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  • Service: Tax & Legal, International Corporate Tax, International Corporate Tax
  • Type: Publication series
  • Date: 7/20/2012

The Cyprus new IP Regime 

Cyprus evolving into a leading IP location

Why Cyprus?

Being a traditional location for holding and financing companies, Cyprus has recently implemented a new IP regime, expected to stimulate the growth driving sectors of IP exploitation and Research and Development. Resting on a sound legal system based on Common Law principles, and the conclusion of International Conventions on the Protection of Intellectual Property, the Cyprus new IP Regime guarantees maximum protection and certainty for IP owners.

IP Protection in Cyprus

The protection of IP rights is dealt extensively in Cyprus. There is a comprehensive system in place that guarantees that the results of innovation and creativity are protected at a European and an International level.

a. Patents

As far as patents are concerned, a new invention is protected in the following ways in Cyprus:

  • A national patent certificate is granted by the Department of Registrar of Companies and Official Receiver.
  • A European Patent issued by the European Patent Office.
  • An International Patent under the provisions of the Patent Cooperation Treaty, administered by the World Intellectual Property Organization (WIPO).

b. Trade marks/Service Marks/ Designs

As far as Trademarks/Service Marks and Designs are concerned, protection is granted in the following ways:

  • Registration under the provisions Capital 268 offering protection at a National level.
  • EU Regulation 207/2009 of 26 February 2009 on the Community Trademark and EU Regulation 6/2002 of 12 December 2001 on the Community Design offer via Cyprus uniform protection throughout the territory of the European Union.
  • Cyprus being a signatory to the Paris Treaty on the Protection of Industrial Property, as administered by the World Intellectual Property Organization (WIPO) and a party to the Madrid Protocol, offers global protection of trademarks, service marks and designs.

c. Copyrights

  • Copyrights are protected under Law N.59/76 on the Protection of Intellectual Property which offers protection at a National level.
  • Cyprus being a signatory to the Bern Convention for the Protection of Literary and Artistic Works which covers broad range of rights, including software copyrights. This guarantees protection to all the Convention member states with no further process being required.

Tax Benefits

Also complemented with the beneficial tax provisions, that render the Cyprus tax system as one of the most favorable in the EU, featuring a 10% corporate tax rate, no withholding tax on outgoing payments (interest, dividends, royalties) and no exit taxes.

Cyprus, offers an extensive double tax treaty network that ensures withholding tax optimization on royalty payments that may arise from the contemplated IP arrangements and access to all EU Tax Directives.

The new IP Regime in the spotlight

  • An 80% exemption on royalty income and capital gains upon disposal of IP;
  • No recapture system for previously generated losses – losses can be carried forward indefinitely;
  • Gross IP income reduced by expenses incurred for the production of IP income;
  • Competitive amortization provisions over a 5 year period;
  • Wide range of qualifying IP rights;
  • Effective Tax rate of 2% or less!

Qualifying IP Rights include amongst others:

Patents , trademarks/service marks, designs/models, internet domain names, software copyrights, secret formulae, know-how, work in process R&D, lists, rights related to scientific, literary or artistic work, rights related to industrial or commercial work.

Taxation of Royalty Income (Practical Example)

A Cyprus tax resident company derives royalty income amounting to EUR 100.000 and incurs directly related expenses of EUR 40.000. Under the new IP Regime the royalty income will be taxed as follows:

Net Income from royalties

(100.000- 40.000)

€60.000

80% Statutory exemption

60.000 x 80%

(€48.000)

Taxable Income

 

€12.000

Tax Liability

12.000 x 10%

€1.200

Effective tax rate

 

0.20%

Taxation of Disposal of IP Proceeds

A Cyprus tax resident company disposes an IP right for EUR 1.000.000. The cost of acquisition was EUR 500.00 and amortization was claimed for one year. Under the new IP Regime the proceeds from the disposal will be taxed as follows:

Sales proceeds

 

€1.000.000

Less: Costs of acquisition

 

(€500.000)

Add back: Amortization claimed

 

€200.000

 

 

€700.000

80% statutory exemption

700.000 x 80%

(€560.000)

Taxable income

 

€ 140.000

Tax Liability

140.000 x 10%

€14.000

Effective tax rate

 

0.014%

The Cyprus IP Regime at a glance

- Copyrights

- Patents

- Trademarks

- Service marks

- Software

- Trade secrets

- Know-how

- Client lists

- Work in progress R&D

- Acquired or developed post 1st January 2012

- Royalty payments

- Damages

- Capital Gains

- 80% exemption on qualifying net income

- Effective tax rate: 2% or less!

        Why KPMG?

        KPMG has an experienced and multi-disciplinary tax and legal team. Moreover, members of KPMG Cyprus team have also worked closely with the Cyprus Ministry of Finance as the proposed amendments have been developed.

         

        Contacts:

        Anna Voronkova

        Partner

        +7 (495) 937 44 77

        AVoronkova@kpmg.ru

         

        Evgenia Wolfus

        Director

        +7 (495) 937 44 77

        EWolfus@kpmg.ru

         

        Alexander Tokarev

        Senior Manager

        +7 (495) 937 44 77 (ext. 13888)

        ATokarev@kpmg.ru

         

        Daria Klementieva

        Manager

        +7 (495) 937 44 77 (ext. 13888)

        DKlementieva@kpmg.ru

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