Cyprus: An Attractive Intellectual Property Destination With Considerable Tax Incentives4 min read
Intellectual property is the field area of law that approaches the protection of the rights of the creators of original works. It includes everything, i.e. literature, music, inventions and trademarks. Generally speaking, the main purpose of intellectual property jurisdiction are to endorse the development of new technologies, inventions, arts and promote economic growth and innovation. That is to say, individual creators and inventors tend to have stronger incentives to elaborate their creative projects once they are aware that their work will be protected and they may have some financial benefits from it.
Cyprus established an innovative system that deals with the protection of IP rights in details. Precisely, it was set up an advanced system that guarantees that the outcomes of innovation and creativity are protected at a national, European and International levels. In addition to this, Cyprus is a signatory to international IP treaties and protocols such as WIPO, European Community Trademarks, The Patent Cooperation Treaty, Paris Convention for the Protection of Industrial, Trademark Law Treaty a.o.
In Cyprus, the main mechanisms for intellectual rights protection are patents, trademarks and copyrights.
Patents protect a work from being created, traded or used by others for a particular period. In Cyprus, a national patent certificate is issued by the Department of Registrar of Companies and Official Receiver. On the other hand, a European Patent certificate is granted by the European Patent Office. International Patent certificates following the provisions of the Patent Cooperation Treaty are managed by the World Intellectual Property Organization (WIPO).
Trademarks protect the names and enable the identification of brands, products and companies. The logic of trademarks is to assist the consumers to distinguish the different competitors. Trademarks are established when a business begins using a unique mark to identify its company.
Trademarks protection is arranged in the following ways:
1. The provisions of Cap. 268 of the Cyprus Law offers protection at a national level.
2. The EU Regulation 207/2009 and the EU Regulation 6/2002 offer through Cyprus, uniform protection in the whole territory of the European Union.
3. Given that Cyprus is a signatory to the Paris Treaty on the Protection of Industrial Property, as managed by WIPO and a party to the Madrid Protocol, a global protection of trademarks is guaranteed.
Copyrights consider the protection of artistic works. Creators have exclusive rights to reproduce and exhibit their work in public as they wish. Nonetheless, it should be clarified that copyrights do not consider the protection of ideas but the way they are expressed. Copyrights enable creators to have financial benefits from their work. Furthermore, copyrights impede others from benefiting from creators’ work without their permission.
The Law N.59/79 on the Protection of Intellectual Property offers copyrights protection at a national level. In addition, Cyprus is a signatory to the Bern Convention for the Protection of Literary and Artistic Works that comprises an extensive range of rights, including software copyrights. The latter provides protection to all the Convention member states with no further action being required.
Cyprus “IP Box”:
In Cyprus, the “IP Box” scheme was introduced on the 1st of January 2012. Specifically, it is a package of incentives and tax exemptions concerning revenue derived from IP rights. Among the principle objectives are to endorse investments in research and development and innovative inventions that will be beneficial to the general public. The concept of “IP box” refers to reduced taxation on income or profits coming from license, disposal, or transfer of a patent.
The EU countries that apply similar IP taxations schemes are France, Belgium, Hungary, Ireland, Luxembourg, Netherlands, Spain and the UK. “IP box” schemes could be divided into two categories. The first category, adopted by France, the Netherlands and the UK, refers to tax reductions on qualifying income. The second category, adopted by Belgium, Hungary, Luxembourg, Spain and Cyprus, considers an exemption of a particular percentage of revenue.
Cyprus offers considerable tax incentives such as:
- Effective tax rate of 2.5% per year, which is the lowest percentages within the EU. Cyprus is more competitive than other countries. Precisely, in Luxembourg the effective tax rate is 5.7% and in the Netherlands 5%. As a result, businesses investing in IP assets in Cyprus can take an advantage of an effective tax rate of 2.5% from the exploitation of IP. At the same time, they benefit from EU and international IP treaties and protocols.
- Competitive amortization provisions for five years. This provision refers to IP rights obtained or developed after the 1st of January 2012.
- Cyprus has a wide network of double tax treaties.
- 80% of global royalty net income generated from IP owned by companies based in Cyprus is exempt from income tax.
- 80% of the net profit generated from the disposal of IP owned by companies based in Cyprus is exempt from income tax.
A Cyprus International Trust obtaining dividends from a Cyprus IP owner will not be subjected to any kind of taxation in Cyprus. Moreover, the trust may accrue income that can be converted into capital at the end of the year without any tax consequences for the trust or its beneficiaries, given that none of the beneficiaries is a Cyprus tax resident.
An IP obtains the benefits mentioned above only if the taxpayer is the owner of the IP, officially register in Cyprus or abroad. Moreover, the IP should be applied in the generation of income.
The efficient IP tax regime and the corporate jurisdiction of Cyprus are two important factors that constitute Cyprus a highly attractive destination for the acquisition or development IP assets. As it was elaborated above, Cyprus IP box offers attractive incentives for establishing a business in IP in Cyprus.