Cyprus IP Regime

Cyprus IP Regime is one of the most appealing Tax Regimes offered to Cyprus Companies, due to the benefit to pay Income Tax on IP Royalties income with an effective tax rate of 2.5% instead of 12.5% 

Since January 2016 there were some changes on the old IP regime, not on the effective tax rate but on becoming more specific on which IP assets are to be qualified with the IP Tax Regime. The old IP regime was valid for the existing IP assets acquired before 2nd January and for any IP Assets acquired from 2nd January until 30th June 2016, from related parties. The old IP regime applies up and until the 30th June 2021.

Old Regime – Qualified IP assets:

  • Copyrights on the following: literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes
  • Patented inventions
  • Trademarks (and service marks), designs and models that are used or applied on products
  • Registrable IPs need not be registered in Cyprus to benefit from IP regime.
  • Anything that could be justified as intellectual property, but an asset that had value and substance to be licensed

New Regime – Qualifying IP assets

  • patents,
  • computer software
  • IP assets which are non-obvious, useful novel and from which the income of a taxpayer does not exceed, in a 5 year period, €7.500.000 per annum (€50.000.000 for taxpayers forming part of a Group).

Do not cover

  • Trademarks
  • brands
  • image rights and
  • other intellectual property rights used for the marketing of products or services

Modified nexus approach

An IP Asset should have a sufficient substance and should be a strong connection between the expenses and the IP asset income.  IP asset income should be back up by the expenses paid by the Company for Research and Development of the IP asset, which adds value and the substance to the asset.

The following formula has been introduced to determine the qualifying profits that can benefit from an IP regime under BEPS:

[(Qualifying expenditure + Up-lift expenditure)/Total expenditure] x Overall IP Income

* Qualifying expenditure, excludes the R&D costs of outsourcing to related parties

 

Tax benefits of Cypriot IP companies

The new provisions provide exemptions from tax of income related to IP. More specifically:

  • 80% of worldwide royalty income generated from IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
  • 80% of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
  • any expenditure of a capital nature for the acquisition or development of IP is claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
  • All the above exemptions are also available for IPs acquired or developed before January 2012

Example

Assume that a Cyprus IP company licenses its IP to its operating foreign Companies and in return it receives royalty income of €100.000 per year.

The expected annual tax for the Cyprus IP Company will be as follows

 
Annual royalty income 100.000
Direct expenses (say) (20.000)
Net income      80.000
80% deemed deduction (64.000)
Taxable income 16.000
@12.5% Income tax 2.000
   
Effective tax rate 2.5%
   

 

Companies are required to maintain records, with the income and related expenses related to the IP Asset, so that will be able to justify the amount of IP income compare to the cost to maintain the IP Asset.

Cyprus is signatory to the following international conventions relevant to IP

  • European Community Trademarks
  • Convention Establishing the World Intellectual Property Organisation (WIPO)
  • WIPO
  • The Madrid Agreement Concerning the International Registration of Marks (the Madrid

Agreement) and Protocol to the Madrid Agreement

  • The Patent Cooperation Treaty
  • Berne Convention for the Protection of Literary and Artistic Works
  • Paris Convention for the Protection of Industrial Property
  • Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms
  • WIPO Performance and Phonograms Treaty
  • Rome Convention for the Protection of Performers, Producers of Phonograms and

Broadcasting Organisations

  • Trademark Law Treaty
  • WIPO Beijing Treaty on Audiovisual Performances

We are ready for GDPR 2018. Are you?

I am fairly certain that by now, most of you have at least heard of something called the EU General Data Protection Regulation (GDPR). If not, you may be in for a big surprise. Reactions to the GDPR have gone through a few phases in the last few years, from “That is just another regulation that does not affect us,” to “We will wait until we have to comply,” to “That really might apply to us,” to “Uh-oh, we should probably do something about this. Is it too late?” If any one of these sounds like something you have heard in your own organization, you had better get moving, because GDPR is already here.

Let’s look at the basics. The General Data Protection Regulation (GDPR) 2016/679 is a regulation in EU law on data protection and privacy for all individuals within the European Union. The GDPR aims primarily to give control to citizens and residents over their personal data and to simplify the regulatory environment for their business. It was adopted on 14 April 2016 and after a two-year transition period, having come into force on 25 May 2018.

GDPR replaces the 1995 Data Protection Directive (DPD). The main difference between GDPR and DPD in definition is the following:

DPD definition:

‘’any freely given specific and informed indication of his wishes by which the data subject signifies his agreement to personal data relating to him being processed’’

GDPR definition:

‘’any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her’’

Because GDPR is a regulation, not a directive, it does not require national governments to pass any enabling legislation and is directly binding and applicable.

The impact of the regulation will be broad, as it applies to any company that holds or processes personal data of individuals residing within the European Union. This is irrespective of whether the company is based in the EU or not. The penalty for GDPR non-compliance is up to €20M or 4% of annual global turnover. The cost of ignoring GDPR is too high, forcing corporations to reconsider the way they handle consumer data, and to install new processes and technologies empowering the consumers right to “own” their data.

Andreas Pastellides

Head of Legal & Litigation

Cyprus Tax Residency and General Powers of Attorney (GPOA)

In accordance with the Cyprus income tax legislation, a company is considered to be tax resident in Cyprus if it is managed and controlled in Cyprus. Even though most European Union Members base the tax residency of a company on their place of registration, Cyprus follows the ‘management and control’ test which focuses on the actual place of management and decision-making of the companies.

