Recent tax amendments on Cyprus intellectual property (IP) rights

Posted on 07 Dec 2012, by Yotto Pantoula-Bulmer

Intellectual Property

Intellectual Property is defined in Article 2 (viii) of the World Intellectual Property Convention of 1968 and includes “literary, artistic and scientific works (copyright); performances of performing artists, phonograms and broadcasts (copyright); inventions in all fields of human endeavour (patents); Scientific discoveries (patents); Industrial Designs (Industrial Designs); Trademarks, service marks and commercial names and designations (Trademarks); Protection against unfair competition; and all other rights resulting from intellectual activity in the industrial, scientific, literary and artistic fields”.

Intellectual Property (IP) Rights are the legal rights connected to the ownership, use, sale and disposal of the above mentioned intangible property.

Applicable Laws

Cyprus IP rights are governed domestically by:

  • The Intellectual Property Law 59/76 (as amended by Laws 63/77, 18/93, 54/99, 12/2001, 128/2002 & 2004, 123/2006 and 181/2007)

  • The Patent Rights Law 16 (I) 1998

  • The Trademarks Law Cap 268 (as amended by Laws 63/62, 69/71, 206/90 & Circular No 5062)

  • The Partnerships and Trade Names Law, Cap 116 (as amended by Laws 77/77, 54(I)11, 146(1)/2011 & circular No 3374).

Internationally

Intellectual Property rights in Cyprus are also in line with a number of International Conventions and Treaties and all relevant European Law legislation, such as:

  • The Convention establishing the World Intellectual Property Organisation, WIPO Law 36/85

  • The Universal Copyright Convention Law 151/90

  • The European Patent Convention 1973, Law 16(I) 98

  • The Madrid Agreement & the Madrid Protocol

  • The Geneva Trade Marks Law Treaty 1994, Law 12 (III) 96 

The previous tax regime

According to the regime before May 2012 any profit connected to IP Rights was taxed at the standard 10% corporation tax rate on all net profits.

The new regime

The recent tax reform of May 2012 has brought considerable changes concerning the IP Rights taxation regime, as folllows:

  • An income tax exemption of 80% on the net profit arising from the sale/exploitation of such rights. As “net profit” it is considered the profit remaing after deducting all relevant direct expenses associated with the production of that profit. Such expenses include amortisation expenses for the acquisition of the assets, interest associated with the purchase or development of the assets and all other direct expenses.

  • Furthermore, any profit associated with the disposal of Intellectual Property benefits from the same 80% exemption. The remaining 20% is subject to the standard 10% tax, according to section 21 of the Income Tax Law 118 (I)2002, whereby a 10% tax rate is applied to “the gross amount of any royalty, premium, compensation or other income derived from sources within the Republic by any individual who is not ordinarily resident in the Republic or by any body or persons not engaged in the Republic in any trade of business in consideration for the use of, or for the privilege of using, any copyright, patent, design, secret process or formula, trademark, know-how or any other like property or in consideration for technical assistance”.

  • The cost (capital expenditure) associated with the acquisition and development of IP can be written off for income tax purposes over a period of five years. The term Intellectual Property covers all activities as defined in the relevant legislation mentioned above.

  • The rate of capital allowances on the acquisition of Intellectual Property Rights has been set at a 20% rate on the initial cost.

Based on the above mentioned the tax on the profits arising from the sale or use of IP is currently 2%.

Validity

The above mentioned changes are retrospectively valid as of the 1st January 2012.

The above amendments are envisaged to make Cyprus a very beneficial jurisdiction for the registration, sale, use and disposal of Intellectual Property and connected rights and attract international investments.