Lawyer Monthly - November 2021 Edition

63 NOV 2021 | WWW.LAWYER-MONTHLY.COM INTELLECTUAL PROPERTY - THE CYPRUS IP BOX REGIME: FROM TAX HAVEN TO TAX HUB fiscal incentives are only one part of the story. Cyprus’s new fast-track business activation scheme is now targeting their skills needs as well. Future-focused Technology and innovation are at the heart of the Cyprus government’s long-term growth and development plans. It actively develops high-quality infrastructure such as 5G, satellite and highspeed broadband. A new research and innovation strategy (2019-23) has recently doubled the technology development budget. A new Deputy-Ministry of Research, Innovation and Digital Policy has been created specifically to guide the continuing digital transformation of the island. Pre-pandemic growth in the domestic ICT market was also strong (3% in 2018) – particularly so in the non-telecoms (6.5%) and services (9%) segments – having bounced back very well from the financial crisis, as much of the Cypriot economy did. The already swift digitalisation of government has been accelerated in response to the pandemic. Some 160 government services are already online, among themthe registrar of companies and the tax department. Setting up a company and managing the associated certificates and filings, including tax returns, can now all be done via the respective authority’s online hubs. IP taxation Cyprus’s intellectual property taxation regime was comprehensively updated back in 2016. It is modern, fully aligned with Action 5 of the EU’s Base Erosion Profit Shifting (BEPS) project, and very competitive. The effective tax rate on IP-related profits is just 2.5% because the basic rate of corporation tax is 12.5% (one of the lowest in the EU) and an IP-holder of a qualifying intangible asset can treat up to 80% of the profits as notional expenses (depending on how much research and development was put into creating it). ‘Qualifying assets’ include any IP, or product of R&D, that is acquired, developed or exploited in the course of business. Patents, software, computer programs and other kinds of ‘useful’ and ‘original’ intangible assets all qualify, but not marketing-related IP such as brands and image rights. The intellects There should be no surprise that Cyprus is now a recognised hub for software development, R&Dandsystems integration. NCR, AMDOCS, 3CX, Wargaming and Viber all having major operations here, alongside the significant presences of many of the biggest global technology companies. But none of its many advantages has made Cyprus immune to one of the most significant challenges facing many growing ICT companies – skills shortages. A new ‘fast- track business activation scheme’ is part of the Cyprus government’s response. Cyprus’s intellectual property taxation regime was comprehensively updated back in 2016. Fast-trackbusiness activation This ‘one-stop’ service – run by the Ministry of Energy, Commerce and Industry – fast- tracks all company, employment, tax and operating registrations and permits, helping foreign investors quickly get their businesses fully-established. Importantly, the residency and employment rules have also been revised in priority skills areas. This has greatly reduced both the administration burden for incoming tech companies and the stress felt by relocating staff by creating a much simpler, less bureaucratic and more supportive recruitment environment. Existing visa holders can also benefit from the new residence and employment rules. There are no stay limits and family reunification is normally straightforward. To be eligible for the benefits the scheme offers, the foreign company must satisfy three main conditions: • Third-country shareholders must be in the majority (if not, then the foreign owned share capital must be at least €200k) 1 ; • Direct investment must be at least €200k; and • The business must occupy proper, independent, commercial premises. Management and administration Companies that can satisfy the criteria are given every help to bring in directors, managers and specialists from any third country, subject to the usual due diligence checks and quotas for each category of employee. Directors, senior managers and project/department heads must be limited to five in number (unless a convincing case can be made for more) and earn no less than €4,000 per month gross. Middle managers and key administrative staff are limited to ten (again, except in special cases) and must earn at least €2,000 monthly.