Archives for July 2012

Loan and Interest for the Loan Tax Laws Improved in Cyprus to Reinforce the Cyprus Holding Facilities

In March 2012, the Cyprus House of Representatives changed the interest tax legislation, thus facilitating the use of the loan agreements within a tax group and the deductibility of the interest in some cases.

1.   After March 2012, any loans between a Cyprus mother company and its daughter company in which it owned 100 % shares may be given without any interest, unlike until recently, when it had to bear a market rate interest. 

2.   In case of direct or indirect acquisition of 100% shares in a subsidiary the interest for the received loans for such an acquisition are now deductable, thus reinforcing the Cyprus jurisdiction as the most attractive for “Holding” services.  In case that the subsidiary own some assets, which may considered not to be necessary for the business activity of the company, the possibility to deduct the interest will be in a percent, corresponding to the assets which are actually used in the business of the said company.

New Group Relief Rules in Cyprus Law

In May 2012, the Cyprus House of Representatives introduced new facilities for the Group relief in Cyprus.

Group relief is the deduction from the profits of one company of the losses of another company from the same tax group.

 A tax group exists when a company is incorporated by its mother company with minimum of 75% voting shares, directly or indirectly, and beneficially entitled, directly or indirectly, to at least 75% of the income and 75% of the assets in case of share transfer or any type of closing of the company.

Until recently, the Group relief could be applied only if all the tax resident companies were from the same tax group for the entire financial year for which was required the tax relief.

Now, for any moment the company becomes member of a tax group, it may apply the for the tax relief.

Important Facilities Introduced for Cyprus Royalty Companies

Cyprus has long been recognized as a favorable jurisdiction for businesses dealing with intellectual property (IP) and royalty income, thanks to its advantageous tax regime and robust legal framework. In recent years, several important facilities and incentives have been introduced to further enhance the attractiveness of Cyprus Royalty Companies, making Cyprus an even more appealing destination for international companies that generate substantial royalty income from intellectual property.

1. Low Effective Tax Rate on Royalty Income

One of the key advantages offered to Cyprus Royalty Companies is the highly favorable tax treatment on royalty income. Royalty companies established in Cyprus can benefit from a maximum effective tax rate of just 2% on qualifying royalty income. This is one of the lowest royalty tax rates available in the European Union, making Cyprus a competitive choice for IP-intensive businesses.

The effective tax rate is further reduced by taking advantage of the Cyprus IP Box Regime, which allows 80% of the qualifying income generated from the exploitation of IP rights to be exempt from taxation. This applies to income such as royalties, license fees, and income from the sale of IP assets.

2. Capital Allowances for IP Acquisition and Development

In addition to the low tax rate on royalty income, Cyprus offers significant capital allowances for the acquisition and development of intellectual property. Companies can benefit from a 20% annual capital allowance for the first five years following the acquisition or development of IP assets. This means that businesses can deduct a significant portion of the IP-related expenditure from their taxable income, further reducing their tax liability.

By utilizing these capital allowances, Cyprus Royalty Companies can effectively reduce their taxable base and enhance overall profitability, providing a substantial financial incentive for companies to establish their IP management operations in Cyprus.

3. Extensive Double Tax Treaty Network

Cyprus boasts an extensive network of over 60 double tax treaties, offering significant benefits to Cyprus Royalty Companies. These treaties ensure that income generated by Cyprus-based companies, including royalty income, is not subject to double taxation in other jurisdictions. The double tax treaties provide reduced withholding tax rates on royalty payments made to and from Cyprus, making cross-border royalty transactions more tax-efficient.

This extensive treaty network is especially beneficial for multinational companies, as it simplifies the process of managing international royalty streams and ensures that businesses can optimize their tax positions across multiple jurisdictions.

4. Access to the European Union Single Market

As a member of the European Union (EU), Cyprus Royalty Companies enjoy unrestricted access to the EU Single Market. This allows businesses to license, distribute, and commercialize their intellectual property rights across the EU without facing trade barriers or additional taxes.

Moreover, Cyprus complies with all relevant EU directives related to intellectual property protection, including the EU Intellectual Property Rights Enforcement Directive, which ensures that companies’ IP rights are safeguarded throughout the EU. This provides an added layer of protection and legal certainty for businesses seeking to exploit their IP assets in the European market.

5. Strong Legal Framework for IP Protection

Cyprus offers a robust and modern legal framework for the protection of intellectual property rights. The legal system is based on English Common Law, providing a familiar and reliable foundation for international businesses. Cyprus is also a signatory to all major international IP conventions, including the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty, and the Berne Convention for the Protection of Literary and Artistic Works.

This strong legal infrastructure ensures that intellectual property rights are well-protected and enforceable, giving Cyprus Royalty Companies the legal security they need to operate globally.

6. Streamlined IP Registration and Management

Cyprus has introduced several measures to simplify the process of intellectual property registration and management. Whether registering patents, trademarks, or copyrights, companies benefit from streamlined procedures and efficient processing times. The Cyprus Department of Registrar of Companies and Official Receiver oversees the registration and management of IP assets, ensuring that businesses can secure and manage their IP rights with ease.

For companies managing large portfolios of intellectual property, this streamlined system reduces administrative burdens and allows for effective IP management on a global scale.

7. Flexibility in IP Structuring and Royalty Agreements

Cyprus offers significant flexibility in structuring intellectual property ownership and royalty agreements. Companies have the freedom to structure royalty agreements in ways that optimize their tax position and operational efficiency, including the possibility of assigning different IP rights to various entities within the corporate group.

This flexibility extends to IP holding structures, where companies can hold IP assets through Cyprus entities while generating royalty income through licensing agreements with foreign subsidiaries or third-party licensees.

Conclusion

The introduction of these important facilities has further cemented Cyprus’ position as a leading jurisdiction for royalty companies and intellectual property management. With its low effective tax rate, attractive capital allowances, access to the EU single market, and strong legal framework, Cyprus offers an unparalleled environment for businesses seeking to maximize the value of their intellectual property.

At Fiduciara, we provide expert guidance and comprehensive services to help businesses establish and manage their Cyprus Royalty Companies and intellectual property portfolios. Contact us today to learn how we can help you take advantage of these exceptional facilities and optimize your IP-related business operations.