Cyprus: The Cyprus Intellectual Property Rights 'Box'

Last Updated: 5 June 2013
Article by Elias Neocleous and Philippos Aristotelous
Most Read Contributor in Cyprus, December 2017


In May 2012 Cyprus introduced a package of measures to promote economic growth which included a number of tax incentives aimed at boosting the island's predominantly service-oriented economy. The most notable of these is a series of incentives and exemptions relating to investment in intellectual property rights, commonly known as an intellectual property rights box ("IP box").

The IP box concept dates back to 2001, when France introduced a reduced rate of tax on revenue or gains deriving from the license, sublicense, sale, or transfer of qualifi ed IP. Belgium, Hungary, Ireland, Luxembourg, Netherlands, Spain and the United Kingdom have also introduced similar schemes. The underlying rationale is to stimulate a flow of investments into the research and development sector by providing tax incentives, which can be justified on the grounds that successful innovation creates benefits for the public at large.

IP box regimes can be broadly divided into two categories. The first category (adopted by France, the Netherlands and the United Kingdom) provides for reduced rates of tax on qualifying income. The second category (adopted by Belgium, Hungary, Luxembourg, Spain and Cyprus) provides for an exemption of a specified proportion of revenues. This second category further subdivides into schemes that exempt a proportion of gross revenues and those that exempt a proportion of net revenues.

Intellectual property projects lend themselves to cross-border planning by reason of the mobility of intellectual property rights, which do not consist of physical assets and so can be easily moved between different jurisdictions and tax systems according to prevailing circumstances and developments in different tax jurisdictions. By amending its tax legislation Cyprus hopes to consolidate its position as a hub for the cross-border holding and exploitation of intellectual property rights.

The amendments to the Income Tax Laws are effective from January 1, 2012 and apply to all expenditure for the acquisition or development of intangible assets incurred by a person carrying on a business. They apply to all categories of intellectual property, including the rights set out in the Patent Law of 1998 as amended, the Intellectual Property Rights Law of 1976 as amended and the Trademarks Law, Cap. 268 as amended.

Principal Features Of The Cyprus IP Box

The principal features of the Cyprus IP box are set out in the following paragraphs.

Five year amortisation period

The cost of acquisition or development of an IP right acquired by a Cyprus company may be capitalised and written off on a straight line basis over five years, giving an annual writing down allowance of 20 percent.

For years prior to 2012 amortisation rates were determined by reference to the estimated useful life of the underlying asset. For example, if a patent had a validity of 20 years its useful life would be deemed to be 20 years and the writing down allowance would be 5 percent per annum.

The acceleration of writing down allowances will significantly defer tax liabilities and result in substantial cash flow benefits, particularly if the value of the IP asset is substantial.

Four-fifths deduction of revenue from exploitation of IP rights

Four-fifths of the profit earned from the use of intangible assets (including any compensation for improper use) is deducted for tax purposes. Therefore, only 20 percent of IP income after deduction of the costs of earning the income (including amortisation), is taken into account.

Applying Cyprus's corporate tax rate of 12.5 percent, among the lowest in the EU, the maximum rate of tax on income earned from IP assets is therefore 2.5 percent. This is half the rate offered by the next most attractive scheme (the Netherlands). However, given the deductibility of expenses including amortisation, most Cyprus companies will suffer an actual rate of less than 2.5 percent.

In the event that IP-related costs and deductions exceed revenue earned from IP assets, the loss may be off set against other income for the year or carried forward.

Tax exemption of dividends resulting from IP activities

Any dividend income generated out of royalty income earned by a Cyprus company and paid to its non-resident shareholders is fully exempt from Cyprus tax of any description.

Four-fifths deduction of profits on disposal of IP rights

Four-fifths of any profit resulting from the disposal of relevant intangible assets is disregarded for tax purposes.

While this is a more generous exemption than is available under any competing regime, in most cases a more beneficial result from the taxpayer's viewpoint can be achieved by holding the assets concerned in a separate company and disposing of the shares in that company, rather than the assets themselves. Th is option would result in full exemption of the gain, as well as stamp duty savings, since gains on disposals of qualifying securities (which includes shares) are exempt from all forms of taxation in Cyprus except to the extent that they derive from the disposal of immovable property located in Cyprus

Comparison With Other European IP Box Regimes

The table below summarises the key differences:

As noted above, Cyprus's IP box regime provides a maximum tax rate of 2.5 percent on income earned from IP assets. The comparable rate in its nearest competitor, the Netherlands, is twice that amount, at 5 percent. Luxembourg (5.76 percent) and Belgium (6.8 percent) are close behind the Netherlands but far behind Cyprus . The Cyprus IP box regime applies to a wider range of income than any other European scheme, most of which restrict benefits to income from patents and supplementary patent certificates. Th ere is no cap on benefits, such as applies in Belgium, Hungary and Spain, there is no requirement regarding self-development of the IP and there are no restrictions on where the expenditure on acquisition or development of IP is incurred . While the French, Hungarian, Luxembourg, Netherlands and United Kingdom schemes off er partial exemption of gains on disposal, the exemptions are less attractive than those provided by the Cyprus scheme, due to limitations on qualifying assets and less generous deduction rates. Furthermore, full exemption can be relatively easily obtained in Cyprus by holding the IP assets in a separate company and disposing of the shares in the company, as described above.

