For companies active in the development and licensing of intellectual property (IP) rights, efficient ownership structuring is vital. The direction of the relevant licence payment is also important so as to make transactions as tax efficient as possible.
Cyprus has positioned itself among the best tax planning jurisdictions around the world for intellectual property related structures. Cyprus royalty companies generally undertake the ownership of royalties and licensing rights for intellectual property.
Cyprus royalty companies are, just like all Cyprus resident companies, subject to 10% corporate income tax on their worldwide income.
Royalties received in Cyprus
Profits derived by a Cyprus royalty company with respect to income from royalties are subject to 10% corporate income tax. The tax is imposed after the deduction of any royalty payments as well as expenses incurred wholly and exclusively for the production of income. Equally, Cyprus income intellectual property law cyprus provides for a unilateral tax credit with respect to foreign tax paid on the said income.
Gains on the sale of IP
Gains deriving from the sale of IP may, in some cases, be exempt from Corporate income tax, unless the said gain is deemed to be a result of the trading activities of the company.
Cyprus does not provide for a withholding tax on royalty payments given that the rights are exercised outside Cyprus.
The extensive network of double tax treaties concluded by Cyprus, enables the imposition of low or no withholding taxes at the level of the licensee, upon payment of the royalties to the Cyprus company. Equally, the provisions of the EU Interest and Royalties Directive applicable where the Cyprus company receives royalty payments from an associated company established in another EU-member state, thus providing for an elimination of withholding taxes over the royalty payments.