Cyprus is indeed a very attractive location for the establishment of an IP holding and development company, offering an efficient tax rate as well as the legal protection afforded by the EU Member States and by the signatories of all major IP treaties and protocols.
On 14 October 2016, the Cyprus Parliament voted for the old IP Box regime in Cyprus to be subject to amendments and align with the Provisions of Action 5 of the BEPS project.
The old IP regime closed from 30 June 2016, however, it can be still utilised up to 30 June 2021, subject to grandfathering rules applied.
The grandfathering rules can apply provided that taxpayers have intangible assets that were already used in the old regime.
From 1 July 2021, the old IP regime is fully abolished, and it is replaced by the new IP regime.
Under the new Cyprus IP regime, 80% of the qualifying profits generated from the qualifying assets (QA) is deemed to be a tax-deductible expense for qualifying taxpayers, resulting in an effective tax rate of as low as 2.5%.
In calculating the qualifying profits, the new regime adopts the ‘Nexus' approach.
According to this approach, the level of the qualifying profits is positively correlated to the extent the claimant performs R&D activities to develop the QA within the same company.
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