European Union: Europe's Leading Intellectual Property Jurisdiction

Last Updated: 1 July 2015
Article by Charles Savva and Stella Koukounis

The protection of Intellectual Property (IP) is fast ascending the ladder of corporate strategy globally, as it can be one of the most valuable assets of an organisation.  Intangibles account for some three-quarters of the Fortune 500's total market capitalisation.  Furthermore, IP assets absorb US$1 trillion of investment funds every year; roughly the same as total corporate investment in physical assets.

As defined by World Intellectual Property Organisation, intellectual property rights are the rights granted to persons over the creations of their minds. Once protected under local laws or International Treaties, IP rights offer their holder the opportunity to utilise them exclusively for a certain period of time. The creator/holder of the IP rights has the option to assign or license the use of this right, thus commercially benefiting from his/her creation.

With more applications for registration of IP rights being submitted each year it is becoming critically important to businesses to choose the right location for the centralisation and management of IP. In fact, companies Boards of Directors consider this among their key strategic business decisions.  The ideal location to establish an IP structure is one that can serve the organisation's business strategies and model, safeguard and protect its IP, and contribute to its tax optimisation.

After important revisions to the Cyprus Income Tax law in 2012, Cyprus is now at the forefront of IP tax planning.  The amendments in the 2012 Tax Law refer to the corporate taxation on profits derived from Intellectual Property. Cyprus introduced many tax exemptions and incentives better known as the "IP Box" rendering Cyprus an attractive IP jurisdiction, with an effective rate of tax on profits of only 2.5% or less. The benefits of using Cyprus companies for structuring IP income include:

  • An 80% exemption on profits derived from the sale of IP assets.
  • An 80% exemption on the net profits derived from the use of IP assets.
  • No recapture system for previously generated losses – losses can be carried forward for up to five years.
  • Gross IP income reduced by all direct expenses incurred wholly and exclusively for the production of IP income.
  • Competitive tax amortisation provisions over a five year period (i.e. 20% per annum).
  • Wide range of qualifying IP assets, including internally developed IP assets.
  • Effective Tax rate of 2.5% or less.

The G20/Organisation for Economic Co-operation and Development (OECD) has raised considerable opposition to IP box regimes and, in line with the base erosion and profit-shifting project, new entries to such IP schemes will not be permissible after mid-2016. The OECD decision itself created an opportunity for companies already dealing with IP assets. Companies that join the Cyprus scheme earlier than 2016 can benefit from considerable savings until mid-2021.

The IP box regime is shared by other EU member states including France, Hungary, Luxembourg, the Netherlands and the UK. However, the Cypriot IP box regime is considerably more beneficial to corporations with a wide interpretation of qualifying IP assets and generous deduction rates, contrary to what applies to the aforesaid EU member states. Additionally, Cyprus becomes even more interesting as an IP jurisdiction considering that full exemption on disposal of IP assets can be achieved by the sale of the shares of the Cyprus company owning the IP assets as opposed to an outright assignment and disposal of the IP asset itself.

The protection of IP rights is dealt with extensively in Cyprus. In particular, the following three laws offer protection to qualifying IP rights:

(1) The Patents Law, 16(1)/98, as amended

(2) The Trade Marks Law CAP. 268, as amended

(3) Intellectual Property Rights Law 1976, as amended

The level of intellectual property protection offered in Cyprus extends well beyond the territorial boundaries of the island. This is achieved through the International and European Conventions which Cyprus is a signatory to and which have been transposed into local legislation over the years.

Our team of highly experienced professionals can advise you further on protection and taxation of Intellectual Property in Cyprus, on the basis of your particular facts and circumstances. Please feel free to contact Charles Savva at c.savva@savvacyprus.com and Stella Koukounis s.koukounis@sklawcyprus.com to discuss how we can be of assistance to you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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