The House of Representatives has voted amendments to the IP Box Regime in order to comply with the guidelines and requirements of the OECD.The new amendments bring the legislation in Cyprus on the taxation of Royalties (IP Box) in full compliance with OECD.This will ensure stability in the methodology of calculating taxes on royalties and will therefore enable investors to plan accurately for the future.
It is also important to state that the new law, under some conditions, gives the opportunity for those that were benefiting from the old IP box regime to continue to benefit as until the end of June 2021.
The amendments to the IP Box Regime are effective as from 30th of June 2016.
(B) THE OLD REGIME
The old regime was introduced in 2012 and in order for an Intellectual Property (IP) holder to benefit from the law the following conditions were to be met.
- The IP right should be a Qualifying IP
- The Cyprus company should be owner of the Qualifying IP
- The Qualifying IP should be used for the production of taxable income
According to the legislation, intangible assets that were defined by the Patents Law, Trade Marks Law and the Intellectual Rights Law were considered as a Qualifying IP Right for the purposes of the IP Box Regime.
In order for a Cyprus IP Holding Company to qualify under the IP tax provisions it must be the owner of the Qualifying IP Right.
Further the Cyprus IP Holding Company should use the Qualifying IP Right for the production of taxable income. This means that the IP Right should be licensed to other parties in exchange for royalty income.
Provided that the above conditions were met, 80% of "Royalty Profit" generated from Qualifying IP Rights was considered as deemed expenses for corporation tax purposes. The remaining 20% was subject to the normal corporation tax rate of 12.5%, making thus the maximum effective tax rate to be 2.5%.
C. GRANDFATHERING RULES
The amendments to the law provide that persons will continue to benefit from the Old Regime until 30th of June 2021 provided that the Qualifying IP:
a. Was acquired before 2 January 2016.
b. Was acquired directly or indirectly from a related person during the period from 2nd of January 2016 until 30th of June 2016 and which assets.
- At the time of acquisition were benefiting under the IP box regime or under similar scheme of another member state, or,
- Where not acquired with main or one of the purpose the avoiding of taxes
c. Was acquired from unrelated person or developed during the period from 2nd January 2016 until 30th of June 2016.
A Qualifying IP that was acquired directly or indirectly from a related person during the period from 2nd of January 2016 until 30th of June 2016 and does not meet the above grandfathering rules, will continue to benefit from the Old Regime until 31st of December 2016.
Download - The new Cyprus IP Box Regime
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