Intellectual Property Cyprus
Secure your asset.
Intellectual Property rights in Cyprus.
The protection of Intellectual Property copyrights is essential as it provides a vast amount of advantages. Protecting IP, intangible assets of the company can turn into financially valuable capitals, while the acknowledgment and development of these strength points can position the establishment in a competitive level with many advantages.
IP in Cyprus.
Cyprus combines protection provided by EU and the International Regime of IP protection, after the agreements signed by the Republic of Cyprus. At the same time the tax regime of Cyprus provides important exemptions from the income tax arising from the use of Intellectual Property rights, something that is hard to find in other jurisdictions.
The extensive network of Double tax avoidance agreement, combined with the EU community directive, offer an attractive taxation scheme on the exploitation of Intellectual Property rights through Cyprus. Cyprus has signed multiple European and International agreements, and is a member of many organizations and communities for the development and the protection of IP rights. Some of them are: World Intellectual Property Organization, the agreement and protocol of Madrid for the international registration of trademarks, Paris convention for the protection of IP, the Patent Cooperation Treaty, the Bern convention on the protection of literature and artworks.
Intellectual Property rights in Cyprus works automatically and no registration is needed.The Intellectual Property Law (59/1976) protects Cyprus citizens for their work issued anywhere in the world and the foreigners for their work issued in Cyprus. Intellectual Property copyrights are protected for:
Securing an Asset.
The main types of Intellectual Property rights are the below.
Diploma of Patent.
The Diploma of Patent protects new inventions relevant to innovation, procedures, or updates on how a product or a method function. The diploma is granted when the invention is new ready and can be applied in the industry. Owning a Diploma of Patent you have the absolute rights of your invention for 20 to 25 years depending on the industry. The rights cover the construction, the sale, import and export of the patent and more.
The power of the Diploma of Patent is valid geographically on the area that is registered. For example, a Cyprus Diploma of Patent protects the owner only in the Cyprus Republic. For worldwide protection a patent needs to be submitted on international level.
Industrial design or sketch protects the appearance of a product. The industrial design consists of the outline, the shape, the color, the texture, the materials used and even the decoration. The industrial design rights do not protect the way a product operates. The operation procedure has to be protected with another type of Intellectual Property rights such as the Diploma of Patent.
When submitting an industrial design is important to advice the Locarno international system of classification for industrial design which is under the umbrella of WIPO (World Intellectual Property Organization). The Locarno Classification, established by the Locarno Agreement (1968), is an international classification used for the purposes of the registration of industrial designs.
Copyrights are the intellectual property rights that protect works such as literature, vision and sound, musical works, theatrical, movies, databases, recordings, shows, computer software and other similar work. Copyright is granted ex-officio without the need of submission of the work or any application and the right of use is valid right ahead. The conditions to protect such a work in Cyprus republic are:
- It’s a prototype work.
- The work was first published in the republic of Cyprus, or setup in the ground of the republic or was installed on a property in the ground of the republic.
- The copyright owner(s) is an individual citizen of the European Union or a legal entity incorporated in the EU.
Trademarks such as logos aim to distinguish the product or the service of a company from other relevant products or services. The trademark can be a word, a shape or a combination, an image, a sound or even a colour. A trademark can also be a combination of trademarks and logos. A trademark for many international organisations is a huge asset.
IP Box regime.Tax incentives.
Cyprus IP regime is fully compliant with international developments in the tax treatment of IP income and OECD’s guidance. The IP regime has been reviewed by the EU Code of Conduct and has been assessed as fully compatible with EU standards.
80% of the profits qualifying for the regime are exempt from tax. With a corporate tax rate of 12.5%, this can result in an effective tax rate of as low as 2.5%.
Under the Cyprus IP regime, 80% of the qualifying profits generated from the qualifying assets is deemed to be a tax deductible expense for qualifying taxpayers. In calculating the qualifying profits, the new regime adopts the ‘Nexus’ approach. According to this approach, the level of the qualifying profits is positively correlated to the extent the claimant performs R&D activities to develop the qualifying asset (QA) within the same company.
Qualifying assets include.
- copyrighted software programs, and
- other intangible assets that are non-obvious, useful and novel. Qualifying assets do not include trademarks and copyrights.
Qualifying persons include Cyprus tax resident taxpayers, tax resident Permanent Establishments (PEs) of non tax resident persons as well as foreign PEs that are subject to tax in Cyprus.
Qualifying profits are calculated in accordance with the nexus fraction.
The Nexus Fraction.
The nexus fraction is used to determine the amount of qualifying profits that will give the relevant deduction to the taxpayer. The provisions of the Intellectual Property regime link the benefits of the regime with Research & Development investments by the taxpayer. Qualifying taxpayers will be eligible to claim a tax deduction up to 80% of qualifying profits resulting from the business use of the qualifying assets.
The nexus approach is an additive approach; the calculation requires both that QE includes all qualifying expenditures incurred by the taxpayer over the life of the IP asset and that OE includes all overall expenditures incurred over the life of the IP asset.
Qualified profits are calculated as the example below.
The qualifying expenditure includes salary and wages, direct costs, general expenses associated with R&D activities and R&D expenditure outsourced to unrelated parties. The QE does not include any acquisition costs of the IP, interest paid or payable, any amounts payable to related persons carrying out R&D and costs which cannot be proved to be directly associated with a specific QA.
The up-lift expenditure (UE) is the lower of:
- 30% of the QE and
- The total acquisition cost of the QA and any R&D costs outsourced to related parties.
The overall income (OI) is calculated as the gross income less any direct expenditure (including the capital allowances) of this asset, i.e. the gross profit. Overall income includes, but is not limited to, royalties received for the use of the intangible asset, trading income from the disposal of qualifying asset and embedded income earned from the qualifying asset. Capital gains arising from the disposal of a QA are not included in the overall income and are fully exempt from tax.
Overall expenditure is the cost of the acquisition or development of intangible property of a capital nature is amortized in a reasonable manner over its useful economic life based on accounting principles within 20 years.
Losses from the qualifying assets.
Where the calculation of qualifying profits results in a loss, only 20% of this loss may be carried forward or group relieved.
Other intangible assets.
Other intangible assets that are used in the business of a taxpayer and do not qualify for the IP regime may still benefit from other provisions of the Cyprus tax law. In particular, capital allowances and/or notional interest deduction (NID) may be available to these assets, which will help reduce the overall effective tax rate of the company. Examples of such assets include trademarks, copyrights and other intellectual property assets.
As from July 2016, the capital costs of intangibles (excluding goodwill and qualifying assets as defined in the IP regime) are tax deductible in the form of capital allowances. The cost is spread over the useful life of the asset with a maximum useful life of 20 years.
Notional Interest Deduction (NID).
NID may be available on assets introduced in a Cyprus company through equity which are employed in the production of taxable income.