The provisions of the new IP Box regime, under some conditions, allow the companies that were benefiting from the old regime to continue to benefit until the end of June 2021.
Cyprus entities will need to assess whether they are eligible to benefit from the new IP Box regime to ensure a smooth transition from the old one. As a general note, Cyprus currently applies the “modified nexus” approach in line with Action 5 of BEPS Action Plan. Such a regime is subject to stricter substance requirements notably proof of hiring employees and conducting R&D in Cyprus.
In particular under the new regime, which applies on qualifying assets developed after 1 July 2016, qualifying profits and qualifying expenditure are taken into account in arriving at the effective tax rate for IP Box profits subject to taxation in Cyprus. This applies mainly in relation to software and patents.
In other words, the tax relief is not fixed or pre-determined as per the previous regime.
Qualifying assets are assets acquired, developed or exploited by a taxpayer in the course of its business which relate to IP, result from research and development expenditure and of which the taxpayer is the economic owner. Qualifying assets for IP purposes generally fall under three categories: computer software, patents and, any IP that satisfies the Cyprus Inland Revenue Commissioner of their ‘innovative' nature.
Ourdedicated Tax Department stands ready to assist clients with navigating this transition. It can also offer advice on eligbility and substance related criteria to ensure that clients are established in a manner that satisfies international tax compliance and acceptance standards.
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.