CYPRUS
A NEW IP TAX REGIME Ermioni Pavlidou Michael Kyprianou & Co LLC
Amendments made to the Income Tax Law in Cyprus have certainly turned this beautiful island into one of the best royalty and holding structure jurisdictions. T e law as amended gives Cyprus the ammunition to compete with other jurisdictions that have already implemented similar measures, such as Luxembourg, the Netherlands, Ireland and the UK.
T e new regime provides very attractive opportunities for structuring the exploitation of IP assets through Cyprus and in particular through the use of Cyprus-resident IP owners, especially considering the country’s extensive network of double tax treaties under which foreign withholding taxes on royalty income are either eliminated altogether or substantially reduced.
T e aforementioned amendments were introduced in May 2012 and have a retrospective eff ect as from January 1, 2012.
All types of IP including trademarks, copyrighted work, trade names, patents and registered domain names are aff ected by this new IP tax regime.
Royalty profi ts—exploitation of IP rights
T e law now provides that 80 percent of any profi t resulting from royalties will be exempt from corporation tax and not subject to the corporate law tax of 10 percent normally imposed in Cyprus on any of the resulting net profi ts. T e remaining 20 percent is not excluded from the 10 percent corporate tax.
Via this new regime, it is clear that open innovation can be achieved, as licensing, and in particular the royalties received from any licensing agreements, will now be viewed diff erently. T is regime will lead to more licensing contracts which, it is hoped, will lead to superior products with better design and better reliability.
Even from a strict fi nancial angle, one cannot deny that this is very benefi cial. If, for example, a Cyprus company via a licensing agreement
60 World Intellectual Property Review e-Digest 2013
www.worldipreview.com
IF A CYPRUS COMPANY VIA A LICENSING AGREEMENT GENERATES ROYALTIES, THEN THESE PROFITS CAN BE DISTRIBUTED BY WAY OF DIVIDENDS WITH MINIMUM TAX BURDEN TO NON-RESIDENT SHAREHOLDERS.
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