The 3% Corporation Tax (used to be 2.5%), the Cyprus IP Box

The Cyprus IP Box Tax Regime is one of the most tax advantageous schemes that exist in the world offered to Cyprus Technology companies which create their own intellectual property patterns as it allows for an effective corporation tax for this companies at 3% (instead of 15%). Coupled with 0% dividend tax the IP Box Tax Regime ensures a total tax dominance in the tech space giving a total tax of 3% (corporate and dividend tax) to tech companies.

Companies can relocate to Cyprus of create Cyprus subsidiaries or branches which will create their own intellectual property products such websites, mobile applications, games, plug ins and any innovative software ideas that can be used by a 3^rd party.

Cyprus Tax Incentives for Technology Companies

Cyprus companies which create their own intellectual property are entitled to a 3% corporation tax of all IP income. This tax treatment is provided by the Cyprus Income Tax Office in writing to the applicant following the successful application.

The IP Box tax incentive conditions are as follows:

Conditions for obtaining the Cyprus IP Box Tax Status:

• Applicant must be a Cyprus Company or a Cyprus branch
• Applicant must create something innovative that falls under the definition of an intellectual property
• The IP should be used by 3^rd parties and not related parties
• The creation of the IP must occur using the applicants own resources or by outsourcing work to 3^rd parties (non-related parties are excluded)
• The applicant must use a regulated audit & assurance firm like CYAUSE Audit Services, explain in detail its operations and get the acceptance of the IP Box tax status in writing by the Cyprus Income Tax office.

Examples of Eligibility

Example 1

A Cyprus entity will create a software which can be used by users to protect their website from viruses and hacks. This entity will use its own resources to create it and hire independent 3^rd parties for the development.

Is this scenario eligible for the Cyprus IP Box: Yes.

• Applicant is a Cyprus Company
• Applicant will create the software via the Cyprus entity and with its own and 3^rd party resources.
• The intellectual property (the “IP”) is something unique which will be used by various independent users.

Conclusion: All revenue stream from this Cyprus entity will be taxed at an effective tax rate of 3%.

Example 2

A Cyprus entity belonging to a group will create a software which can be used within the group entities to protect their websites from viruses and hacks. This Cyprus entity will use its own resources to create it and hire independent 3^rd parties for the development.

Is this scenario eligible for the Cyprus IP Box: No.

Even though the intellectual property (the “IP”) is something unique it will not be used by various independent users but within the group and as such the application will be rejected.

Conclusion: All revenue stream from this Cyprus entity will be taxed at a the normal corporation tax rate of 15%.

Example 3

A Cyprus entity will create a software which can be used by users to protect their website from viruses and hacks. This entity will use its own resources to create it and hire independent 3^rd parties for the development.

The Company revenue streams are indenting to be from the licensing of the usage of the software and subsequent advisory services to these users which are corporates (upselling, cross-selling etc).

Is this scenario eligible for the Cyprus IP Box: Yes.

• Applicant is a Cyprus Company
• Applicant will create the software via the Cyprus entity and with its own and 3^rd party resources.
• The intellectual property (the “IP”) is something unique which will be used by various independent users.
• Revenue streams come directly from the usage of the software and from the advisory services.

Conclusion: Revenue stream from licensing of the software will be taxed at an effective tax rate of 3% whereas the revenue forms the consulting activities will be taxed at the normal corporate tax rate of 15%.

Read related articles on the Non Domiciled Tax Status

• Cyprus IP Box Regime – 3% Tax on Intellectual Property Income (FAQ Guide)
• The Cyprus IP Box Regime - 2.5 Corporation Tax & 0% Dividend Tax
• How the Cyprus IP Box works in Practice Under the OECD “Modified Nexus” Approach
•  Why Tech Companies Are Relocating to Cyprus: The EU’s Rising Innovation Hub
• Non – Domicile Application – What does the applicant should know when applying?
•  The Importance of Protecting your Trademarks. Why You Should Protect Your Brand Name in Cyprus and Beyond
• IP, Trademarks, Patents and Cyprus!

Additional Benefits for Cyprus Companies (technology companies included)

Cyprus IP box together the non-domicile tax regime which can be extended for up to 27 years makes Technology companies established in Cyprus the most tax efficient European Structures in the world with a total tax of 3%; a 3% corporation Tax + 0% dividend tax which applies to Cyprus Tax Residents and non-domiciled shareholders as well as to overseas shareholders.