The Cyprus IP Box is a tax incentive scheme that grants eligible corporations an up to 80% tax deduction on qualifying profits, which translates to a 2.5% effective corporation tax (the lowest within EU). This scheme is in alignment with the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action 5 report.
Please see below definitions and requirements:
Qualifying Assets
Patents,
Utility models,
Copyrighted software,
IP assets that grant protection to plants and genetic material,
orphan drug designations,
extensions of patent protection, and
other IP which are non,
obvious, useful and novel, that are certified as such by a designated authority, and where the taxpayer satisfies size criteria (i.e. annual IP related revenue does not exceed €7,5m for the taxpayer, and group total annual revenue does not exceed €50m, using a 5 year average for both calculations)
The qualifying IP assets need to be legally and/or economically owned.
Please note that tradenames, including brands, trademarks, image rights and other IP rights used for the marketing of goods and services do not qualify.
Qualifying Profits
R&D Fraction
Example:
OVERALL INCOME (OI) | 5,000,000 |
| |
Cost of acquisition of asset | 300,000 |
R&D costs, incurred internally | 500,000 |
R&D costs, outsourced to non-related parties | 200,000 |
R&D costs, outsourced to related parties | 200,000 |
| |
OVERALL EXPENDITURE (OE) | 1,200,000 |
| |
R&D costs, incurred internally | 500,000 |
R&D costs, outsourced to non-related parties | 200,000 |
| |
QUALIFYING EXPENDITURE (QE) | 700,000 |
| |
30% of the qualifying expenditure | 210,000 |
| |
Total cost of acquisition + cost of outsourcing to related parties | 500,000 |
| |
UPLIFT EXPENDITURE (500,000 * 30%) | 210,000 |
| |
FORMULA: | |
QP = OI X (QE + UE)/OE | 3,791,667 |
| |
80% DEDUCTION | 3,033,333 |
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