Intangible Property (IP) can be one of the most valuable assets of an organisation. Intangibles account for some three-quarters of the Fortune 500’s total market capitalisation. Furthermore, IP assets absorb US$1 trillion of investment funds every year; roughly the same as total corporate investment in physical assets.
If IP is critical to your business, choosing the right location for the centralisation and management of IP is a key strategic business decision. The ideal location to establish an IP structure is one that can serve the organisation’s business strategies and model, safeguard and protect its IP, and contribute to its tax optimisation.
After important revisions to the Cyprus Income Tax law in 2012, Cyprus is now at the forefront of IP tax planning. This memo provides a summary of how Cyprus can offer an efficient IP tax regime, coupled with the protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.
As defined in Article 2 (viii) of the World IP Convention of 1968 of which Cyprus is a signatory, Intellectual Property includes “literary, artistic and scientific works (copyright); performances of performing artists, phonograms and broadcasts (copyright); inventions in all fields of human endeavour (patents); Scientific discoveries (patents); industrial designs; trademarks, service marks and commercial names and designations (trademarks); protection against unfair competition, and all other rights resulting from intellectual activity in the industrial, scientific, literary and artistic fields”.
Changing the landscape of Intellectual Property
Why choose Cyprus as a holding jurisdiction for IP? Cyprus is a fully transparent and reputable financial centre, a full member of the European Union, and a well established holding company jurisdiction. Cyprus has implemented a new IP regime, expected to stimulate growth driving sectors of IP exploitation and Research and Development. Resting on a sound legal system based on Common Law principles, and being a signatory to International Conventions on the Protection of Intellectual Property, Cyprus’ IP tax regime is now considered the most favourable in Europe, affording the maximum protection, stability and assurance for IP owners
IP Protection in Cyprus
The protection of IP rights is dealt with extensively in Cyprus. There is a comprehensive system in place that guarantees the results of innovation and creativity are protected at a European and International level.
The EU Directives and Regulations relating to IP protection fully apply and have been introduced into Cyprus domestic legislation.
With regards to patents, a new invention is protected in the following ways:
b) Trademarks/Service Marks/ Designs
As far as Trademarks/Service Marks and Designs are concerned, protection is granted in the following ways:
In addition to the favourable IP tax rules introduced in 2012, Cyprus offers an extensive double tax treaty network that ensures withholding tax optimisation on royalty payments that may arise from IP arrangements and access to all EU Tax Directives.
It should be noted that under the majority of Cyprus double tax treaties, the withholding tax on royalty payments is 0%.
The IP Box Regime in brief
Taxation of Royalty Income (Practical Example)
A Cyprus tax resident company holds IP rights of EUR 50,000 and derives royalty income amounting to EUR 100,000 incurs directly related expenses of EUR 30,000 and is allowed a tax amortisation of EUR 10,000 (being 20% of the EUR 50,000).
Taxation of Disposal of IP Proceeds
A Cyprus tax resident company disposes an IP right for EUR 1,000,000. The cost of the acquisition was EUR 500,000 and amortisation was claimed for two years. Under the new IP Regime the proceeds from the disposal will be taxed as follows:
IP companies in the EU
There are 12 European countries currently operating Intellectual Property (IP) Box tax regimes that provide substantially reduced rates of corporate tax for income derived from important forms of intellectual property. Recently, the Economic and Financial Affairs Council (ECOFIN) has been investigating the 12 above referenced countries regarding their IP Box tax regimes.
The following is a summary of the agreement recently reached with all 12 countries:
Cyprus Qualifying Intellectual Property rights
In Cyprus, IP rights include patents, trademarks/service marks, designs/models, internet domain names, software copyrights, secret formulae, know-how, work in process R&D, lists, rights related to scientific, literary or artistic work, and rights related to industrial or commercial work.
It is important to note that an IP right registered outside Cyprus, on a European or International level, is eligible for the benefits of the IP Box Regime. In addition, in the case of internally developed IP rights, there is no requirement for the research and development to be undertaken in Cyprus.