Cyprus IP box.
3% on IP income. Cyprus allows companies to pay just 3% effective corporate tax on qualifying IP profits — one of the lowest IP tax rates in the EU. Applies to patents, software copyrights, algorithms and qualifying intangibles.
The short answer
Under the IP box, 80% of qualifying profit from patents, copyrighted software and similar intangibles is exempt, so the effective tax on that profit is 3% instead of the standard 15%.
- Effective rate
- 3%
- Exempt share of qualifying profit
- 80%
- Standard corporate tax
- 15%
Nexus fraction = Cyprus R&D ÷ Total R&D. Set both sliders to calculate.
The Cyprus IP box — OECD nexus approach explained
The Cyprus IP box regime was introduced in 2016 and modified in 2020 to comply with OECD BEPS Action 5 requirements. The regime uses the nexus approach — meaning the proportion of IP profits that can benefit from the 80% exemption is linked to the proportion of R&D expenditure that was incurred directly by the company or outsourced to unrelated parties.
In practice, this means companies need genuine R&D activity and substance in Cyprus to fully benefit from the IP box. Companies that outsource all R&D to related parties will find their nexus fraction reduced, limiting the benefit. The optimal structure involves real IP development activity in Cyprus — staff, contractors and documented R&D processes.
R&D carried out by the company directly or outsourced to unrelated third parties
All R&D expenditure including related party outsourcing and acquired IP costs
Nexus fraction = QE ÷ OE
Multiplied by IP income = qualifying IP income. Then 80% of qualifying income is exempt from CT.
Does your IP qualify for the Cyprus IP box?
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