The Cyprus IP Box Regime, is a tax incentive program which is designed to stimulate R&D and commercialisation of IP.

Below, we outline the key features, benefits, and application process of the Cyprus IP Box Regime, highlighting why it is a powerful tool for businesses aiming to grow through innovation.

The Cyprus IP Box Regime provides significant tax benefits to companies deriving income from qualifying intangible assets . This regime was introduced in 2012 and was revised in 2016 to align with the updated OECD standards.

The Cyprus IP Box Regime defines a “qualifying intangible asset” as an asset which was acquired, developed or exploited by a person in furtherance of his business, and which is the result of R&D activities including also intangible assets for which only economic ownership exists.

The categories of qualifying intangible assets are:

• Patents as determined under the Cyprus patents law of 1998
• Computer software
• Other IP legally protected assets which are either:
  
  • Utility models, IP assets which protect plants and genetic material, orphan drug designations and extension of protections for patents;
  • Non-obvious, useful and novel where persons using them in furtherance of a business does not provide annual gross revenues exceeding EUR 7,500.000 certified by an appropriate authority in Cyprus or abroad.

Marketing-based IP assets, such as trademarks and brand names, do not qualify. The focus on R&D driven assets ensures that the regime promotes technological advancement and true innovation.

Eligible entities under the Cyprus IP Box Regime include:

• Cyprus tax residents
• Cyprus permanent establishments (PEs) of non-Cyprus tax resident entities
• PEs of overseas entities liable to tax in Cyprus

The Cyprus IP Box Regime provides significant benefits for businesses:

• Reduced tax rate - The IP Box Regime can reduce the effective tax rate as low as 2.5% for companies that hold IP and possess qualifying assets.
• Notional interest deduction (NID) - The IP Box Regime permits NID equal to 80% of the qualifying profits derived from eligible IP.
• Tax efficiency - The NID permitted under the IP Box Regime and the reduced tax rate allows businesses to reinvest in innovation and growth.
• Competitive edge - Lower operational costs related to IP activities strengthen competitive positioning in global markets.
• R&D incentives - By linking tax breaks to substantial R&D activity, the regime encourages businesses to prioritise innovation, fostering economic growth.
• Attraction of foreign investment - The regime, combined with Cyprus's strategic location and favourable business infrastructure, places Cyprus as an ideal hub for IP development and investment.
• Global expansion opportunities - Access to a wide network of double tax treaties simplifies cross-border IP operations and supports global scalability.
  Exemption from Cyprus capital gains tax - Capital gains derived from the disposal of qualifying IP is entirely tax exempt in Cyprus, further bolstering the regime's appeal.

To apply and receive the benefits of the Cyprus IP Box Regime, businesses must follow these straightforward steps:

• Check eligibility - Determine whether your company qualifies under the IP Box Regime. Ensure the business operates in Cyprus and possesses IP assets developed through substantial R&D efforts.
• Identify qualifying intangible assets - Review all intangible assets and check whether they fall under the definition of “QIAs”.
• Find the qualifying expenditure - Find the costs which are related (directly) to the improvement, creation and development of QIAs.
• Find the qualifying profits - Find the proportion of the overall income which corresponds to the fraction of the qualifying expenditure adding the uplift expenditure over the total expenditure incurred for the QIA.
• Claim the 80% deduction (NID) - Claim 80% of the overall profit earned from the QIA as a deductible expense.
• Keep detailed records - Keep proper documentation with respect to the income and expense of the intangible assets.

In the case the conditions to benefit from the Cyprus IP Box regime would not be met, Cyprus resident tax payers may still enjoy the benefits of the Cyprus competitive corporate tax rate which is one of the lowest in the EU and access to a wide range of double tax treaties and EU directives facilitating tax-efficient cross-border transactions within the EU.

The Cyprus IP Box Regime represents a thriving example of how taxation can drive innovation, attract investment, and support economic progress. Cyprus offers a very attractive IP structure globally. Businesses seeking to leverage their intellectual property to its fullest, the Cyprus IP Box Regime delivers advantages in today's global economy.