


If you own an intellectual property and you want to reduce the IP tax you pay on income received from your IP, then you certainly cannot ignore the attractions of Cyprus. Because Cyprus, does offer IP owners, one of the most advantageous intellectual property tax environments in the world.
On 1 January 2012, Cyprus introduced new incentives and exemptions relating to intellectual property tax planning. The new rules are collectively known as a "Patent box" or "IP Box". Here's what the Cyprus Patent Box offers intellectual property (IP) owners:
Four fifths of the profit or any income derived from the use and/or disposal of IPs is exempt from any form of taxation. In other words, only 20% of income is subject to tax, which in Cyprus is 12,5% — one of the lowest tax rates in the EU. The result is an overall income tax rate of just 2,5%, which could be even lower if the entity applies all the deductions that can be offset against its gross income.
By transferring your IP to a Cyprus company, the gains you make when disposing of the company's shares will be exempt from any form of taxation. So when the time comes to exit, rather than selling the IP itself, you would instead dispose of the Cyprus company's shares. Adopting that strategy would ensure that 1) the sale proceeds are exempt from tax and 2) no stamp duty would be due on the transaction.
Unlike other patent box structures in other jurisdictions, which limit tax reliefs to patents, designs, copyrights and models, the Cyprus IP Box model also encompasses trademarks, trade names and many other types of IP such as…
When a Cyprus company acquires or develops an IP, the associated costs can be amortised on a straight line basis over five years.
Gross income EUR 100,000; tax bill EUR 1,500 |
|
---|---|
Gross income from royalties | =100,000 |
Less Related expenses | - 40,000 |
Net income from royalties | = 60,000 |
Less 80% exempt from tax | - 48,000 |
Taxable balance | = 12,000 |
12,5% Tax due on balance | = 1,500 |
Effective overall tax rate | 2.5% |
Profit from sale EUR 700,000; tax bill EUR 14,000 (Amortization cost claimed over two years) |
|
---|---|
Proceeds of disposal | 1,000,000 |
Less costs of acquisition | - 500,000 |
Balance | = 500,000 |
Amortization cost | + 200,000 |
Balance | = 700,000 |
Less 80% exempt from tax | - 560,000 |
Taxable balance | =140,000 |
12,5% Tax due on balance | =17,500 |
Effective overall tax rate | 1.75% |
Patents for new inventions are protected by national patent certificates which are issued by The Department of Registrar of Companies and the Official Receiver in Cyprus. In addition, Cyprus is signatory to the following IP-related international conventions:
Cyprus is intent on becoming a leading Regional Research Centre in the fields of science and technology. An agreement has been signed with the Harvard School of Public Health to help establish the Cyprus International Institute of the Environment and Public Health. The government is also seeking to establish a Research and Educational Foundation — a purpose-built technology park which will provide an ideal environment for Research & Development activities, newly-formed IT businesses and university research departments.
At Meridian Trust, not only we will work with you to ensure that your income from intellectual property rights are fully tax optimised, but we will also guide you with any matters relating to national, European and international patent applications.
Although our IP protection advice and services cover many areas, they can be summarised as follows:
Locating your business in a beneficial tax regime usually entails a "trade off" of some kind. The geographical location may be problematical, or the legal system might not be as robust or constituted as you would like. The business facilities you depend on may be in short supply or the country's infrastructure woefully under developed.
None of those considerations and issues apply to Cyprus. Not only does the island operate an established and open free-market economy, it also has an excellent communications network and an adaptable, multilingual and highly educated workforce. In addition to accounting firms and tax specialists, Cyprus is home to 150+ law firms. In fact so comprehensive is the island's professional services sector, that it has become known as a centre of excellence for legal, accounting and tax planning services. In terms of location, Cyprus provides the perfect gateway for IP owners wishing to serve the major markets of Continental Europe, North Africa, Russia, Central Asia and the Middle East.
All in all Cyprus probably is, the best location for some wonderful, intellectual property tax planning opportunities.