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The well promising –but constantly restricted– Cypriot IP Box Regime: the upcoming changes
Last Update: November, 2016

Admittedly, an attractive regime, widely known as the “IP Box Regime”, relating to the deductibility of the expenses related to the acquisition or development of intangible property was introduced in the Cypriot tax legislation by virtue of the Law 102(I)/2012 amending the Income Tax Law (118(I)/2002). In particular, according to the said IP Box Regime 80% of the income (after deducting all direct and amortization costs) derived from profits from the use and/or exploitation of intellectual property (IP), the penalties for its improper use and/or the profits from its disposal, is deducted (since it is considered as expense), while the remaining 20% is taxable at the rate of the applicable corporate tax, currently at 12,5%. In this regards, it is worth to note that such taxation is merely imposed in the case where the property is exploited in the Republic of Cyprus (in which case a 10% withholding tax applies on foreign beneficiaries). Nevertheless, in case there is a loss instead of profit in regards to the intangible property, only 20% of such loss can be offset against income from other sources for the same tax year or be carried forward and offset against income from other sources of the following years (5-year limitation).

As the law stands at the present moment, “intangible property” consists of the intellectual property, which is defined as all intellectual property in which Company has any right, title, or interest (including a licensed right other than rights to licensed software that is generally commercially available) or which has been, is being, or is expected to be used, exploited, or commercialized by Company in the conduct of its business including scientific works (irrespective of its quality), literary works (including but not limited to novels, novellas, poems, theatre plays, scenery, movie scenarios, historic works, proof texts, articles, encyclopaedias, dictionaries, letters, reports, memos and computer software), musical works (irrespective of its quality), artistic works (including but not limited to photographs of any nature), databases, recording, broadcast and publication of unpublished works, patents being the invention and/or development and/or discovery which results in a product consisting of or including biological material or method for the production, development or use of biological material including all concepts, ideas, designs, formulas, inventions (whether patentable or not), techniques, all patent applications and all patents as well as marksincluding all words, names, logos, symbols, trade names, source indicating indicia, trade dress, trademarks, marks, applications to register marks and registrations, which because of their nature be distinctive features of the goods or services of other businesses, in case such a mark is used or going to be used for the purpose of its distinction.

However, in an effort to limit the extensive abuse of the IP Box Regime, OECD introduced the Base Erosion Profits Shifting Report, action 5 of which, among others, “urges” the imposition of restrictions in the use of the IP Box regimes internationally. On that basis, the Law 111(I)/2016 (published in the Official Gazette of the Republic on 27/10/2016) amending the Income Tax Law (118(I)/2002) introduced a series of amendments in regards to the application of the IP BOX regime, the most important of which are the following:

  • The IP BOX regime will apply up to 30/06/2021 in regards to:
    • intangible property, whose development had been completed up to 30/06/2016 or which were used for the purpose of producing income up to the same date,  fell under the Cypriot IP BOX regime (prior 02/01/2016);
    • intangible property, whose development had been completed up to 30/06/2016 or which were used for the purpose of producing income up to the same date,  acquired (directly or indirectly) by a related person (spouse or relative up to third degree or spouse of such relative or relative up to third degree of the spouse) in between the period from 02/01/2016 to 30/06/2016, while such acquisition fell under the Cypriot IP BOX regime or of the respective regime of any other state;
    • intangible property acquired by a non-related person in between the period from 02/01/206 to 30/06/2016.
  • The IP BOX regime will apply up to 31/12/2016 in regards to intangible property, whose development had been completed up to 30/06/2016 or which were used for the purpose of producing income up to the same date,  acquired (directly or indirectly) by a related person (spouse or relative up to third degree or spouse of such relative or relative up to third degree of the spouse) in between the period from 02/01/2016 to 30/06/2016 which did not fall under the Cypriot IP BOX regime or of the respective regime of any other state.

 

Publish Date: 14 October, 2016
Antria Aristodimou Antria is an Advocate – Legal Consultant. Antria was born in Limassol. She obtained her LL.B degree from the University of Cyprus in June 2013 and her LL.M in Maritime Law from the University of Southampton in December 2014. Antria joined our firm in July 2014 ...

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