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Cyprus – The ideal IP holdings jurisdiction
Companies owning intangible assets, such as patents, copyrights etc. are often in need of an IP Holding vehicle through which they will hold these assets, license them for the generation of royalty income and conduct their business activities.
Choosing the jurisdiction of such an IP Holding vehicle requires careful consideration to ensure that there will be adequate asset protection, ideal environment for asset development, tax optimisation and flexibility in the legal framework that this vehicle will operate in.
Cyprus with the introduction of the IP Box regime in 2012 and the subsequent amendments in 2016, to comply with the guidelines of the OECD, has become a major player in the field of IP holding jurisdictions.
In this brochure we shall examine the main features of the amended IP Box tax regime and other factors in order to analyse the importance of the Cyprus IP Holding Company and highlight the benefits it can offer to the international investor.
B. THE PROVISIONS OF THE IP BOX REGIME
The Cyprus IP Box Regime applies on Qualifying IP’s which are developed after the 1st of July 2016. In order for a Cyprus IP Holding Company to benefit from the favourable tax regime it must satisfy certain conditions of the IP Box Regime. According to the Regime, 80% of “Qualifying Profit” generated from Qualifying IP Rights will be considered as a deemed expense for corporation tax purposes. The remaining 20% will be subject to the normal corporation tax rate of 12.5%. Thus, the Qualifying profits will have an effective tax rate of as low as 2.5%. The conditions of the IP Box Regime are analysed in more detail below:
I. Qualifying IP
A qualifying IP means an asset which was acquired, developed or exploited by a person in the course of his business and it is a result of research and development. It also includes assets for which only economic ownership exist.
Qualifying assets under the regime include:
- Patents as defined in the Patents Law
- Computer Software
- Other IP assets which are legally protected and they fall under one of the following:
- Wages and Salaries for research and development
- Direct Costs
- General expenses relating to the facilities used for research and development
- Expenses for supplies relating to research and development
- Expenditure relating to research and development which has been outsourced to an unrelated party
- Cost of acquisition of intangible assets
- Interest paid or payable
- Costs for the acquisition or development of immovable property
- Amounts paid or payable directly or indirectly to a related party to conduct research and development irrespective of whether these amounts relate to a cost sharing agreement
- Cost which cannot be proved that related directly to the Qualifying Asset
- 30% of qualifying expenditure, or
- The total amount for the cost of acquisition and the research and development outsourced to related parties
- Royalties or other amounts in relation to the use of the Qualifying IP
- Any amount received as license for the use of a Qualifying IP
- Any amount received from insurance or compensation in relation to the Qualifying IP
- Embedded income of the Qualifying IP which income derives from the sale of goods, services or procedures relating directly with the Qualifying asset
- All direct or indirect costs incurred in earning the income from the qualifying intangible asset
- The amortization of the cost of the intangible
- Notional Interest Deduction (NID) on equity contributed to finance the development of the qualifying intangible asset
- Bern Convention on the Protection of Literary and Artistic Works.
- Madrid Agreement and Protocol on the Registration of Trademarks at International Level.
- Paris Convention on the Protection of Industrial Property.
- European Community Trademarks.
- Convention Establishing the World Intellectual Property Organisation (“WIPO”).
- The Patent Cooperation Treaty.
- Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms.
- WIPO Performance and Phonograms Treaty.
- Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations.
- Trademark Law Treaty.
- WIPO Beijing Treaty on Audiovisual Performances.
- Providing Tax Optimisation Advice
- Setting up, consulting and management of IP Holding Companies
- Advising and drafting IP transactions including financing, acquisitions, sales and licences
- Registering IP Rights in Cyprus and abroad
- Introduction of real estate agents in Cyprus
- Registration with Migration department
- Accounting and Payroll Services