Cyprus is ideal for royalty routing structures, because as a jurisdiction it offers multiple advantages including competitive fees, fast incorporation and low capital requirements.
Other key advantages of Cyprus as a royalty routing jurisdiction are:
- The cost of acquisition of the IP can be amortised for tax purposes.
- No withholding taxes on payments of royalties to licensors outside Cyprus provided that the property is used outside Cyprus by the Cyprus onshore company.
- Tax is only paid on the license fee retained by the Cyprus Company and the applicable rate is only 10% - the lowest in the Europe.
- The license fee to be retained by the Cyprus Company will typically be 5%. So, the tax paid in a structure like that in our example below is a maximum of 10% on 5% of the income generated: i.e. a net 0.5%. The balance is routed to the offshore company in a zero tax or low tax area.
- Any source tax withheld over the royalties received by the Cyprus Company is available as a tax credit against the Cyprus corporation tax on the royalty income
- Cyprus has a vast worldwide network of double tax treaties, and since Cyprus’s accession to the European Union, the EU Interest and Royalty Directive may provide for 0% withholding taxes on royalty payments made by affiliated companies in different EU countries to the Cyprus Company.
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