Cyprus: Taxation rate for the Intellectual Property-only 2,5 %

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Cyprus, being a member of the European Union since 2004, a well-known financial center and established tax jurisdiction, has recently implemented a new Intellectual property regulations.

The Government of the Republic of Cyprus in May 2012 has introduced growth measures which among others included a package of tax exemptions and benefits relating to income from intellectual property rights, oriented to the stimulating investments in different, including research and science, fields.

Intellectual property is a progressing area that affects the functioning of the entire world. Its range of influence is tremendous, since it influence areas of technology, social development and economic growth.

Convention Establishing the World Intellectual Property Organization (Signed at Stockholm on July 14, 1967 and as amended on September 28, 1979) (art. 2) defines that “intellectual property” includes the rights relating to:

- literary, artistic and scientific works;

- performances of performing artists, phonograms, and broadcasts;

- inventions in all fields of human endeavor;

- scientific discoveries;

- industrial designs;

- trademarks, service marks, and commercial names and designations;

- protection against unfair competition;

and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.

Intellectual property can be one of the most high-value assets of a company. The financial success of any Intellectual property commercialization will certainly depend on the choice of the most appropriate commercial tool of doing this and proper tax jurisdiction. Choosing the last one for the centralization and management of Intellectual property is crucial business decision.

Cyprus offers a preferential Intellectual property tax regime connected with the protection granted by Member States and by the signatories of all major Intellectual property Conventions, Treaties and Protocols; inter alia:

EC Regulation on the Community Trademark (CTMR)of 26 February 2009, No 207/2009;

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement), Law 16(III) of 1995;

The Berne Convention on the Protection of Literary and Artistic Works (Act of Paris 1971), Law 86 of 1979;

The Convention Establishing the World Intellectual Property Organisation (WIPO), Law 36 of 1984;

The European Convention relating to Questions on Copyright Law and Neighboring Rights in the Framework of Transfrontier Broadcasting by Satellite, Law 29 (III) of 1995;

The European Patent Convention 1973, Law 26 (III) of 1997;

The Geneva Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms, Law 21(III) of 1992;

The Geneva Trade Marks Law Treaty 1994, Law 12 (III) of 1996;

The Madrid Agreement Concerning the International Registration of Marks of 14 April 1891, as last revised at Stockholm on 14 July 1967 and as amended on 28 September 1979, Law 3(III)/2003;

The Nairobi Treaty on the Protection of the Olympic Symbol, Law 9 of 1985;

The Paris Convention for the Protection of Industrial Property (Lisbon Act), Law  63 of 1965 and (Stockholm Act), Law 66 of 1983;

The Paris Universal Copyright Convention, Law 151 of 1990;

The Patent Co-operation Treaty 1970, Law 27 (III) of 1997;

The Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks adopted at Madrid on 27 June 1989, Law 4(III)/2003;

The Rome Convention for the Protection of Performers and Producers of Phonograms and Broadcasting Organisations of 26 October 1996, Law 14 (III)/1999;

WIPO Beijing Treaty on Audiovisual Performances on June 24, 2012.

Tax benefits

The new tax legislature contains the rules about favorable taxation rate in relation to income generated from Intellectual property rights, by exempting from corporation tax 80% of royalty profit, i.e. only 20% of the Intellectual property income after deducting of all costs relating to the generation of the income is subject to 12,5% corporate tax[1]. The amount which is subject to the tax is calculated by deducting the costs of financing the acquisition or development of the assets and any other direct expenses from the earned income, and multiplying for 0,20.

Applying the Cyprus corporate income tax rate of 12.5% produces an effective tax rate of 2,5% of the clear profit, which is the lowest in the EU.

Example

If we assume that a Cyprus company transfers Intellectual Property rights (according to the license agreement) to the operating foreign Companies and in return it receives amount of the royalty income on the level of €100.000. The expected annual tax for the Cyprus Company will be as follows::

Annual royalty income -     100.000

 

Direct expenses (say)

(20,000)

Net income

80,000

80% deemed deduction

(64,000)

Taxable income

16,000

@12.5% income tax

2,000

   

Effective tax rate

2.5%

Note: The transfer of Intellectual property rights into a Cyprus company will not lead to any form of taxation in Cyprus and the new benefits and substantial exemptions will become available as soon as the asset is transferred.


[1]

All the above mentioned exemptions are available for Intellectual property acquired or developed before January 2012 when new amendments came into effect.

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