Amendments in IP objects taxation in Cyprus

21.08.2012

New amendments were introduced into the Income Tax Law 2002 approved by the Parliament that invoke changes in IP objects taxation, in particular, relating to income from such objects in the form of royalty.

Firstly, amendments concern accounting: expenses on development of intangible assets can be written off in proportion to the reasonable costs during 5 years.

Secondly, 80% of income in the form of royalty that was obtained from trading or using of IP objects will be estimated as contingent expenses of company. Thus, the tax base is 20% of income in the form of royalty regardless of the actual expenses of the company.

Expert’s opinion

It should be noticed that today the following scheme of taxation is used: the Cyprus company receives royalty by the sub-license agreement and transfers 95% of income to the proprietor in order to reimburse the expenses to offshore jurisdiction which allows to pay taxes only from 5% of income received. Now the tax base will be 20%.

However, the changes described are profitable in some cases, for instance, if the Cyprus company is the final recipient of income (the lower tax rate is applied) that is prescribed by some double taxation avoidance agreements.

Moreover, these changes allow the Cyprus companies to be the owners of IP objects following the requirements of implementing the lower tax rates in the country – payer of royalty.

Consequently, the amendments introduced into the Cyprus legislation can become the basis for developing of new ways of tax optimization.

On the basis: http://www.mof.gov.cy/mof/ird/ird.nsf/dmlindex_en/dmlindex_en?OpenDocument

Julia Akhmetova ( Paralegal of Moscow office Honest & Bright )