Cypriot Intellectual Property Holding Company with 2.5% Tax on Profits

The Republic of Cyprus provides the opportunity to establish a company in Cyprus whose sole purpose is the ownership of intellectual property rights, for their commercial exploitation and licensing to other companies based in Cyprus or abroad.

The registration of intellectual property rights in Cyprus by a Cyprus tax resident company results in protection throughout all EU Member States, as well as protection under international treaties signed by the Republic of Cyprus. By leveraging the extensive network of Double Taxation Avoidance Agreements or the EU Interest and Royalties Directive (2003/49/EC), a Cypriot company is subject to a highly competitive tax regime covering a wide range of intangible assets.

Such a Cyprus-based company holding intellectual property rights, commonly referred to as an IP Box company, may benefit from the favorable tax regime applicable to income derived from intangible assets (trademarks, patents, and intellectual property rights), as outlined below:

Eighty percent (80%) of the profit generated from the use of qualifying intangible assets (trademarks, patents, and intellectual property rights), including compensation for unlawful use of such assets, as well as profits from their disposal, is treated as a deductible expense for the purpose of determining taxable income and is exempt from corporate tax. As a result, the effective tax rate is reduced to 2.5% on the company’s profits.

The 80% deduction is also applied to profits after the deduction of all direct expenses, such as capital allowances, interest incurred for the financing of the acquisition or development of the assets, and other direct expenses.

Owners of intellectual property rights and intangible assets (trademarks, patents, and intellectual property rights) may use Cyprus as their business base and take advantage of the tax incentives and exemptions offered, thereby adding value and a competitive advantage to their business.

Qualifying intangible assets may include patents (as defined under the Patents Law), computer software, and other intangible assets.

Income may be derived from royalties related to the use of the qualifying asset, licensing fees, insurance proceeds and compensation, capital gains, and other income arising from the sale of the asset.