequent years (i.e 20 % deduction per year).

2. 80% exemption of profits from disposal of IP rights
Notional deduction equal to 80 % from the profit generated from the disposal of IP can be claimed in the tax computation of the Cyprus Company.

3. 80% exemption on royalty income
80 % of the profit from usage of the intangible asset, after deducting, writing down allowance, the costs (including interest) of financing the acquisition or development of the asset and any directly related expenses, are exempted thus leaving the remainder of the profit to be taxed under corporation tax at 10 % for 20 12 and 12.5% onwards produce an effective tax rate of well below than 2 % for the year 20 12 and below 2.5% for 2012 and onwards of the gross income.


Also complemented with the beneficial tax provisions, that render the Cyprus tax system as one of the most favorable in the EU, featuring a 12.5% corporate tax rate, no withholding tax on outgoing payments (interest, dividends, royalties) and no exit taxes.