- Cyprus' New Intellectual Property Tax Planning Regime
- February 18, 2013
- Law Firm: Anastasios Antoniou LLC - Limassol Office
A new tax regime for royalty from Intellectual Property rights in Cyprus, which can be used by global IP owners, allows for as low as 0 to 2% effective tax on profits from such IP rights
The Intellectual Property world is astounded to be afforded with the opportunity of harnessing the tax advantages achieved by using Cyprus’ new IP tax regime. Amendments to Cypriot legislation in 2012 have given rise to tax planning opportunities involving IP. The new tax regime provides for favorable tax treatment in relation to income generated from any type of intellectual property rights, patents and trademarks as well as providing for generous capital allowances for acquisition and development of such rights.
IP covers the following, as a non-exhaustive list:
Copyrights, which may take any of the following forms: Literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes;
Trademarks (and service marks), designs and models that are used or applied on products
How less than 2% effective tax on profit from IP royalties can be achieved
Under the new IP tax regime, 80% of royalty profit generated from IP rights will be exempt from corporation tax. The remaining 20% will be subject to the normal corporation tax rate of 10%. For the purpose of determining the royalty profit the law allows the deduction from the resulting royalty income of all expenses incurred wholly and exclusively for the production of royalty income.
A Cyprus company holding IP rights will be able to write off the capital expenditure made on the acquisition or development of such rights in the first 5 years of use. The company will be able to receive capital allowances of 20% straight line starting from the first year of the use of the asset as well as the subsequent four years of usage. These capital allowances are considered of course tax deductible.
In conclusion, the effective tax rate applicable on the Cyprus IP-holding company will not be higher than a maximum of 2% on its profits from IP royalties. The effective rate can be further reduced by the deduction of the above capital allowances.
Future sales of the IP rights concerned are also covered by Cyprus’ new tax regime, which means that IP owners shall enjoy tax benefits on the income generated from the use of such rights and at the same time be afforded with a tax-efficient exit route in the future, should the need arise.
The Republic of Cyprus has ratified the following Conventions with regard to IP rights:
• The Berne Convention on the Protection of Literary and Artistic Works (Act of Paris 1971), Law 86 of 1979;
• The Paris Convention for the Protection of Industrial Property (Lisbon Act), Law 63 of 1965 and (Stockholm Act), Law 66 of 1983;
• The Convention Establishing the World Intellectual Property Organisation (WIPO), Law 36 of 1984;
• The Nairobi Treaty on the Protection of the Olympic Symbol, Law 9 of 1985;
• The Paris Universal Copyright Convention, Law 151 of 1990;
• The Geneva Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms, Law 21(III) of 1992;
• The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement), Law 16(III) of 1995;
• The European Convention relating to Questions on Copyright Law and Neighbouring Rights in the Framework of Transfrontier Broadcasting by Satellite, Law 29 (III) of 1995;
• The Geneva Trade Marks Law Treaty 1994, Law 12 (III) of 1996;
• The European Patent Convention 1973, Law 26 (III) of 1997;
• The Patent Co-operation Treaty 1970, Law 27 (III) of 1997;
• The Rome Convention for the Protection of Performers and Producers of Phonograms and Broadcasting Organisations of 26 October 1996, Law 14 (III)/1999;
• The Madrid Agreement Concerning the International Registration of Marks of 14 April 1891, as last revised at Stockholm on 14 July 1967 and as amended on 28 September 1979, Law 3(III)/2003;
• The Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks adopted at Madrid on 27 June 1989, Law 4(III)/2003.