Cyprus Intellectual Property Company - The Cyprus IP Box Regime
Intellectual Property (IP) can be one of the most valuable assets of an individual or a company. Choosing the right location for the centralisation and management of IP is a highly important commercial decision.
Cyprus is known as a very attractive jurisdiction for the establishment of Intellectual Property/Royalty holding companies and holding structures in general. For professional assistance and advise please contact solutions@oxfordcy.com.
CYPRUS AN IDEAL LOCATION FOR INTELLECTUAL PROPERTY ASSETS: KEY BENEFITS
- Cyprus is an attractive location for the establishment of an IP holding and development company, offering an efficient tax rate (effective corporate tax rate as low as 2.5%) as well as the legal protection afforded by EU Member States and by the signatories of all major IP treaties and protocols;
- Cyprus offers a “deemed deduction” of 80% of qualifying profits generated from qualifying assets for the computation of tax during the year;
- Cyprus provides a zero withholding tax on outbound dividends, interests and royalties to non-residents of Cyprus (physical and legal person) except in the case of royalties earned on rights used within Cyprus, which are subject to WHT of 10%. Such Cyprus WHT on royalties for rights used within Cyprus may be reduced or eliminated by Double Tax Treaty entered into by Cyprus or by the EU Royalty Directive as transposed into the Cyprus tax legislation;
- Cyprus provides unilateral tax credit for any tax withheld overseas on the payment of Royalties (as well as dividends and interest). Thus the tax in Cyprus can be reduced to a very low amount or zero in most cases;
- Large network of tax treaties with very favorable clauses. Many of the treaties impose low or nil withholding tax on dividends, interest or royalties at source;
- European Union parent subsidiary directives apply;
- Registration to V.A.T. for EU transactions;
- EU presence.
STRUCTURE OF CYPRUS ROYALTY ROUTING
Illustration 1:
A Russian tax resident company has charged a Cyprus tax resident company €100,000 as royalty fees for allowing the Cyprus Company to exploit the intellectual property of the Russian tax resident company.
Scenario 1:
The Cyprus tax resident company earned incomes both in the Republic of Cyprus and outside the Republic of Cyprus in equal proportions.
Hence, the 10% withholding tax will apply on half the royalty payment made towards the Russian tax resident company. For the other half income outside the Republic of Cyprus, no withholding tax will apply.
Scenario 2:
The Cyprus tax resident company earned all incomes completely in the Republic of Cyprus, then 10% withholding tax will apply on the entire amount of €100,000
Scenario 3:
The Cyprus tax resident company earned all incomes completely outside the Republic of Cyprus, then no withholding tax would have applied on the €100,000
If the above Scenario 1 and Scenario 2, if the Double Tax Treaty signed between Cyprus and Russian stated a more favourable rate of withholding tax (less than 10%), then the reduced agreed rate would have applied on the royalty payment.
Illustration 2:
An EU member tax resident company has charged a Cyprus tax resident company €100,000 as royalty fees for allowing the Cyprus Company to exploit the intellectual property of the EU tax resident company. The Cyprus tax resident company earned incomes both in the Republic of Cyprus and outside the Republic of Cyprus in equal proportions.
Due to EU Royalties Directive, Cyprus will not withhold any taxes made to EU “affiliated undertakings”, irrespective if the intellectual property was exploited in the Republic of Cyprus.
An “affiliated undertakings” exists when a minimum 25% share capital participation exists between the paying out entity and the recipient entity or when a third party owns a minimum of 25% in both paying out and recipient entity.
