Taxation

New Tax Regime in the Republic of Cyprus

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By Marios Eliades, M. Eliades & Partners LLC

The House of Representatives of the Republic of Cyprus has introduced new legislation relating to the intellectual property regime,  interest deductibility, group relief and deemed distribution of dividends. The new legislation became effective 1st January 2012.

 

Intellectual property rights

  • The meaning of patent rights and intellectual property (IP) rights has been amended to coincide with the definition in the Patent Rights Law of 1998, the Intellectual Property Law of 1976 and the Law regarding Trademarks. This ensures that all types of IPs will be covered by this new regime avoiding any uncertainty
  • The new law provides for an 80% exemption on the net profit from the exploitation of such intangibles
  • The net profit is calculated after deducting from the licensing of the intangibles all direct expenses associated with the production of this income
  • The rate of capital allowances on such intangibles is 20% of the cost of acquisition
  • Profit from the disposal of such intangibles will also benefit from the 80% exemption

Interest deductibility

  • No interest expense restriction will apply in cases where shares are acquired directly or indirectly in a wholly owned subsidiary provided that this subsidiary does not own any assets which are not used in the business
  • In cases where the subsidiary owns assets that are not utilised in the business, the restriction of interestwill only correspond to the percentage of assets not used in the business

Group relief provisions

  • Under the current provisions of group relief a company is considered to belong to the same group for group relief purposes if it is part of that group for a whole tax year
  • With the amended legislation, in cases where a company has been incorporated by its parent company during the tax year, this company will be deemed to be a member of this group for group relief purposes for that tax year

Related party transactions

  • The transfer pricing provisions of section 33 will not apply for transactions between parent and wholly owned subsidiary companies for which the group relief provisions of section 13 apply

Capital Allowances

  • The rate of capital allowances for any plant and machinery purchased in the tax years 2012, 2013 and 2014 has been set at 20%, unless the rate of capital allowances on such assets is higher
  • For industrial and hotel buildings purchased in the tax years 2012, 2013 and 2014, the capital allowances rate will be increased from 4% to 7%

Provident Funds

  • For the purposes of the Income Tax Law, approved Provident Funds and Pension Funds are those which have been approved by the Commissioner of Income Tax

Special Contribution for the Defence Law

  • In calculating the profits subject to deemed distribution under this law a deduction will be given for the acquisition of any plant and machinery purchased in tax years 2012, 2013 and 2014
  • The definition of plant and machinery is the same as the one provided on the Income Tax Law. This definition excludes any saloon cars purchased for private use.
  • This provision will apply for the profits earned in the tax years 2012, 2013 and 2014
  • Concluding remarks

The new IP tax regime is a major step towards promoting Cyprus, a full member of the EU and EMU as one of the most attractive international financial centres. This regime coupled with the other numerous tax incentives provided under Cyprus legislation provides very attractive opportunities for structuring the ownership / development of IP assets through Cyprus.

 


 

MariosEliades 121 160pxMarios Eliades
M. Eliades & Partners LLC, Nicosia, Cyprus
T: +357 22667730
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: www.eliades.eu

 

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