Cyprus Intellectual Property (IP) box Regime

The Cyprus IP Regime (“Regime”) makes Cyprus an attractive location for the set-up of an IP holding and development company, as it offers efficient tax rate as well as legal protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.

In October 2016, the Cyprus House of Representatives amended the Income Tax Law in an effort to meet the IP tax legislation provisions of the OECD. In some instances, the existing IP regime can be upheld for up to five years before applying the new tax regime policies.

It introduced the nexus fraction to determine the amount of qualifying profits that will provide the relevant tax deductions. The nexus fraction factors in the overall income with qualifying expenditure, uplift expenditure, and overall expenditure in an additive approach that takes into account all expenditures being incurred directly by the taxpayer over the lifetime of the IP asset.

A qualifying IP means an asset which was acquired, developed or exploited by a person in the course of his business and it is a result of research and development. It also includes assets for which only economic ownership exist.

Under the recently amended Regime, three types of intellectual property will be considered Qualifying IP Assets by the Cyprus Inland Revenue Commissioner:

  1. Patents,
  2. Computer software
  3. Utility models, other IP assets such as non-obvious, useful or novel rights.

Business names, brands, trademarks, image rights and other intellectual property rights used for the marketing of products and services are excluded from the definition of Qualifying IP.

Cypriot tax residents, Tax resident permanent establishments (PEs) of non-tax residents and PEs from foreign countries who have agreed to be subjected to tax in Cyprus are considered as Qualifying Persons / Establishments under the said Regime.

According to the Regime, 80% of “Qualifying Profit” generated from Qualifying IP Rights will be considered as a deemed expense for corporation tax purposes. The remaining 20% will be subject to the normal corporation tax rate of 12.5%. Thus, the Qualifying profits will have an effective tax rate of as low as 2.5%.

Qualifying Profit (QP)

The term Qualifying Profit is calculated as follows:

           QE + UE

QP=—————— X OI


QE: Qualifying Expenditure

UE: Uplift Expenditure

OE: Overall Expenditure

OI: Overall Income

Qualifying Expenditure (QE) is defined as the total expenses for research and development carried out wholly and exclusively for the development, improvement or creation of Qualifying IP in any fiscal year. The above expenditure should be a direct expenditure. Qualifying Expenditure includes but is not limited to the following:

  • Wages and Salaries for research and development
  • Direct Costs
  • General expenses relating to the facilities used for research and development
  • Expenses for supplies relating to research and development
  • Expenditure relating to research and development which has been outsourced to an unrelated party

Not included: (a) Cost of acquisition of intangible assets (b) Interest paid or payable (c) Costs for the acquisition or development of immovable property (d) Amounts paid or payable directly or indirectly to a related party to conduct research and development irrespective of whether these amounts relate to a cost sharing agreement (e) Cost which cannot be proved that related directly to the Qualifying Asset Uplift Expenditure

Uplift Expenditure (UE) means the lower of:

  • 30% of qualifying expenditure, or
  • The total amount for the cost of acquisition and the research and development outsourced to related parties

Overall Expenditure (OE) relating to qualified intangible assets is defined as the sum of:

  • The qualifying expenditure;
  • The total costs of acquisition of the qualifying assets, plus the costs of outsourcing to related parties of any research and development activities in relation to those assets, incurred during any tax year.

Overall Income (OI) is defined as the gross income earned from qualifying intangible assets during the tax year, minus any direct costs incurred for generating the income.

OI includes, but is not limited to:

  • royalties or other amounts resulting from the use of qualifying intangible assets
  • license income for the operation of qualifying intangible assets
  • any amount received from insurance or as compensation in relation to qualifying intangible assets
  • income from the disposal of qualifying intangible assets, excluding profits of a capital nature
  • embedded income of qualifying intangible assets arising from the sale of products or services, or from the use of procedures that are directly related to the assets

On calculating OI, direct costs include as following:

  • all costs incurred, either directly or indirectly, wholly and exclusively for the purpose of earning the income from qualifying intangible assets
  • the amortization of the cost of the assets
  • notional interest on equity contributed to finance the development of the assets (being a notional interest tax deduction allowed by Cyprus tax provisions)

Biggest Advantages

The Cyprus IP regime is one of the most attractive IP regimes in Europe, with a number of advantages, including:

  • A low effective tax rate of 2.5%
  • A wide range of qualifying assets
  • A simple and easy-to-use application process


The Cyprus IP regime is suitable for a wide range of businesses, including:

  • Software companies
  • Pharmaceutical companies
  • Biotechnology companies
  • Medical device companies
  • Creative industries companies

Please feel free to contact our Team directly for more information or assistance you may need.