Cyprus Intellectual Property (IP) regime (Cyprus IP box) of less than 2.5% corporation tax as recently modified (Nexus modified approach)
Cyprus has now adopted Action 5 of the OECD in the action against the “Base Erosion and Profit Shifting» (BEPS). This requires a clear link between the rights that generate income and activities that contribute to such income (Nexus modified approach). New changes are in effect as from 1 July 2016. The Cyprus Intellectual Property companies that join the scheme before that date will benefit from the savings until the middle of 2021. The Cyprus Intellectual Property scheme still provides for 80% exemption on income tax if intellectual property is owned by Cypriot resident company (net of any direct costs). Direct costs will exclude Intellectual Property acquisition costs, interest, immovable property and payables to third parties. Other Intellectual Property jurisdictions are less attractive as Intellectual Property are taxed at a much higher level and the definition of IP is not wide enough to cover software, trademarks and copyrights.
Centralisaiton of brand/ Intellectual Property management
The centralisation of brand/ Intellectual Property management can really enhance a company’s competitiveness and realise substantial value. Particularly during economic downturns, when organisations focus on cost-reduction programmes, a centralised brand/ Intellectual Property management centre can provide significant cost savings.
The commercial rationale of a central management centre as well as why Cyprus is an ideal location is uncovered below
- Substantial operational synergies
- Global brand manager
- Central technology
- Cost savings by reduction of headcount and capital employed
- Enhancement of multinational corporation’s competitiveness
- Development of marketing intangibles
- A multinational corporation can centralise key functions, risks and intangible assets to have sufficient substance to indeed perform key functions and move key people and assets to a low tax jurisdiction
- Tax authorities generally cannot challenge the profit allocation if key functions and assets reside in a central IP location, which is also a favourable tax jurisdiction
- Arm’s length rules do not apply to transactions between a Parent Cyprus Company and its 100% direct resident subsidiary
- Avoidance of double taxation
- The initial transfer of Intellectual Property rights into a Cyprus Company will not give rise to any form of Cyprus tax
- Cyprus has been (for the last 30 years) and continues to be a firmly established and recognised international and professional centre
- Favorable legal and tax framework. Corporation tax on Cyprus intellectual property rights (Cyprus Intellectual Property companies can be less than 2,5%.
- Excellent infrastructure
- Geographic location and time zone
- High standard of legal, accountancy and other professional services offered
- High calibre workforce since approximately 80% are university graduates with European/US experience
- Culture of high performance and development of leadership potential
- Extensive and comprehensive Cyprus double tax treaties network
- English is commonly used as the business language
- Accession of Cyprus into the EU in 2004 led to tax reform to bring Cyprus Tax Legislation in line with EU legislation as well as in line with International practices and guidelines including those of the OECD model
- Cyprus companies are extensively being used for ideally suited Intellectual Property holdings, licensing
Cyprus Taxation advantages of a Cyprus company under Cyprus Intellectual property (IP) regime (Cyprus IP box)
- Royalty income taxed at a low corporate tax rate of 12,5%, but effective tax is less than 2,5%.
- 80% of any income generated from Cyprus Intellectual property company owned by Cypriot resident companies (net of any direct expenses) is exempt from Cyprus Corporation Tax
- 80% of profit generated from the disposal of Cyprus Intellectual Property owned by Cypriot resident companies (net of any direct expenses) is exempt from Cyprus Corporation Tax
- Any expenditure other than acquisition costs, interest, immovable property and parables to third parties will be claimed as deduction from Cyprus Intellectual Property income.
- No withholding tax on royalty payments from EU companies to Cyprus Intellectual Property Companies (EU Directive)
- Gains that arise on the disposal of Cyprus intellectual Property company’s shares are exempt from all Cyprus taxes
- Royalty deductibility in paying company
- No exit taxation
- No withholding tax on dividend paid by Cyprus Immovable Property company to its parent company, whether it is resident or not and whether it is EU company or not.
- Profit of foreign branch is exempt from Cyprus taxes under conditions (i.e. Foreign Branch, owner of Intellectual Property)
- Using a Cyprus Trust (International) to own and Finance the Intellectual Property owner i.e. receiving dividends and interest by trust will not be subject to any Cyprus tax provided beneficiaries are not Cyprus tax residents
- Cyprus legal system: Flexible and business friendly. Modeled on the English legal system and common law and equity apply.
- Cyprus Law: Fully harmonised with EU legislation. IP Cyprus Law covers and protects all recognised intellectual property rights such as 1) trade and service marks, 2) patents, 3) industrial designs and copyrights. Examples are scientific work, computer software programs, literary work, secret formulas, musical work, artistic work, movies, databases, recording, broadcasts, publications etc.
- IP EU directives and regulations: All relevant IP EU directives and regulations apply and have been introduced into the Cyprus Law. There is certainty of Law.
- Intellectual Property International Treaties and protocols: Cyprus is a member and has ratified all major relevant IP International Treaties and Protocols including the Madrid Agreement, the TRIPS Agreement, the European Patent Convention, the Patent Co-operation Treaty, the Berne Convention, the Rome Convention and the WIPO Copyright Treaty.
- Patents: (i) national registration (ii) Issuance of a certificate by the European Patent Office (iii) An International Patent under the provisions of the Patent Cooperation Treaty
- Trade marks: (i) By Cyprus Law and therefore throughout the territory of the EU (ii) being a signatory to the Paris Treaty (iii) being a party to the Madrid Protocol
- Copyrights: (i) By Cyprus Law and therefore throughout the territory of the EU (ii) being a signatory to the Bern Convention
- Enforcement: Very strict Cyprus Laws. The Police and Customs and Excise authority have wide powers under the applicable Cyprus laws to enforce IP rights and prosecute criminal acts violating IP rights including powers to enter premises and seize counterfeited goods.
- Cyprus courts : Cyprus courts have the power to grant ex parte temporary injunctive relief and restrictive orders as well as final judgments and orders.
- Orders and judgments: Cyprus court orders and judgments are enforceable (i) automatically in every European Union member country pursuant to the applicable E. U. Regulation and (ii) in many other countries outside Europe by Virtue of Bilateral or International Treaties which Cyprus has signed.
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(Updated: July 2016)
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Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.
PKF Cyprus firms are member firms of the PKF International Limited network of legally independent firms and do not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.”