Are you an owner of intellectual property? If yes, then boost your profits by using a Patent Box which will substantially reduce your IP taxes.
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:
Why the Cyprus "IP box" ticks almost every box for IP owners:
- Many and all different types of IP can be included in a Cyprus IP Box (see the list below)
- The income tax rate on worldwide income is at most 2,5 % and can be less, making Cyprus probably the most beneficial tax regime in Europe for intellectual property rights
- Corporation tax liabilities can be substantially reduced — or totally eliminated — when the IP is sold
- IP acquisition and/or development costs can be amortised over 5 years
- Expenses accrued from the production of royalty income are tax deductible
- Cyprus has double taxation treaties with over 40 countries (now counting 48) and access to the EU Interest and Royalty Directive, thus enabling intellectual property owners to exploit rights in a large number of countries
- The country's sound legal system (founded on English law) ensures that intellectual property owners' interests are protected
Take full advantage of the tax breaks the Cyprus Patent Box offers - how we can help you
- First we will set up a Cyprus-resident company, which will be wholly owned by the IP's owners. There is no need for you to visit Cyprus since everything can be done remotely.
- Next we will arrange for ownership of the IP to be transferred to the newly established Cyprus company.
- The Cyprus company will then be able to licence the rights to use the intellectual property to any other company or companies.
- Any and all agreements that need to be put in place to effectively organise the patent box structure can be prepared and drafted by our specialised legal team.
- Any income the Cyprus IP owner company receives, will be taxed at most at 2,5%. The dividends that you will receive, being the owner of the Cyprus IP owning company, will be totally tax free at source.
IP tax at only 2,5%
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.
0% tax when the IP is sold
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.
The widest possible range of qualifying IPs…
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…
- Brand names
- Domain names
- On-going Research & Development
- Patents and rights relating to industrial or commercial works
- Rights related to scientific, literary or artistic works
- Service marks
- Software development
- Damages and settlements received from successful patent infringement actions
20% writing down allowance per annum
When a Cyprus company acquires or develops an IP, the associated costs can be amortised on a straight line basis over five years.
IP tax example
|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%|
An example of taxation on disposal:
|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|
|Amortization cost||+ 200,000|
|Less 80% exempt from tax||- 560,000|
|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:
- Berne Convention for the Protection of Literary and Artistic Works
- Convention Establishing the World Intellectual Property Organisation (WIPO)
- Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms
- European Community Trademarks
- Paris Convention for the Protection of Industrial Property
- Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations
- The Madrid Agreement Concerning the International Registration of Marks (the Madrid Agreement) and Protocol to the Madrid Agreement
- The Patent Cooperation Treaty
- Trademark Law Treaty
- WIPO Beijing Treaty on Audiovisual Performances
- WIPO Performance and Phonograms Treaty
Cyprus and technology
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.
Other ways we can help…. IP and patent protection
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:
- Construct licensing and franchising arrangements;
- Deal with trademark objections, cancellations and counterfeiting matters;
- Instigate search and investigation services including trademark or patent monitoring and infringements;
- Register and renew existing and/or new trademarks and patents;
- Value the intellectual properties you own;
Making the most of your intellectual property in a stable, secure and well – placed business environment
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.
Contact us now for a free 15 ' consultation