Although there are no clear guidelines in the income tax law or in any other Cyprus law as to what constitutes ‘management and control’, it is understood that ‘management and control’ is considered to be exercised where the Board of directors meet and take decisions. In order to facilitate this, it is suggested that all directors (or at least the majority) are Cyprus residents. In relation to the issuance of Cyprus tax residency certificates, the current practice of the Cyprus tax authorities is to issue such residency certificates provided the directors of the company sign and submit a declaration confirming that the company is managed and controlled from Cyprus.

The Cyprus tax residency of a company claiming to be tax resident in Cyprus is not expected to be challenged by the Cyprus tax authorities on their own initiative. It could, however, be the case that a foreign tax jurisdiction challenges the tax residency of a Cyprus company. In such a case the Cyprus company would need to demonstrate to such foreign jurisdiction that the company is indeed tax resident in Cyprus. Thus, the issue of what the foreign tax jurisdiction would require, would need to be addressed from the perspective of the relevant country that may be challenging for residence (always in conjunction with the relevant provisions of the applicable double tax agreement between the two countries).

With regards to the issuance of General Power of Attorney, due to changes in the laws requiring the Compliance Officer and the Director to know the business structure of the company by monitoring the transactions of the company, Cyprus companies are not recommended (however, not prohibited) to issue general powers of attorney, as the company may be not recognized as Cyprus tax resident and may consequently be unable to obtain a tax residency certificate.

As a result of the above and as a matter of policy, our firm no longer issues such General Powers of Attorney. What we require is a special power of attorney for each separate transaction (e.g. one only for bank accounts, one only for signing of specific agreements etc.). The reason for this is for the Company not to jeopardize its Cyprus tax residency since the very test for a Cyprus tax residency is for the management and control of the company to take place in Cyprus. If the holders of the Powers of Attorney transact the general business of the company (i.e. to conclude any agreement etc), there is a risk that the company will not be treated as Cyprus Tax Resident (tax residency will be the place of residence of the beneficiary/holder of the PoA).

The problem with General Powers of Attorney is that they empower the attorney with the maximum number of powers, including negotiations, conclusion and signing of contracts and other documents, opening and operating corporate bank accounts etc. Such Powers of Attorney actually allow managing the company’s affairs abroad.

However, if a client insists to be provided with a General Powers of Attorney, certain limitations shall apply: (a) the duration should be limited to 6 months, (b) the respective Board Resolution must be drafted and approved prior to execution, and also (c) the POA must be drafted in such a way so as to leave discretion to the Board of Directors of deciding on their own and (d) the attorney providing the board with copies of all agreements and documents signed under the POA.

Antonis Michael

Corporate Administrator.

Importance of Ethics in Accounting

The International Federation of Accountants (IFAC) was formed with a mission to “strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high quality professional standards”.

Ethics in accounting are concerned with how to create good and moral choices regarding the preparation, presentation and disclosure of financial information. During the last two decades, a series of accounting scandals brought the issue of ethics into the forefront. Regulators have made it clear that blatant corporate greed and the pursuit of money at all costs is not acceptable. Ethics have always been, and will always be, fundamental to proper accounting practice.

In their daily tasks, accountants handle a wide range of privileged and sensitive information of their clients. This includes social security or bank account numbers, extent of wealth and available cash. This gives accountants a good deal of power in regard to their clients and it is important that the trust among them not to be abused. In the same way it is important that the industry itself does not become stigmatized as being unethical, something that could potentially harm business for all accounting firms. As they work with numbers that can have repercussions on bonuses and stock prices, they may face ethical issues in accounting more often than, say, actuaries or budget analysts.

The ethical dilemmas that accountants sometimes face include conflicts of interest, requests to breach payroll confidentiality, pressure from clients to inflate earnings and clients who request manipulation of financial statements.

As an accountant you need to ensure that you always put the interests of your clients ahead of your own, that you safeguard client information doggedly and never behave in a way that could be, or be perceived to be, unethical. In many firms, training in ethical behaviour is now central to the professional developments of accountants.

There can be a range of adverse consequences which will result from poor ethics in accounting practices. Ranging from the most innocuous to the most serious. Accounting firms heavily rely on word of mouth for promotion and reputation, therefore it’s all too easy for a few bad stories about unethical behavior to sway prospective clients away from a particular firm. There can also be serious legal repercussions for those who are found to be violating legal codes and standards for their jurisdiction.

While a person’s professional ethics are certainly important, organizations should also have their own code of ethics and make sure all employees are familiar with it. Not only are more organizations providing ethics training to their employees, but they’re also collecting and reporting ethical information.

If your employer does not have a code of ethics and standards, you and your team should advocate for one. An effective protocol will not provide a solution for every scenario, but it will act as a guide for the decision-making process. When creating a code of ethics from scratch, include guidelines on acceptable behavior, examples of ethical dilemmas and solutions, implementation and cost details, and the consequences for misconduct.

It can be tempting to ignore ethical issues in accounting practice. However, you owe it to your career, your profession and your firm to consider your business ethics in all aspects of your career.

Persefoni Shiakallis
Accountant

Press Release

It is with a mixed feeling of sadness and pride that we announce that Michael Milonas is stepping down as CEO of Parparinos Milonas and ultimately our Group.

Michael, one of the two founding members of our Firm, has been appointed as CEO of Hanseatic Brokerhouse Global Markets a CySEC Regulated Investment Firm with License number 204/13.

This represents a substantial honour and responsibility for Michael; it is a recognition of his skills and charisma as well as being a culmination of his assiduous work.

Our entire Firm wishes Michael all the very best on his new role and we express our faith that his new duties will be crowned with success!

Michael will remain on the Board on Parparinos Milonas as a non-executive director and he will henceforth assume the role of the Chairman of the Board.