The Cyprus IP box, from the statute outwards

Eighty per cent of the profit is deemed an expense. The rest is taxed

In short

• The Income Tax Law deems 80 per cent of qualifying profits from a qualifying intangible asset to be an expense.
• With the corporate rate at 15 per cent from 2026, the effective rate on those profits is up to 3 per cent.
• What qualifies, and how much of the profit gets there, is decided by the nexus fraction in the 2016 Regulations, not by labels.

The Cyprus IP box is one paragraph of statute doing a great deal of work: under section 9(1)(k) of the Income Tax Law, Law 118(I)/2002, a deduction of 80 per cent of the qualifying profits produced by a qualifying intangible asset is treated as an expense. Only the remaining fifth of those profits enters taxable income.

Since the corporate income tax rate rose from 12.5 to 15 per cent for tax years from 2026, under the reform Law 244(I)/2025, the arithmetic gives an effective rate of at most 3 per cent on qualifying profits; up to the 2025 tax year it was 2.5 per cent. The deduction may also be waived, in whole or in part, for any year, which matters where losses or foreign tax credits change the picture.

Which assets qualify, and which never will

The definitions live in the Income Tax (Intangible Assets) Regulations of 2016, Κ.Δ.Π. 336/2016, made under section 9 of the Law. A qualifying intangible asset is one acquired, developed or exploited in the course of a business, which is intellectual property resulting from research and development activity, and it falls into three classes:

• Patents, as defined in the Patents Law.
• Computer software.
• Other legally protected IP within two families: utility models, IP assets protecting plants and genetic material, orphan drug designations and patent extensions; or assets that are non-obvious, useful and novel, available only where the person using them does not earn more than 7,500,000 euros a year in gross income from all intangible assets, on a five-year average, and the group does not exceed 50,000,000 euros of worldwide turnover. Assets in this last family must be certified as such by a competent authority in Cyprus or abroad.

The exclusion is just as clear: business names, brands, trademarks, image rights and other IP used for the marketing of products and services never qualify. A portfolio built on marketing intangibles has no route into the regime, whatever its value.

The nexus fraction decides how much profit gets the deduction

The 80 per cent deduction does not apply to whatever profit the accounts show. The Regulations compute qualifying profits by the OECD nexus approach: overall income from the asset is multiplied by the fraction of qualifying expenditure, plus an uplift, over overall expenditure.

Qualifying expenditure is the research and development cost actually incurred to develop, improve or create the asset: wages, direct costs, R&D facility overheads, and outsourcing to unconnected persons. It does not include the cost of acquiring the asset, interest, immovable property, or amounts paid to connected persons for R&D. The uplift adds the lower of 30 per cent of the qualifying expenditure and the total of acquisition cost plus connected-party outsourcing. The design rewards the taxpayer who did the development work and dilutes the benefit of the one who bought the asset in or routed development through the group.

Overall income is the gross income of the year from the asset less the direct costs of earning it, and it reaches royalties, licence fees, insurance and compensation receipts, gains on sale of the asset apart from capital-nature gains, and embedded income: the part of the price of products and services that the asset earns. Where a loss results instead of a profit, only 20 per cent of that loss can be set off or carried forward.

Books per asset, elections per year, and the old regime's end

The Regulations oblige anyone claiming the deduction to keep books and records of income and expenditure separately for each intangible asset. In practice that record is the claim: the nexus fraction is computed from it, asset by asset, and a regime entered without per-asset accounting is a dispute with the Tax Department waiting to happen.

Two further pieces complete the machinery. Capital expenditure for the acquisition or development of an intangible used in the business is spread over its life, up to a maximum of twenty years, under section 9(1)(l), with an annual election. And the old Cyprus IP box, section 9(1)(e), closed for good: it applied in its transitional form until 30 June 2021, and where both provisions could reach an asset the old one applied. Assets still relying on that history need their position reviewed rather than assumed.

What the reform changed, and for whom

Law 244(I)/2025, in force from 1 January 2026, replaced the 12.5 per cent corporate rate with 15 per cent. For IP box companies the effective ceiling on qualifying profits moved from 2.5 to 3 per cent: still among the lowest effective rates available in the European Union for development-heavy businesses, and now resting on a headline rate that matches the international minimum.

For members of very large groups, the EU minimum taxation framework under Directive (EU) 2022/2523 runs its own computation on top of the domestic one, and the benefit of any low effective rate has to be tested against it. That analysis is group-specific and sits outside this page.