Tuesday, 8 November, 2016

Cyprus – Jurisdiction of Choice for Intellectual Property

Following legislative changes in July 2016, Cyprus has re-established its position as a jurisdiction of choice for businesses developing intellectual property (IP).

Cyprus now offers favourable tax treatment for assets such as patents and computer software, with an IP tax regime that meets new EU and OECD rules. On certain so-called ‘qualifying’ intangible assets, businesses can benefit from an effective tax rate as low as 2.5%. Combined with the robust protection for IP that Cyprus offers, this makes it a most attractive location for relevant companies.

So for which companies is this relevant?

One of the main changes put in place to meet international standards of probity was a narrowing of the types of intangible asset that qualify for the tax advantages and therefore the types of business that can benefit. Previously the assets included copyrights, trademarks and service marks and designs or models applicable to products. Now, the range has been limited only to assets which are ‘acquired, developed or exploited by a person to further a business (excluding intellectual property associated with marketing) and which (are) the result of research and development activities’. In layman’s terms, this means assets such as patents, computer software, and other IP assets that are non-obvious, useful and novel.

There are two further restrictions. One is that the person or organisation exploiting the asset must not generate annual gross revenue over €7.5 million, and if part of a group, the group’s revenue must not exceed €50 million. The other is that to benefit from the favourable tax treatment on IP profits, the business must itself have incurred expenditure developing the IP. ‘Shifting’ profits for tax reasons has been outlawed.

For businesses that meet all these criteria, tax treatment is very favourable. 80% of the overall income derived from a qualifying intangible asset is treated as a deductible expense. And ‘overall income’ is broadly defined. It includes royalties, licence fees and capital gains arising from that qualifying intangible asset. This means that, after deduction of direct costs and amortisation over five years, those companies can achieve an effective tax rate that is among the lowest available in the world. Transitional rules allow businesses that enjoyed the more relaxed regime prior to 30 June 2016 to continue benefiting on the same basis until 30 June 2021.

No wonder software and patent businesses looking for a suitable home are choosing Cyprus.

 Please contact Gerard for further information.





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