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Amendments to the taxation of intellectual property rights in Cyprus
A recent Cyprus law provides incentives for intellectual property (IP) rights to be registered in Cyprus Companies. The amendments are effective from January 1, 2012 and apply to all expenditure for the acquisition or development of intangible assets incurred by a person carrying on a business, including all categories of intellectual property.
Main changes
1) Five-year amortization period
Following the amendments, the cost of acquisition or development of an IP right acquired by a Cyprus company may be capitalized and amortized on a straight-line basis over five years.
2) Exemption of profits from exploitation of IP rights
80% of the profit earned from the use of intangible assets (including any compensation for infringement) is disregarded for tax purposes.
Furthermore, any dividend income generated out of royalty income earned by a Cyprus resident company and paid to non-resident shareholders is completely exempt from Cyprus tax of any description.
3) Exemption of gains on disposal of IP rights
80% of any gain resulting from the disposal of relevant intangible assets is disregarded for tax purposes. Please note that complete exemption can arise if disposing the shares of the Company holding the IP rights.
4) Low effective tax rate
The amount subject to tax under the new rules is calculated after deducting amortisation of the assets, interest costs of financing the acquisition or development of the assets and any other direct expenses. By applying the Cyprus corporate income tax rate of 12.5% - one of the lowest in the European Union - it results that the effective tax rate is 2.5% of net income.
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