An Executive summary, The Cypriot Income Tax Law was amended on July 20, 2022, allowing for Cyprus research and development tax and a larger deduction for R&D costs (also known as "R&D expenses") for the years 2022, 2023, and 2024. The economic owner of the IP assets may deduct eligible research and development costs from their taxable income up to 120 percent of their actual R&D expenditures.
In accordance with international accounting standards, all expenses for scientific research and all research and development (or "R&D expenses") incurred by a person who operates a business and has economic ownership of the relevant intellectual property asset will be treated as tax deductible under the amended in-depth discussion Section 9(1)(d) of the Cypriot Income Tax Law.
Additionally, any capital-related R&D expenses will be covered by the current rules of Section 9(1)(l) of the Income Tax Law. According to this section, all capital expenses must be amortized and distributed over the asset's useful economic life, which is determined in accordance with generally accepted accounting principles for a maximum of 20 years.
Furthermore, it is stated that for Cyprus research and development tax or R&D expenses incurred in the tax years 2022, 2023, and 2024, an additional deduction equal to around 20 percent of the actual amount of the particular relevant R&D expenses will be available (including expenses of a capital nature).
It is made clear that, in accordance with Section 9(1)(k) of the Income Tax Law, taxpayers who claim a deemed deduction under the terms of the IP Box regime should not be eligible for this increased deduction.
The government's overall initiative to make Cyprus an appealing destination for technology companies looking to relocate to or expand their operations in Cyprus includes the introduction of Cyprus research and development tax and increased deduction for R&D expenses, which is certainly a significant development.
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