Key Steps

1. Centralize IP in Cyprus: Hold patents, software, copyrights, and utility models within a Cyprus-based company or structure.

2. Meet the Nexus Requirement: Link tax benefits directly to real R&D activities performed in Cyprus, often involving R&D staff salaries, lab supplies, and outsourced R&D to unrelated parties.

3. Calculate Qualifying Profits: Apply the 80% deduction to profits from qualifying IP, leaving only 20% taxable at the standard 12.5% corporate rate, creating the effective 2.5% rate.

4. Structure for Royalties & Sales: Earn income through licensing, royalties, or sales of IP-integrated products to benefit from the regime.

5. Leverage Other Regimes: If eligible (non-domicile), you can also benefit from no withholding tax on dividends and no capital gains tax on IP sales, further boosting returns.

What qualifies

Qualifying IP: Patents, software (copyrighted programs), utility models, plant varieties, orphan drug designations, and functionally equivalent innovations.

Income Sources: Royalties, license fees, sale proceeds, and profits from goods/services incorporating IP.

Exclusions: Generally excludes trademarks, brands, marketing materials, e-books, and YouTube videos, though software can be structured to qualify alongside other content.

Compliance & Substance: Understanding the Modified Nexus Approach

To qualify for the 80% tax exemption, Cyprus strictly adheres to the OECD Action 5 "Modified Nexus Approach." This framework ensures that tax benefits are granted only to the extent that the company generates income from IP where it also incurred the R&D expenditure to develop that IP.

Simply holding IP rights in a Cyprus entity is not sufficient. The tax benefit is calculated using the Nexus Fraction:

Tax Exempt Income = Qualifying IP Income x (Qualifying Expenditure (QE) + Uplift) / (Total Expenditure (TE))

What this means for your structure:

• Qualifying Expenditure (QE): Direct R&D costs incurred by your Cyprus entity (wages, direct costs, and R&D outsourced to unrelated parties).

• The Uplift: You are permitted to increase your QE by 30%, maximizing your deductible fraction.

• The Guardrail: Acquisition costs for IP and R&D outsourced to related parties (e.g., a parent company abroad) are excluded from QE, potentially reducing the benefit.

Our Role: We structure your internal flows to maximize the "Qualifying Expenditure" within Cyprus, ensuring your Nexus Fraction—and your tax savings—remain as high as possible while satisfying all economic substance requirements.

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Our Structuring Process: From Assessment to Filing

Step 1: Diagnostic & Asset Qualification We review your intangible assets to confirm they meet the definition of "Qualifying Intangibles" (e.g., Patents, Copyrighted Software, Utility Models). We exclude non-qualifying marketing intangibles (brands, trademarks) immediately to prevent future audit risks.

Step 2: The "Look-Back" Calculation We reconstruct historical R&D data. Since IP takes years to develop, we compile historical cost data to establish a valid "Qualifying Expenditure" base before the IP generates income.

Step 3: Implementation & Transfer Pricing We oversee the legal transfer or registration of the IP into the Cyprus entity. If the IP is transferred from a related party, we ensure the valuation aligns with Transfer Pricing principles to withstand scrutiny.

Step 4: Tracking System Setup The IP Box is not a one-time setup; it requires continuous tracking. We implement accounting protocols to trace every Euro of income directly to specific IP assets and their corresponding R&D expenditures (Asset-by-Asset tracking), a mandatory requirement for compliance.

Step 5: Annual Tax Ruling & Filing We prepare the detailed tax computation schedules required by the Cyprus Tax Department and, where necessary, obtain an Advance Tax Ruling to confirm the effective tax rate prior to filing.

Why Partner With Us for IP Structuring?

Structuring for the IP Box regime requires a dual focus: minimizing tax liability while maximizing regulatory compliance. A calculation error or a failure to track R&D costs correctly can result in the denial of the 80% deduction and significant penalties.

Our Competence:

• Forensic Accounting: We don't just file taxes; we build the audit trail of R&D costs required to defend your Nexus Fraction.

• Transfer Pricing Alignment: We ensure your IP structure integrates seamlessly with your group’s wider Transfer Pricing policies.

• Regulatory Vigilance: We monitor OECD BEPS updates and Cyprus Tax Circulars to ensure your structure remains compliant as regulations evolve.

Our Commitment: We do not offer "off-the-shelf" IP companies. We offer bespoke structuring designed to withstand a tax audit. Our goal is to secure the 2.5% Effective Tax Rate for your business through rigorous calculation and substantial compliance.