In brief

On 17 July 2020 the Cyprus Parliament voted to amend certain provisions relating to all types of capitalnature intangible assets (other than Intellectual Property ("IP") within the old Cyprus IP box and goodwill), the "Intangible Assets", with effect as from 1 January 2020. The amendments will become law following publication in the Cyprus Gazette which is expected to occur soon. The said amendments are:

  • Abolition of the requirement to prepare a balancing statement on disposal of Intangible Assets, and
  • Clarification of future usage of any carry forward tax amortisation capacity not claimed in a tax year, i.e. spreading this over the remaining Useful Economic Life ("UEL") of the Intangible Asset(s).

In detail

The current income tax legislation provides that tax amortisation may be electively claimed on capital-nature expenditure incurred for the acquisition and / or development of Intangible Assets by a person carrying on a business.

Specifically, tax amortisation can be claimed in a reasonable manner (typically straight-line) over the UEL of the Intangible Asset as this is determined in accordance with accepted accounting principles, with a maximum period of 20 years. Tax amortisation is annually elective in that the taxpayer may annually take anything between zero and the full eligible amount. The current provisions are silent as to whether the unused tax amortisation can be carried forward and be used in subsequent tax years.

Under the current Cyprus income tax legislation, on disposal of an Intangible Asset a balancing statement needs to be prepared by the taxpayer. The balancing statement compares the disposal proceeds to the asset's tax written down value which is the amount of capital-nature expenditure less cumulative tax amortisation claimed. When the disposal proceeds exceed the tax written down value a taxable 'balancing addition' results in which case such 'balancing addition' cannot exceed the amount of cumulative tax amortisation previously claimed. When the disposal proceeds are lower than the tax written down value a tax-deductible 'balancing deduction' results which equals the difference between the tax written down value and the disposal proceeds.

Following the above amendment, with effect as from 1 January 2020:

  • The requirement to prepare a balancing statement on disposal of Intangible Assets is abolished, and
  • The carry forward to future tax years of any tax amortisation capacity not claimed in a tax year is through spreading this over the remaining UEL of the Intangible Asset(s).

The takeaway

The abolition of the balancing statement on Intangible Assets, coupled with the fact that Cyprus does not tax any abovecost gains realised upon disposal of capital-nature Intangible Assets, is a welcome development for those companies wishing to acquire or develop existing high-potential Intangible Assets as well as for start-ups.

Further, the clarification in regards to the mode of utilisation of unused tax amortisation capacity provides certainty to the taxpayers in that any unused tax amortisation in a specific tax year can be carried forward and be used in subsequent tax years

Existing Cyprus IP companies should review their calculations for 2020 in order to assess whether the above amendments have an impact on their taxable income within the upcoming 31 July 2020 deadline for the submission of the 2020 provisional corporate income tax return and making the first 2020 provisional corporate income tax instalment payment.

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.