As part of the Cyprus Government’s efforts to encourage IT and technology companies to headquarter their operations in Cyprus, further tax benefits have been introduced for Companies investing in Research and Development.

This is in addition to the introduction of a new regime for the employment of Third Country Nationals in Cyprus and the Personal Income Tax benefits offered to employees moving from abroad to Cyprus.

Increase Expenditure Deduction for R&D

An increased tax deduction of 20% will be granted on actual expenditure for scientific research and expenditure for research and development, incurred by a person that:

• carries on a business; and
• has the economic ownership of the intangible asset that results or may result from incurring such expenditure.

The increased deduction will also be granted in the cases where the expenditure that will be incurred will be of a capital nature and capital allowances will be claimed on the relevant asset.

What about the Cyprus IP Box?

Many IT companies based in Cyprus take advantage of the popular Cyprus IP Box. The Cyprus IP Box relates to expenditure incurred in the development of a Patentable invention or novel Computer Software. The IP Box could result in an effective corporate tax rate of as low as 2.5%.

The above-mentioned increased tax deduction cannot be combined with the provisions of the Cyprus IP Box.

However, as this tax deduction is not dependent upon the relevant asset generating any income for the Company, it could be used by Companies at the early stages of developing a new product or service and incurring relevant R&D expenses.

The IP Box, which includes both patentable inventions and computer software, is still in force and can be used at a later stage.

Looking to find out more?

Get in touch with our team at info@paraschou.com.cy.