Changes to tax legislation in Cyprus for Intellectual properties, Royalties etc.
The new IP Regime:
- An 80% exemption on royalty income and capital gains upon disposal of IP
- Losses can be carried forward indefinitely
- Gross IP income reduced by expenses incurred for the production of IP income
- Competitive amortization provisions over a 5 year period
- Wide range of qualifying IP rights; Effective Tax rate of 2% or Less!
- Qualifying IP Rights include amongst others:
Patents , trademarks/service marks, designs/models, internet domain names, software copyrights, secret formulae, know-how, work in process R&D, lists, rights related to scientific, literary or artistic work, rights related to industrial or commercial work.
Taxation of Royalty Income (Practical Example)
A Cyprus tax resident company derives royalty income amounting to EUR 100.000 and incurs directly related expenses of EUR 40.000. Under the new IP Regime the royalty income will be taxed as follows:
| Net Income from royalties | (100.000-40.000) | €60.000 |
| 80% Statutory exemption | 60.000×80% | (€48,000} |
| Taxable Income | €12.000 | |
| Tax Liability | 12.000@12.5% | €1.500 |
| Effective tax rate | 2.5% |
Taxation of Disposal of IP Proceeds
A Cyprus tax resident company disposes an IP right for EUR 1.000.000. The cost of acquisition was EUR 600.00 and amortization was claimed for one year. Under the new IP Regime the proceeds from the disposal will be taxed as follows:
| Sales proceeds | €1.000.000 | |
| Less:Costs of acquisition | (€600.000} | |
| €400.000 | ||
| 80% statutory exemption | 400.000×80% | (€320.000) |
| Taxable income | €80.000 | |
| Tax Liability | 80.000@12.5% | €10,000 |
| Effective tax rate | 2.5% |
