Contributed by Fiducenter (Cyprus) Ltd
06 July, 2012
Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]
On 24 May 2012 the House of Representatives of Cyprus voted a number of amendments to tax laws in order to increase interest from foreign investors.
One of those amendments relates to the introduction of new rules for the taxation of income from Intellectual Property (IP), creating in effect a special tax regime for such assets similar to the one in force in some other jurisdictions.
The amendments in the Income Tax Law provide for the following:
- The definition of patent rights and intellectual property in tax laws has been updated to be in line with relevant laws for intangible assets, thus ensuring that a very wide variety of IPs are covered by the new regime.
- 80% of any profit (income less direct expenses, such as amortization and interest expense to finance the acquisition or development) generated from the exploitation of an IP owned by a Cyprus resident company is exempt from Corporation Tax.
- 80% of any profit arising from the disposal of an IP by a Cyprus resident company is exempt from Corporation Tax.
- The capital expenditure for the acquisition or development of IPs is amortised equally (straight line basis) over a five-year period, starting from the year in which it was incurred.
The amendments will come in to force as from the date of publication in the Official Gazette of the Republic and they will have a retrospective effect as from 1 January 2012.
As mentioned at the beginning, Cyprus has not invented the wheel with this IP Regime. Indeed, the new provisions introduced are inspired by the respective rules of other countries. The benefits that Cyprus has to offer are the very wide range of intangible assets covered by the regime and most importantly the much lower effective rate of tax, arising from the application of the 80% exemption to the standard rate of the corporation tax of 10%, which as widely known is the lowest in the EU.
Combined with some other keynote benefits offered by Cyprus, such as the absence of any Withholding Tax for payments of dividends, interest and royalties (the latter when earned outside Cyprus) to non-residents of Cyprus, the unrestricted access to EU Directives and the absence of any thin capitalization rules, the proposition of Cyprus is very attractive and places the island firmly on the map of business planning related to IP.
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