Cyprus IP Box Regime

The below rules are applicable as of 1 July 2016.  Prior to this date the old IP Box Regime and the transitional rules were applicable

Qualifying intangible assets

An asset which was acquired, developed or exploited by a person for furtherance of their business (excluding IP associated with marketing) and which is the result of research and development activities and for which economic ownership exists.  These assets are:

  • Patents as defined in the Patents Law

  • Computer software

  • Other IP assets that are legally protected and fall under one of the following:

    • Utility models, IP assets which provide protection to plants an genetic material, orphan drug destinations and extensions of protections for patents

    • Non obvious, useful and novel where the person which utilizes them in furtherance of a business does not generate annual gross revenues exceeding EUR7.5 million (EUR50 million for group of companies) which are certified as such by an appropriate authority in Cyprus or abroad.

Qualifying expenditure

The sum of total research and development costs incurred in any tax year wholly and exclusively for the development, improvement or creation of qualifying intangible assets and which are directly related to the qualifying intangible assets.  Examples of qualifying expenditure include wages and salaries, direct costs, expenses related to research and development, etc.  Qualifying expenditure does not include the cost of acquisition of the intangible assets, interest, amounts paid to related person to conduct research and development, etc.

An up-lift expenditure is added to the the qualifying expenditure which is the lower of:

  • 30% of eligible costs, or

  • The total of the cost of acquisition and outsourcing to related parties for the research and development in relation to the eligible intangible asset.

Qualifying income

The proportion of the overall income corresponding to the fraction of the qualifying expenditure plus the uplift expenditure over the total expenditure incurred for the qualifying intangible asset. 

Income includes but is not limited to:

  • Royalties or other amounts in connections with the use of qualifying intangible assets

  • Any amount for a license for the operation of the qualifying intangible asset

  • Any amount received from insurance or as compensation in relation to the qualifying intangible asset

  • Capital gains and other income from the sale of the qualifying intangible asset

  • Embedded income of qualifying intangible assets arising from the sale of products or by using procedures that are directly related to this item

Overall profit

The gross income accrued within the tax year less the direct costs for generating such income

Direct costs

Direct costs include:

  • All direct and indirect costs incurred in earning the income from the qualifying intangible asset

  • The amortization cost of the intangible

  • Notional interest on equity contributed to finance the development of the qualifying intangible asset

Calculation of taxable profit

80% of the overall profit derived from the qualifying intangible asset is treated as a deductible expense in the tax computation of the entity.  Every year the taxpayer may elect not to claim the whole or part amount of this allowance.