Cyprus IP Box Tax Regime
Cyprus has positioned itself as one of the leading European hubs for innovation, research, and development. Benefit from Cyprus's competitive IP Box regime with 80% tax exemption on qualifying profits, reducing effective tax to 2.5%.
IP Box Regime
2.5% Effective Tax Rate
What Is the IP Box Regime?
The Cyprus IP Box is a preferential tax scheme designed to reward companies that generate income from qualifying intangible assets. By offering an 80% tax exemption on qualifying profits, the regime reduces the effective corporate tax rate from the standard 12.5% to as low as 2.5% — one of the lowest effective rates in the EU.
Key Advantages
- Allows companies to significantly increase their after-tax return on innovation-driven activities
- Fully aligns with OECD and EU requirements, ensuring transparency and long-term security
- Applies to licensing, royalties, IP-related trading income, and sale of products incorporating IP
Qualifying Intangible Assets
Only certain categories of intangible assets are eligible under the Cyprus IP Box. These must be the result of genuine research and development (R&D) activities.
Patents
Patents and patent-equivalent rights developed through substantial R&D activities.
Software
Copyrighted software developed through coding and programming activities.
Other IP Assets
Non-obvious, useful, and novel intangible assets resulting from substantial R&D efforts.
Excluded Assets
Important: Trademarks, image rights, business names, and marketing-related IP rights are excluded from the regime. The focus is strictly on innovation and technology development.
The Nexus Fraction
The level of qualifying profit that can benefit from the 80% exemption is determined through the nexus fraction, which links R&D expenditure to overall income derived from the qualifying asset.
Calculation Formula
Qualifying Profits = OI × (QE + UE) / OE
Key Components:
- OI: Overall Income (gross revenue less direct costs)
- QE: Qualifying Expenditure (eligible R&D costs)
- UE: Uplift Expenditure (30% of QE or acquisition costs)
- OE: Overall Expenditure (total costs)
Eligible R&D Costs:
- • Salaries and wages
- • R&D overheads
- • Outsourced work to unrelated parties
- • Direct materials and supplies
Key Features and Benefits
Ultra-low Tax Rate
Reduction to as low as 2.5% on qualifying profits
Capital Gains Exemption
Proceeds from disposal of qualifying intangible assets are fully exempt from capital gains tax
Double Tax Treaties
Access to over 65 double tax treaties enhances international tax planning
R&D Incentives
Companies are encouraged to expand research activities in Cyprus
Investment Magnet
Strengthens Cyprus's role as an innovation hub for technology, fintech, and pharmaceutical companies
OECD Compliance
Fully compliant with OECD BEPS Action 5 requirements ensuring long-term sustainability
Compliance and Record-Keeping
Record-Keeping Requirements
- Maintain proper books of account and records for each qualifying intangible asset
- Clearly separate income and expenditure for each asset
- Claims made via annual Income Tax Return within 15 months of tax year-end
Tax Rulings & Losses
- No prior approval required from Cyprus Tax Department
- Obtaining a tax ruling is strongly recommended for certainty
- Losses from qualifying assets may be carried forward (20% relief in future years)
Our Services
At Psavvides Law Office, we provide tailored guidance to help businesses leverage the Cyprus IP Box regime effectively:
Assessing whether your IP qualifies under the Cyprus regime
Structuring R&D operations to maximise tax efficiency
Preparing and submitting tax rulings to the Cyprus Tax Department
Assisting with accounting compliance and record-keeping
Advising on the use of Cyprus's double tax treaty network for IP income
Designing corporate structures for holding, licensing, and exploiting intellectual property
Ready to Leverage the Cyprus IP Box Regime?
Our experienced tax lawyers can help you structure your intellectual property operations to maximise the benefits of Cyprus's competitive IP Box regime. Contact us today for expert guidance on your IP tax planning strategy.