80% exemption on Intellectual Property (IP) profits
80% exemption on Intellectual Property (IP) profits
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 x (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 and 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 provide that taxpayers should maintain books and records for income and expenditure for each qualifying intangible asset.
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 x (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 and 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 provide that taxpayers should maintain books and records for income and expenditure for each qualifying intangible asset.