Cyprus royalty regime

Cyprus can be very attractive for establishing a royalty company thanks to its competitive local tax-regime, access to EU Directives and its impressive network of Double Taxation Agreements (DTAs).

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Cyprus can be very attractive for establishing a royalty company thanks to its competitive local tax-regime, access to EU Directives and its impressive network of Double Taxation Agreements (DTAs). 

In January 2012, Cyprus introduced new rules on the taxation of income from intangible assets with a view to establishing itself as a primary choice jurisdiction for royalty holding structures. These changes allow Cyprus to compete with other jurisdictions that offer similar incentives such as the UK or Malta.

In essence, the new tax regime provides for favorable tax treatment in relation to income generated from any type of intellectual property rights, patents and trademarks as well as providing for generous capital allowances for acquisition and development of such rights.

Prior to the amendment, any income from IP Rights was taxed under the normal corporate tax rate of 12.5% on any resulting net profits. However, according to the new regime, 80% of "Royalty Profit" generated from such IP Rights will be exempt from corporation tax. The remaining 20% will then be subject to the normal corporation tax rate of 12.5%.

It is important to stress that the favourable tax treatment also covers the profit from any future sale of the IP Rights. This will allow the owners of the IP Rights not only to enjoy tax benefits on the income generated from the use of such rights but also provides for a tax efficient exit route in the future.

In conclusion, the nominal tax rate applicable on the Cyprus Royalty Company will be no higher than a maximum of 2.5%. It is also worth remembering that the net profits may then be distributed to an EU/non-EU parent company as dividends, without any WHT being incurred.

The Cyprus Royalty Regime overview:

- An 80% exemption on royalty income and capital gains upon disposal of IP

- Gross IP income reduced by expenses incurred for production of IP income

- Wide range of qualifying IP rights

- Nominal tax rate of 2.5% or less

- Benefits of EU directives/membership, as well as a wide DTA network

- IP Protection due to Cyprus being signatory to various conventions including the Madrid Protocol

Should you need any advice on international tax structuring or our Cyprus services, please complete the enquiry form and one of our Corporate and Trust Planning Consultants will contact you shortly.
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Jordans Trust Company (Cyprus) Limited.
41-43 Klimentos Street
Klimentos Tower
2nd Floor
Office 26
Nicosia 1061
Cyprus