Apart from Malta (here you can read the first part of our article), Cyprus is a pretty famous European country for tax planning – by using royalties and intellectual properties. If you want to get further information on the advantageous offshore taxation of intellectual properties, please read this post.
Cyprus inaugurated its new law on special taxation of royalties in 2012, in order to successfully
compete with other countries, such as Luxemburg, and Netherlands, becuse those EU member states lunched their “IP Box” practices before.
The IP-Box (Intellectual Property Box) is a specific taxation discount, which has been inaugurated by countries, to demarcate royalties, intellectual properties, research-development and patent related incomes from other form of incomes, such as commercial incomes.
The greatest advantage of the taxation laws in Cyprus is, that 80 percent of the income related to
intellectual properties are free from taxes. From the remaining 20 percent – after the allowances –
only have to pay 12.5 percent in form of corporation taxes. So, in reality, the actual taxes must paid are less than 2.5 percent. Considering the the rest of the allowances and concessions, the taxation in Cyprus can be a solid competition, compared to the 5 percent in Netherlands, or the 5.75 percent in Luxemburg. In addition, in case of the expenses related to intellectual properties are
higher, than the income we get from relating instruments, the deficit can be rolled over on next
year’s profit. The 80 percent discharge applies to income ensue from selling intellectual properties.
The capital income remains completely tax free, if the shares of the owner company got sold as well.
Apart from the lovely taxation opportunities related to IP, Cyprus can offer even more advantages for companies established there:
– Dividend payed for companies do not reside in Cyprus, are free from source taxes.
– Cyprus is part of the EU, so within the meanings of the directive, royalties payed from other EU countries, are also free from source taxes.
– From those countries outside the EU, which have laws for tax avoidance, the source taxes can be pretty low, or even have chance to achieve tax amnesty. For example, there is no source tax in Russia, but in Ukraine it’s also only 2 percent.
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