The Cyprus IP Box: 80 Per Cent Deduction, 3 Per Cent

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.

The first step

Send us what the asset is, who developed it and where the development costs sat. We reply within one business day on whether the regime fits and what the nexus fraction would do to it.

Describe the asset

The gate

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 fraction

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.

The housekeeping

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.

The 2026 arithmetic

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.

Common questions

What is the effective tax rate under the Cyprus IP box?

At most 3 per cent on qualifying profits for tax years from 2026: 80 per cent of qualifying profits is deemed an expense and the remaining 20 per cent is taxed at the 15 per cent corporate rate. Up to the 2025 tax year the ceiling was 2.5 per cent, on the then 12.5 per cent rate. How close a company gets to the ceiling depends on its nexus fraction.

Does software qualify?

Yes. Computer software is a qualifying intangible asset in its own right under the 2016 Regulations, provided it results from research and development activity of the claimant. It is the most common asset in Cyprus IP box structures.

Do trademarks or brands qualify?

No. The Regulations exclude business names, brands, trademarks, image rights and other IP used for the marketing of products and services. No certification or structuring changes that.

We bought the IP rather than developing it. Do we still benefit?

Far less. Acquisition cost is not qualifying expenditure; it enters the denominator of the nexus fraction and only feeds back through the uplift, capped at 30 per cent of qualifying expenditure. The regime is built to reward development you carried out or outsourced to unconnected persons, and to dilute bought-in or group-developed IP.

What records does the regime require?

Books and records of income and expenditure kept separately for each intangible asset. The nexus fraction is computed per asset from those records, so the accounting structure should be in place before the first year of the claim, not reconstructed afterwards.

Is income from selling products that use the IP covered?

It can be. Overall income includes embedded income: the part of the income from selling products or services, or from the use of processes, that is directly attributable to the qualifying asset. Isolating that part is an exercise of substance, and it is where the per-asset records earn their keep.

Company Formation in Cyprus

Fixed fee

A Cyprus Company or a Branch

Guide

The 183-Day and 60-Day Rules

Guide

Corporate & Commercial

The practice

Every reference on this page was read in the primary texts, section 9 of the Income Tax Law (118(I)/2002), the Intangible Assets Regulations (Κ.Δ.Π. 336/2016) and the reform Law 244(I)/2025 as published in the Official Gazette, and is recorded in the register of sources.

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