Cyprus IP Regime
The new regulations introduce the OECD recommended “nexus approach.” This approach limits application of the IP box regime if research and development (R&D) is being outsourced to related parties. The approach links the benefits of the regime with the R&D expenses incurred by the taxpayer.
As per the new IP box regime, qualifying taxpayers will be eligible to claim a tax deduction equaling 80% of qualifying profits resulting from the business use of the qualifying assets. A taxpayer may elect not to claim the deduction or only claim a part of it. The qualifying profits shall be calculated by using the following ratio:
Qualifying profits = Overall income × (Qualifying expenditure + Uplift expenditure) / Overall expenditure
Qualifying Assets
It should be mentioned that the provisions of the new IP box regime apply only to:
- Patents and patent equivalents
- Copyrighted software
- Utility models
- Other IP assets that are non-obvious, useful, and novel (subject to de minimis criteria)
This means that any marketing-related IP assets such as trademarks will not be treated as qualifying assets. The regulations provide that IP assets must be certified by a relevant authority either in Cyprus or abroad.
The regulations also provide that taxpayers should maintain books and records for income and expenditure for each qualifying intangible asset.
