Intellectual Property (IP) can be one of the most valuable assets of an organization. Choosing the right location for the centralization and management of IP is a very important strategic business decision. The ideal location to establish an IP structure is one that can serve the organization's business strategies/model, safeguard and protect its IP and contribute to its tax optimization.
Overall Cyprus IP Box regimes provides an effective tax rate of 2.5% - the lowest in the EU! By exempting from corporation tax the 80% of royalty profit, the other 20% of the IP income after deducting all costs relating to the generation of the income is subject to 12,5% corporate tax. Applying the Cyprus corporate income tax rate of 12.5% produces an effective tax rate of 2,5% of the net income.
Practical Example - Taxation of Royalty Income
A Cyprus tax resident company derives royalty income amounting to €100.000 and incurs directly related expenses of €40.000. Under the IP Regime the royalty income will be taxed as follows:
This rate compares very favorably with the competition: the United Kingdom's optional new "patent box" regime gives an effective rate of 10% on relevant income. The Luxembourg and Netherlands schemes are somewhat better, with effective tax rates of 5.76% and 5% respectively, but they are both considerably less beneficial than Cyprus.
Cyprus IP Regime Summary
- 80% tax exemption on profits derived from the use or sale of IP
- Competitive amortization provision over a 5 year period
- Effective Tax rate of 2,50% or less
- Gross IP income reduced by expenses incurred for the production of IP Income
- All intangible assets are eligible under the law.
- Both internally developed or acquired assets are treated the same
- There is no limitation of the place of research and development
- Portfolio of IPs can be registered outside Cyprus
Our Formation Package
- Registered Address and Agent
- Company Secretarial Maintenance
- Government fees
- Certificate of Incorporation
- Memorandum & Articles of Association
- Appointment of First Directors
- Consent Actions of the Board of Directors
- Share Certificates
- Register of Directors and Members
- Company Seal
We also offer Nominee and Management Services (Substance requirements) along with bank account opening and international tax planning.
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.