In most comparisons of the benefits offered by different jurisdictions there is a trade-off to be made. One jurisdiction will be better on certain aspects, but another will be better on others, and the differences will have to be assessed and weighed against one another to arrive at the best overall solution. In the case of the IP box regime there is no need for this, as Cyprus is the clear leader on every aspect.

Cyprus IP Structures

Before the IP box regime was introduced a Cyprus licensing arrangement would typically involve a company in a low- or no-tax jurisdiction (the IP owner) which licensed the use of its IP rights to a Cyprus company established for the purpose of acting as an intermediary licensing vehicle. This latter company would sub-license the right to exploit the IP rights to another entity, usually registered and tax resident in a country with a double tax treaty with Cyprus. The royalty fees charged by the IP owner would usually be around 90 percent of the royalty income generated by the Cyprus company, leaving a 10 percent margin subject to Cyprus tax.

However, following the introduction of the IP box, there is no longer a need for a separate IP owner since the Cyprus company can fulfil this role. This will provide substantial tax savings and planning opportunities, and reduce administrative and compliance costs also by eliminating unnecessary bureaucracy.

For example, a Cyprus company can hold the IP asset and enter into licensing agreements with entities located in jurisdictions accessible to low withholding tax rates, whether via a double tax agreement or the EU Interest and Royalties directive, which provides a uniform tax regime for royalties paid throughout Europe. Cyprus has an extensive network of double tax treaties and is also a member of the EU, giving Cyprus resident companies the benefi ts of the Interest and Royalties directive. Cyprus is therefore an ideal location for the establishment and maintenance of the IP owner which will generate royalty income that will be substantially exempt from taxation in Cyprus. There will no longer be any need to maintain a structure involving entities in several jurisdictions, with the costs that that entails . The new rules will also enhance the degree of legal and jurisdictional protection, given that the legal and corporate governance affairs of the IP structure will be governed by the laws of Cyprus, so ensuring an increased level of legal certainty, asset protection and predictability.

Using A Cyprus International Trust As Shareholder Of And Provider Of Finance To The Cyprus IP Owner

Further benefits can be achieved by using a Cyprus International Trust to hold the shares in and provide finance to the Cyprus IP owner. A Cyprus international trust receiving dividends from a Cyprus IP owner (the source of which is royalty income) will not be subject to any form of taxation in Cyprus. At the same time, the trust can accumulate income which can be converted into capital at the end of the year without any Cyprus tax consequences for the trust or its beneficiaries, provided that no beneficiary is a Cyprus tax resident . The Cyprus International Trust can also provide interest- bearing finance to the IP owner for the purpose of acquiring the IP assets or for working capital. While the interest paid by the company will be deductible for tax purposes, it will be exempt in the hands of the trust, which optimizes the structure even further from a tax perspective.


The acquisition of intellectual property rights from anywhere in the world by a Cyprus company is treated as a service rendered to the company which will create an obligation for it to register for VAT and to account for VAT on services received in accordance with the reverse charge mechanism.

If the company charges royalty fees to taxable persons within the European Union area it will also have to register for the EU VAT Information Exchange System.


As the table above demonstrates, Cyprus is the clear European leader on every aspect of its IP taxation regime, from the eff ective rate of tax, through the scope of assets covered, to the freedom from restrictions and limitations.

In most cases immediate economic and tax savings can be accomplished by transferring intellectual rights currently held by entities located in low- or no-tax jurisdictions to Cyprus resident companies in order to take advantage of the new exemptions. The transfer of IP rights into a Cyprus company will not attract any form of taxation in Cyprus and the new benefits and substantial exemptions will become available as soon as the asset is transferred.

The Cyprus IP box provides attractive opportunities for structuring the exploitation of IP assets through Cyprus and in particular through the use of Cyprus-resident IP owners, especially in conjunction with Cyprus's extensive network of double tax treaties, under which withholding tax on royalty income is either eliminated altogether or substantially reduced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Elias Neocleous
Philippos Aristotelous
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions