The Cyprus Ministry of Finance (MoF) announced on 30 December 2015 that its new intellectual property (IP) tax regime will become effective on 1 July 2016. These changes will incorporate the recommendations of Action 5 of the Organization for Economic Cooperation and Development, which were issued on 5th October 2015 for the Action plan against “Base Erosion and Profit Shifting.
The MoF announcement states that it’s the intention of the Cyprus Authorities to provide for the maximum transitional arrangements for the amendment of the IP legal framework. This means that any IP that is benefiting from the Cyprus IP Tax Regime by the 30th June 2016, will continue to benefit for another 5 years, i.e. up to 30th June 2021 in order to provide tax payers with medium term stability. However a shorter transitional period to 31 December 2016 is expected for IP that is acquired, directly or indirectly, from related parties at any time in the first six months.
The new regime is expected to retain the competitive 2.5% or lower effective corporate tax rate, but with less income qualifying for that rate. The new qualifying income rules are designed to reflect research and development (R&D) expenses carried out by the claimant Company. Under the new regime companies will need to track and trace where R&D expenditure is spent, categorize per each individual patent and hence split/link their income to reflect the interconnection between the rights which create the income and the activity which contributes to that income.
Cyprus is expected to spontaneously exchange information as per the existing international agreements on entities which will be benefitting from the transitional arrangements if their IP entered into the current Cypriot IP box between 7 February 2015 and 30 June 2016.
Finally, taxpayers should determine whether they have eligible IP that is not benefiting from the current Cyprus IP box and if so they should consider introducing that IP to the current IP box by 30 June 2016 in order to take advantage of the transitional period through 30 June 2021.
Tel: +357 22591444