The Intellectual Property (IP) box is a corporate tax regime offering lower taxes on the income deriving from the use/exploitation of qualified IP assets, ie. royalties, licensing fees, gains on sale of IP, and patent infringement damage awards.

With an effective tax rate of 2.5%, Cyprus is one of the most attractive jurisdictions for IP Box tax regimes worldwide.

Cyprus introduced the IP Box regime for the first time back in 2012, with subsequent amendments in 2016 and in 2024, in accordance with Action 5 “Modified Nexus Approach for IP regimes” of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan.

Companies owning qualifying IP assets, generating royalty income, can benefit from lower tax rates, by choosing the right jurisdiction with the most beneficial tax regime. 

Currently, 13 out of the 27 EU member states have implemented the patent box regime, with Cyprus having one of the lowest effective tax rates of 2.5%. The comparable rates in the nearest competitors are UK, France and Spain with 10%, the Netherlands with 9% and Portugal with 3.15%.  

Benefits of Cyprus IP Box

High tax deduction rate 80% of the qualifying profits earned from the use of IP is deducted for tax purposes. Consequently, only 20% of this income is taxable.	Effective tax rate 2.5% Given that the Cyprus corporate tax rate is flat at 12.5% (one the lowest in the EU), the effective tax rate for IP companies is 2.5%.	0% tax on gain from the disposal of IP   When the disposal of intangible assets is considered of a capital nature transaction, the resulting gain is not taxable.
Zero withholding tax on interest & royalty The EU Directive on interest and royalties, abolished the withholding taxes on royalty and interest payments levied at the EU country of source when received by a group company in another EU member state, ensuring that these payments are not taxed in more than one country.	Double Tax Treaties With more than 60 countries worldwide, Cyprus aims to remove the double taxation of income or gains that arises in one region to another region.	Unilateral Tax Credit Relief In cases were the Double Tax Treaty network or the Interest and Royalty Directive relief are not providing sufficient protection, it is possible for a Cyprus IP Holding Company, under the provisions of the Cyprus Tax Law, to claim a Unilateral Tax Credit Relief.

Qualifying assets are patents, computer software, utility models, other IP assets such as non obvious, useful or novel rights, as well as internally developed and acquired intellectual property. 

Non-qualifying assets are Business names, trademarks, image rights, marketing activities.

Qualifying profit (QP) is defined as the proportion of the overall income (OI) derived from the qualifying asset, corresponding to the fraction of the qualifying expenditure (QE) plus the uplift expenditure (UE) over the overall expenditure (OE) incurred for the qualifying intangible asset.

Overall income is defined as the gross income earned from qualifying intangible assets during the tax year, minus any direct costs incurred for generating the income.

Qualifying expenditure for qualifying IP assets is the sum of all R&D costs incurred during any given tax year, wholly and exclusively for the development, improvement or creation of qualifying IP assets, and which costs are directly related to such assets.

Uplift expenditure is equal to the lower of:

• 30% of the qualifying expenditure
• the total cost of acquisition of the qualifying intangible assets, plus the cost of outsourcing to related parties of any R&D activities in relation to such assets

Overall expenditure is defined as the sum of the qualifying expenditure and the total cost of acquisition of the qualifying assets, plus the cost of outsourcing to related parties of any R&D activities in relation to these assets, incurred during any tax year.

How we can help you

Our team of experienced and qualified professionals can provide a wide range of services in relation to the IP Box and any other related Services.

For more information on how we may be able to assist you and your business please contact us at uhy@uhy.com.cy

The contents of this publication should be considered to be of a general nature only not referring to any particular business. Before proceeding with any action, please request further advice relating specifically to your business. We will be very pleased to be of assistance.