Main Advantages of the Cyprus IP tax regime
The main aspect of the regime is that 80% of the profits qualifying for the regime are exempt from tax. This means that only the 20% of IP income is taxed at a corporate tax rate of 12.5%. Therefore, Cyprus-resident companies can essentially benefit from an effective tax rate of as low as 2.5%.
Other benefits include:
80% deduction of profits on disposal of IP rights
a 5-year amortisation period which means that capital expenditure related to IP acquisition of development may be deducted in the first tax year in which the expense was incurred as well as in the subsequent 4 years. This in practice can lower the effective tax rate to less than 2%
0% tax on capital nature transactions – if the disposal of intangible assets is a capital nature transaction, then the resulting capital gain will not be taxable.
As from 1 January 2020, the following new provisions are put into effect:
Preparation of balancing statement in case of disposal of the IPs
The obligation (which was existed before) to prepare a balancing statement on the disposal of an intangible asset is abolished. As such, no balancing addition or balancing deduction would be included in the taxpayer’s taxable income in the year of disposal.
The taxpayer has the option not to claim capital allowances each year. Moreover, capital allowances that have not been claimed in a year are claimed over the remaining useful life of the asset. Consequently, the tax written down value of the IP at the beginning of each year will be recalculated over the remaining useful life of the IP.