Cyprus IP Incentives

The tax incentives offered under the ITL are the following:

• IP Box deduction: 80% of the qualifying profits arising from a qualifying asset (subject to conditions, as discussed below) pushing the effective tax rate to as low as 2.5%.
•  R&D super-deduction: all expenses for scientific research, and all R&D expenses, as recognized by international accounting standards, that have been incurred by a person who carries on a business and has the economic ownership of the relevant intellectual property asset will be treated as tax deductible. An additional deduction equal to 20% of the actual amount of the relevant R&D expenses is available for R&D expenses incurred during the tax years 2022, 2023 and 2024 (including expenses of a capital nature) to taxpayers that do not claim a deemed de-duction under the IP Box regime.

• CIT exemptions:
  • Gains from the disposal of IP assets is not subject to CIT provided they are of a capital nature transaction (recommended to be confirmed in a tax ruling).
  • Gains from the sale of shares are unconditionally exempt from CIT in Cyprus. This exemption applies irrespective of the holding period, number of shares held or trading nature of the gain.
  • Dividend income is conditionally exempt from tax.
  • Foreign exchange (‘FX’) differences are tax neutral for CIT purposes in Cyprus. Any FX gains should not be taxable and FX losses should not be deductible.

• Personal Income Tax (‘PIT’) exemptions:
  • 20% or €8.550 exemption (lower of)
    • An Individual can claim the above exemption on the remuneration that is generated from first employment that is exercised in Cyprus if all the below apply:
    1. The Individual was employed outside of Cyprus for an employer not resident in Cyprus for 3 consecutive years prior to the commencement of his/her employment in Cyprus.
    2. The exemption can be claimed for maximum 7 years following the year of employment.
    3. Applies to employment which commenced after 26/07/2022 and up until the year 2027 inclusive. 

•  50% exemption
  • Is granted in any year in which the remuneration from first employment in Cyprus exceeds €55.000, irrespective of whether in any tax year the said remuneration falls be-low €55.000, provided that during the 1st or 2d year of employment in Cyprus the said remuneration exceeded €55.000 annually. 
  • Is granted for a period of 17 years, commencing as of the year of employment in Cyprus. 
  • The Individual should have been resident outside of Cyprus for at least 10 consecutive years prior to the commencement of his/her employment in Cyprus. 
  • Applies to the employment which commenced after 01/01/2022.

• Notional Interest Deduction (‘NID’) on new equity capital: This deduction applies to businesses which generate taxable income (income generated from IP activities should in general qualify). NID is restricted to 80% of the taxable income resulting from the use of the new capital before NID. NID does not apply in case of tax loss/break even position.

• IP Amortisation Period: All intangible assets (excluding goodwill), irrespective of whether they are qualifying assets or not, are eligible for amortisation over their useful economic life for a maximum period of up to 20 years (the exact amortisation period to be confirmed in a tax ruling).

• Tax credits: Foreign tax paid or withheld on profits and gains of a Cypriot tax resident company can be credited against any Cypriot tax payable provided sufficient and appropriate evidence exists. Such tax relief cannot exceed the Cypriot tax payable on the same income or gain in the same income tax year. Any excess foreign tax credits which are not utilised cannot be set-off against other sources of income and cannot be carried forward to future periods.