In July 2016 Cyprus has amended the Intellectual Property (IP) legislation as per the provisions of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Action 5 and the new European Union rules. The changes relate to the amendments to the income tax legislation, the regulations for the implementation of the new provisions, transitional arrangements to the IP Box, and the guidelines for the new intangible assets.

Current IP Box and transitional arrangements

IP Box provides an exemption from taxes of 80 percent of the gross income of intangible assets following the direct costs deduction including amortisation (more than 5 years) and interest costs. The loss of 20 per cent can be surrendered to other companies or be transferred to next years. The exemption from taxes applies for the profit received from the clearance of the intangible assets. Transitional arrangements allow taxpayers to benefit from the current IP regime until 30th June 2021. Transitional arrangements are applicable to the intangible assets with the following criteria:

1. a) acquired before 2nd January 2016 or
2. b) acquired from 2nd January 2016 until 30th June 2016; benefited from the IP Box regime at the time of acquisition as per IP regime or a similar regime in any other country
3. c) acquired from an unrelated person or during the period from 2nd January 2016 until 30th June 2016

For the intangible assets that had been acquired directly or indirectly from a related person in the same period (2nd January 2016 – 30th June 2016), transitional arrangements will be effective until 31st December 2016.
The revenue will include embedded revenue and intangible assets with economic ownership. Those intangible assets that have either generated income or their development have been finalised by 30th June 2016 will be eligible for the transitional rules.

Procedures and terms of the new IP Box

The procedures and terms for the proposed amended law are applicable for assets dated from 30th June 2016

Qualifying intangible assets

These assets include any useful patents, computer software and other IP assets, which are used for the maintenance of business and does not make annual gross revenues above €7.500.000 or €50.000.000 in the case of a group of companies. Qualifying intangible assets include marketing as well as the research outcome or development activities. This group includes the intangible assets with economic ownership.

However, trademarks, business names, rights to public presence, brands, image rights and any other intellectual property rights are not qualifying intangible assets.

Qualifying profits

Qualifying profit is defined as the proportion of the total income related to the portion of the qualifying expenditure including the uplift expenditure over the total expenses incurred for the qualifying intangible asset.

Overall income

Overall income is defined as the gross income deriving from the qualifying intangible during the tax year minus direct costs.
80% of the overall income is considered as a deductible cost.
The overall income involves and is not limited to:

• royalties or other amounts earned from the use of qualifying intangible assets
• license revenue for qualifying intangible assets operation
• insurance coverage or any other compensation related to the qualifying intangible assets
• capital profits from the disposal of qualifying intangible assets
• fixed income of qualifying intangible asset produced from the sale or procedures related to the product

Qualifying expenditure

Qualifying expenditure is the total cost of research and development in any tax year, solely for the development of qualifying intangible assets. All costs are directly linked to the qualifying intangible assets.

Qualifying expenses can include any direct costs, salaries, overall expenses related to supplies, and costs related to research and development that are subcontracted to non-related individuals.

Non-qualifying expenses can include costs for the acquisition of intangible assets or the acquisition/construction of property, interest, and costs that cannot be proved directly related to a particular entitled intangible asset and the sum payable to a related individual to conduct research.

An additional spending lower than 30 per cent of the entitled costs, or the total of acquisition cost and subcontracting to related parties for research and development, will be additional to the qualifying expenses.

Accounting reports

Accounting records of revenue and expenditures have to be kept for every intangible asset for which a allowance is claimed as per the new IP regime.

Non-qualifying assets

According to the provisions of the new rules expenditure of acquiring a non-qualifying intangible asset can be amortized over the period of maximum of 20 years provided that it complies with the accounting principles. If the intangible is sold, the company must prepare the balancing report. The same procedure applies to sale of a fixed asset.

Slow-track permanent residency in Cyprus

Cyprus offers a unique opportunity to get a permanent residency in a slow-track mode. Prospective candidates are required to buy a new resold property at a minimum of 150.000 Euro.

Although this amount is not mentioned in the category F regulation, individuals investing 150.000 Euro can acquire the Cypriot (E.U.) permanent residency. The candidate should also provide the proof of annual income no less than 30.000 Euro. The income may include any source of income including wages, salaries, and dividends or rental income.

The expenses related to the procedure include the application fee, lawyers fee, health insurance, stamp duties, and taxes equivalent in total to 5000 Euro. The candidate does not have to keep the deposit of 30.000 Euro.

The application should be submitted along with the CV, ownership of the company, bank statements, stocks, and other related documents to be presented as a proof to the immigration department stating eligible financial position to become a resident of Cyprus. The timeline of the entire process is projected from 7 to 12 months.


If you are interested in learning more about the permanent residency program that Cyprus has to offer, please contact our Cyprus office.