The provisions of the amended IP regime are in line with the latest international developments on the taxation of IP income and OECD’s action plan on Base Erosion and Profit Shifting (BEPS) and allow for the current IP regime to phase out by the 30th of June 2021.
The “grandfathering provisions” allow for the current IP regime to remain in place until 30/06/2021 for intellectual property existing as of 1/1/2016 or developed or acquired from non-related persons between 2/1/2016 to 30/6/2016. Intellectual property acquired from related parties between 2/1/2016 to 30/06/2016 will be eligible for the current IP regime until 31/12/2016.
The new IP regime introduces the idea of qualifying profits that are eligible for the 80% tax exemption which are calculated based on the “nexus approach” and relate to intellectual property which is eligible for the new regime (qualifying assets).
The qualifying assets are described in the new provisions of the legislation and include amongst others patents, copyrighted software programs and other intangible assets that are non- obvious but exclude trademarks and other copyrights.
The “nexus approach” is based on R&D expenditure incurred to develop the qualifying assets.
Furthermore, under the new regime there is no income tax imposed on capital gains arising from the disposal of a qualifying asset and the capital gains arising of such disposal are not included in the qualifying profits.
The new IP regime applies to Cyprus tax residents, non –tax residents with permanent establishment in Cyprus as well as foreign permanent establishments who are subject to tax in Cyprus.
Additionally, the newly amended Income Tax Law introduces capital allowances for all intangible assets, excluding goodwill and assets qualifying for the existing IP regime.
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