The main benefit of the Cyprus IP regime is that 80% of the profits qualifying for the regime are exempt from tax. With a corporate tax rate of 12.5%, this can ultimately result in an effective tax rate of as low as 2.5%.
Furthermore, under the Cyprus IP regime, 80% of the qualifying profits generated from the qualifying assets is deemed to be a tax deductible expense for qualifying taxpayers. In calculating the qualifying profits, the new regime adopts the ‘Nexus’ approach. According to this approach, the level of the qualifying profits is positively correlated to the extent the claimant performs R&D activities to develop the qualifying asset (QA) within the same company.