Cyprus: Expected Changes To Taxation Of IP: Reasoning And Further Steps.

Last Updated: 23 February 2016
Article by Stella Koukounis

Intangible assets are steadily becoming the most valuable assets of an organisation, often accounting for over 60% of a company's value. The reason is simple; strong brands influence customers' decision-making process, and ensure that premium prices can be charged.  Intangible assets including trademarks, brands, patents, copyright etc. (IP) are constantly swotted and refreshed to respond to evolving customer trends and to keep ahead of the competition, thereby increasing their net-worth. But it is often hard to source information about the financial aspects of the IP being monitored and managed. For example, the amount that has been invested in IP is not always accessible. This is largely due to the intangible nature of IP assets and the difficulty in quantifying effort made in creating and developing IP. At the same time, financial services centres including the UK, Luxembourg, Ireland, and as of 2012, Cyprus, have introduced and applied favourable tax treatment for profits generated from IP exploitation; and rightly so, given the post-millennium digitalisation of communications, technology, design, production and services.  But following years of loose regulation of the taxation of income generated by IP, and within a wider framework of combating tax evasion at the wake of the worst economic decline modern world has been facing since 2008, the OECD have decided to take action.

Action 5 of the Base Erosion and Profit Shifting (BEPS) was designed to strengthen "the substantial activity requirement used to assess preferential regimes so as to realign taxation of profits with substantial activities". In short, Action 5 was drawn up to bring an end to aggressive tax planning,   that allowed the application of a favourable tax rate on income generated from IP exploitation in the absence of evidence of expenditure incurred by the taxpayer for development of IP linked with that income. For this and other substance-related reasons, OECD in coordination with the G20 countries, have developed in 2015 the concept of the 'modified nexus' approach that "only allows a taxpayer to benefit from an IP regime to the extent that it can show that it itself incurred expenditures, such as R&D, which gave rise to the IP income."

Following consultation received on the applicability of the 'modified nexus' the decision is for countries that have IP regimes inconsistent with the said approach to take steps to amend them. Moreover, a timeline has been adopted so that there can be no new entrants (i.e., new taxpayers or new IP assets) to such IP regimes after June 30, 2016. Taxpayers benefiting from existing regimes that do not comply with the modified nexus approach will not be able to receive any additional tax benefits from those regimes after June 30, 2021.

Cyprus via an announcement of the Ministry of Finance on 30th December 2015 will be amending its existing IP regime to comply with the 'modified nexus' approach, effective July 2016. The amendments, although currently being drafted, are expected to address the following:

  1. Only expenditures incurred for improving the IP asset after it was acquired would be treated as qualifying expenditures. This is to avoid harmful tax practices associated with acquisition costs. Acquisition costs are, however, expected to be included in overall expenditures and would therefore reduce the portion of qualifying expenditures compared to overall expenditures (which in turn would reduce the income that could benefit from an IP regime). Consequently, if a taxpayer does not continue to develop acquired IP (for example through proven R&D), there will effectively be no benefit under an OECD-compliant IP regime (the new laws). Even where the taxpayer continues to develop the IP, it is expected for benefits to be reduced compared to the benefits currently available under the existing IP regime.
  2. Amendments are expected to provide for a practical approach to tracking and tracing R&D expenditures, particularly those incurred prior to the adoption of the 'modified nexus' approach. This is expected to take the form of spontaneous and compulsory exchange of information on tax rulings issued on the matter.
  3. Safeguards are expected to be adopted in the amended law that prevent taxpayers from inappropriately benefiting from the grandfathering rules.
  4. The interpretation of qualifying IP assets is expected to become narrower.

At the moment, the IP box regime in Cyprus defines IP qualifying assets to include trademarks (which are the cornerstone of branding management for organisations) as well as patents and copyright. It is anticipated that following the amendments of July 1st 2016, trademarks could be excluded from the list of qualified IP. This was the significant give-away that countries promoting IP box regimes had to settle for in order for IP box regime to survive.

Therefore, for organisations and taxpayers that benefit from branding awareness campaigns developed at the back of designed and legally protected trademarks, now is the right time to structure their IP strategy in a way that continues to be beneficial for them until 30th June 2021. It is certainly hoped that trademarks survive the proposed amendments given that they represent possibly the most direct means of communicating a brand with customers.

For more information on developing a sound IP strategy for your organisation, feel free to contact Stella Koukounis at or George Vrikis at who can advise on the options available.

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.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.