Tax Benefits for Royalty Companies in Cyprus

Among other things, Intellectual Property (IP) can include computer software, technical knowledge, patents, trademarks, copyrights and trade secrets and methods. Careful structuring of ownership of IP and subsequent channeling of license payments can lead to significant tax benefits and the use of a Cypriot company can play a deciding role in the process. The gross amount of any royalty, premium, compensation or other income derived from sources within Cyprus by any person not being a tax resident is subject to a withholding tax of 10%. Because of Cyprus’ Double Tax Treaties (DTT) and the EU Directives, this percentage can be reduced, which makes establishing a royalty company in Cyprus very fiscally attractive.

Tax advantages

• Vast Double Tax Treaty network.
• Direct effect of the EU Interest and Royalty Directive.
• One of the lowest corporate income taxation (12.5%) in the European Union.
• Any dividends earned by non-residents of Cyprus are exempt from withholding tax.
• Any interest payments to non-residents of Cyprus are exempt from withholding tax.
• Any royalties paid to a Cypriot company may be exempt or are subject to a reduction of withholding tax under a Double Tax Treaty or the EU Interest and Royalty Directive.
• Tax deduction for any royalty payments.
• An effective tax depreciation of investments in IP (over 5 years period).
• Royalty payments (including to offshore companies) for rights used outside of Cyprus can be exempt from withholding tax.
• Reasonable level of margin required by tax authorities.
• Stringent protection of IP rights by legislation and the participation of international agreements with Cyprus.
• Neutral VAT treatment.
• 80% of gains arising from use of IP (including compensation for improper use of such asset) as well as the profit from their sale is deemed an expense in determination the taxable income.

For more information and/or advice, please contact us via email at [email protected]