On 24 May 2012, the House of Representatives of Cyprus approved
a number of important amending laws in relation to the intellectual
property regime, interest expense deductibility, group loss relief,
and deemed distribution of dividends. It should be noted these
changes have retrospective effect from 1 January 2012.
These long awaited amendments will create significant
opportunities for Cyprus to become an even more attractive
intellectual property holding jurisdiction, and overall are
expected to change the EU Intellectual Property landscape.
A summary of the relevant amendments follows below:
Income Tax Law
Intellectual property rights
The meaning of patent rights and intellectual property (IP)
rights has been amended to correspond with the definition in the
Patent Rights Law of 1998, the Intellectual Property Law of 1976
and the Law regarding Trademarks. The definition of IP now includes
all intangible assets, including copyrights, patents and
trademarks, and thus ensures that all types of IPs will be covered
by the new regime.
Expenses for the acquisition and/or development of intangible
assets is amortised in equal instalments over a five year period.
The new law provides for an 80% exemption on the net profit from
the exploitation of such intangibles, similar to the provisions
existing within Luxembourg tax law.
Net profit is calculated after deducting from the licensing
revenue derived from the intangibles all direct expenses associated
with the production of the income.
The rate of capital allowances on such intangibles has been set
at 20% of the cost of acquisition, with a full year's allowance
allowable in the year of acquisition.
Any profit arising from the disposal of such intangibles will
also benefit from the 80% exemption. As a result, an effective rate
of only 2% can be achieved upon realising a profit on
disposal of IP.
No interest expense restriction will apply in cases where
financing is obtained to acquire shares (whether directly of
indirectly) in a wholly owned subsidiary provided that this
subsidiary does not own any assets which are not used in the
business, irrespective of the tax residency status of the
If the subsidiary does own assets that are not used in the
business, the restriction of interest will only correspond to the
percentage of assets not used in the business.
The rate of capital allowances for any plant and machinery
(excluding private saloon cars) purchased in the tax years 2012,
2013 and 2014 has been set at 20% (previously 10%), unless the rate
of capital allowances on such assets is higher.
For industrial and hotel buildings purchased in the tax years
2012, 2013 and 2014, the capital allowances rate has been set at 7%
Previously the group relief rules applied only to companies
being members of a group for the whole of a tax year.
With the amended legislation, in cases where a company has been
incorporated by its parent company during the tax year, this
company will be deemed to be a member of this group for group
relief purposes for that tax year.
For the purposes of the Income Tax Law, approved Provident
Funds and Pension Funds are those which have been approved by the
Commissioner of Income Tax.
Special Contribution for the Defense
In calculating the profits subject to deemed distribution under
the SCD Law, a deduction will be given for the acquisition of any
plant and machinery purchased in tax years 2012, 2013 and
The definition of plant and machinery is the same as that in
the Income Tax Law and it excludes any saloon cars purchased for
This provision will apply for profits earned in the tax years
2012, 2013 and 2014.
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.
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A Residence Programme ("TRP Rules") has been introduced with effect from 1 July 2013 for individuals who are nationals of the EU, EEA or Switzerland (but not Maltese nationals) in terms of Legal Notice 270 of 2014 and Articles 56(23) and 96 of the (Malta) Income Tax Act, Chapter 123 of the Laws of Malta ("ITA"), and which TRP Rules confer on the successful applicant a special tax status.
On July 30th 2014 the Higher Administrative Court of Luxembourg (Cour Administrative) issued a decision on the application of the Luxembourg intellectual property tax regime.
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