Tax Treatment of Royalties in Cyprus

Companies engaged in the development of intellectual property rights and the subsequent licensing of these rights and the collection of royalties must always consider which is the best investment structure which among other factors have the least tax leakage.

Cyprus has positioned itself among the best tax planning jurisdictions to establish a company.

As such this company will receive income, which might be a charge against high tax income.
Additionally royalties will be received after a foreign withholding tax being applied of zero or reduced under double tax treaties rate or under EU Directives.

Tax Resident companies are taxed on their worldwide income; thus profits derived by a Cyprus royalty company are subject to 10% corporate tax.  The tax is imposed after deducting any royalty payments as well as any other expenses incurred wholly and exclusively for the production of the royalty income.

Royalties received by a Cypriot company from abroad may have been liable to a withholding tax on payment in the country of origin.  The tax paid abroad can be credited against the tax payable in Cyprus.
Foreign taxes are credited in Cyprus under the unilateral provision of the Cypriot Tax Law or under bilateral treaty provision.

It should be noted that under Cyprus legislation there is no withholding tax on royalties paid to non-residents of Cyprus.  However, in case where royalties are earned on rights used within Cyprus there is a withholding tax of 10%.  This can be further reduced due to the existence of a Double Taxation Agreement.