On 14 October 2016, the House of Representatives passed amendments to the Income Tax Law to align the current Cyprus IP tax legislation with the provisions of Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The amendments apply retroactively, as from 1 July 2016.

 

The revised legislation includes certain transitional provisions for IP assets that have already qualified under the existing IP box regime. In such cases, taxpayers will continue to benefit from the existing IP regime for a maximum of five years, after which date the new IP tax regime shall apply.

 

Provisions of New IP Box Regime

The new IP regime complies with the provisions of the modified ‘nexus approach’, whereby for an intangible asset to qualify for the benefits of the regime, there needs to be a direct link between the qualifying income and the own qualifying expenses contributing to that income.

In brief, an amount equal to 80% of the qualifying profits earned from qualifying intangible assets will be allowed as a tax-deductible expense.