Most Read Contributor in British Virgin Islands, January 2017
On 14 October 2016 the Cyprus Income Tax Law
(ITL) was amended, effective as from 1
July 2016, introducing a new IP box regime. The new provisions
align the Cyprus offering on the taxation of the income from the
exploitation or sale of intangible assets with the provisions of
Action 5 of the OECD/G20 Base Erosion and Profit Shifting
IP Box Regime
In accordance with the OECD BEPS Action 5 report, Cyprus has
abolished the existing Cyprus IP box, with effect from 30 June
2016, with transitional rules applying until 30 June 2021 for
companies already making use of the old regime (applicable with
restrictions). The new Cyprus IP box which has been introduced and
is effective as from 1 July 2016 provides for a 80 per cent
deduction for qualifying profits from qualifying IP. This results
in an effective tax of 12.5 per cent (which is the headline
corporate tax rate in Cyprus) on only 20 per cent of the qualifying
profits. Qualifying IP types will include those intellectual
property assets developed by a person as a result of research and
development activities such as patents and copyrighted software,
whereas marketing related IP such as trademarks, image rights and
brand names will not qualify. Qualifying profits will be determined
under the OECD/G20 BEPS Action 5 nexus approach.
For companies benefitting from the old regime, there are phase
out provisions in accordance with which companies may continue to
claim the old benefits until 30 June 2021, with respect to
intangible assets which (ii) were acquired before 2 January 2016 or
(ii) were acquired directly or indirectly from a related person
during the period from 2 January 2016 until 30 June 2016 and at the
time of their acquisition were benefiting under the IP Box regime
or under an equivalent EU scheme or (ii) were acquired from an
unrelated person or developed during the period from 2 January 2016
until 30 June 2016. A shorter transitional period till 31 December
2016 applies for IPs acquired directly or indirectly from a related
person during the period from 2 January 2016 till 30 June 2016. In
all cases, intangible assets qualifying for the transitional
rules are those which as at 30 June 2016 either generated income or
their development has been completed.
The amendments align Cyprus with international developments on
substance and economic activity, while maintaining the flexibility
and tax efficiency for which the jurisdiction has come to be known
and recognised. The new IP box regime retains the 80 per cent
deduction and the benefit of an effective corporate tax rate of 2.5
per cent but introduces economic filters for the type of asset and
income that will qualify. In conjunction with the tax perks
introduced for managers earning over €100,000 per annum moving
to Cyprus (for whom a 50 per cent deduction will apply for the
first ten years) and the new non-domicile rules exempting
qualifying Cyprus residents from defence tax on interest, rents and
dividends, the new IP tax regime is expected to entice companies to
physically bring their research and development ventures, staff and
knowhow, and set up in Cyprus to benefit from a comprehensive tax
friendly, EU and OECD compliant package.
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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