Royalty Routing through Cyprus Companies
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TAX RATE ON ROYALTY PROFITS
2%
ACQUISITION COSTS
DEDUCTIBLE
WITHHOLDING TAX
0%
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Types of Intellectual Property Included
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EnactmentIn May 2012, the Cyprus Government voted new amendments to the Income Tax Law aiming to establish Cyprus as the ultimate royalty and holding structure jurisdiction.
These changes allow Cyprus to compete favourably with all other jurisdictions, which offer similar incentives. The most important change in the law is the creation of a specific tax regime for companies owning any kind of intellectual property right out of which royalty income is generated, making the “Cyprus Royalty Company” the best vehicle for holding intangible assets. The amendments came into effect retrospectively, from the 1st of January 2012. |
Tax Treatment of Royalty Profits in CyprusPrior to the amendment, all profits from IP Rights were taxed under the normal corporate tax rate of 10% on any resulting net profits.
Under the new amendment, 80% of profits generated as royalties from such IP Rights will be exempt from corporation tax. The remaining 20% will be subject to the normal corporation tax rate of 10%. In conclusion, the effective tax rate applicable on the Cyprus Royalty Company will not be higher than a maximum of 2% on its Royalty Profits. To calculate the profit generated from royalties, we deduct from the total of the income derived from IP Rights, all expenses incurred wholly and exclusively for the production of the IP Rights income. |
Acquisition / Development AllowanceIn addition to the above, the Cyprus Company holding the IP Rights will be able to write off the capital expenditure made on the acquisition or development of such rights in the first five years of use. The company will be able to receive capital allowances of 20% straight line starting from the first year of the use of the asset as well as the subsequent four years of usage. These capital allowances are considered of course tax deductible, which makes the tax benefits of the first five years for the Cyprus Royalty Company even more attractive.
In conclusion, the effective tax rate applicable on the Cyprus Royalty Company will not be higher than a maximum of 2% on its Royalty Profits. The effective rate can be further reduced by the deduction of the above capital allowances. |
Cyprus Companies Tax Benefits in General
Some of the major tax benefits arising from the use of a Cyprus Royalty Company to the international business community is presented below:
- Cyprus corporate rate (10%) are among the lowest within EU;
- Cyprus does not impose withholding taxes on royalties paid by a Cyprus company to a foreign licensor, provided that the rights are exercised outside Cyprus;
- Cyprus has a vast worldwide network of double tax treaties, and since 1st May 2004 when Cyprus entered the European Union, the EU directive on interest and royalties applies. The directive can provide for NIL (0%) withholding taxes on royalty payments between EU countries.
LLPO Law Firm services for Cyprus Companies
Our team has the necessary expertise and is in the position to offer an integrated range of professional services and advice on the formation of a structure that is tax efficient and tailored to your specific needs.
We excel on the implementation and management of practical tax solutions aimed at meeting your business objectives.
Services Provided:
We excel on the implementation and management of practical tax solutions aimed at meeting your business objectives.
Services Provided:
- We can source the tax advice and assist in the architecture of the optimal structure for your business needs;
- Implement the structure in accordance to the advice;
- Offer the day-to-day administration and back office support in line with the agreed advice;
- Liaise with third party lawyers/ auditors to ensure financial reporting and tax compliance in line with the tax advice;
- We can register and administer the Cyprus company.
