Building it, buying it, licensing it and selling it each follow different rules, and the cheapest route is not always the IP box. This guide sets out the 2026 position for software, media, biotech and brand-owning groups, with three calculators and every figure stamped In law or Confirm.
The Income Tax Law as amended by the reform passed on 22 December 2025 and in force from 1 January 2026. Rows marked Confirm are settled in principle but turn on facts, timing or wording the adviser checks case by case.
| Rule | Value | Status |
|---|---|---|
| Corporation tax rate | 15% on taxable profit from 1 January 2026, up from 12.5%. Royalty income is taxed at this rate after allowable expenses | In law |
| IP box deduction | A notional deduction of 80% of qualifying profit from a qualifying asset, which leaves an effective rate of about 3% | In law |
| Assets that qualify | Patents, copyrighted software, utility models, plant variety and genetic material protection, orphan drug designations and patent extensions. Certified non-obvious, useful and novel IP also qualifies for smaller taxpayers with IP revenue up to €7.5 million and group revenue up to €50 million, on five-year averages | In law |
| Assets that never qualify | Trademarks, brand names and other marketing-related IP | In law |
| Nexus fraction | Qualifying profit is overall profit multiplied by qualifying expenditure plus uplift, divided by overall expenditure. Uplift is the lower of 30% of qualifying expenditure and the cost of acquisitions plus R&D outsourced to related parties | In law |
| Losses on a box asset | Where a qualifying asset makes a loss, only 20% of it can be carried forward or surrendered to group companies | Confirm |
| Amortisation of bought-in IP | Capital cost of an intangible is deducted over its useful life under accounting principles, up to 20 years. An intangible with an indefinite life is spread over 20 years. The claim is elective each year and unused amounts roll forward | In law |
| Disposal of bought-in IP | No balancing statement since 1 January 2020. Amortisation already claimed is not clawed back on sale | In law |
| Gain on selling IP | A capital gain is outside Cyprus tax. A trading gain on a qualifying asset is part of box income, so 80% of the qualifying share is deducted | Confirm |
| R&D super-deduction | An extra 20% deduction, 120% in total, on qualifying R&D expenditure incurred from 2022 to 2030. It cannot be combined with the IP box deduction | In law |
| Withholding on royalties paid abroad | 10% where the right is used in Cyprus, 5% for cinematograph films. Nil where the right is used outside Cyprus | In law |
| Royalties to EU-listed jurisdictions | 10% withholding on royalties paid to an associated company, over 50% linked, resident in a jurisdiction on the EU list of non-cooperative jurisdictions. In force since 16 April 2025, and applied whether or not the right is used in Cyprus | Confirm |
| Royalties to low-tax jurisdictions | From 1 January 2026 royalties paid to an associated company in a jurisdiction taxing companies below 7.5% are not deductible. The 2026 list names 11 jurisdictions, including the British Virgin Islands, Cayman Islands, Jersey and Guernsey | In law |
| Treaty and directive relief | Nil withholding between associated EU companies under the Interest and Royalties Directive. Most Cyprus treaties set 0% on royalties, a few allow up to 10% | Confirm |
| Transfer pricing Local File | Required where controlled transactions in a category pass €2.5 million a year, or €10 million for financing and €5 million for goods, from 2026. Below that, a summary table and minimum documentation | In law |
| VAT on cross-border royalties | Business-to-business licences are taxed where the customer is. A Cyprus company paying a foreign licensor self-accounts for 19% under the reverse charge | In law |
Enter a year of income from the asset and how it came to the company. The comparison shows Cyprus corporation tax under each route, line by line. It is a model for a decision, not a tax return.
Assumptions. Corporation tax 15%. Box deduction 80% of qualifying profit. Nexus fraction is qualifying expenditure plus uplift over overall expenditure, capped at 1, with uplift the lower of 30% of qualifying expenditure and acquisition cost plus related-party R&D. Qualifying expenditure is own R&D plus R&D outsourced to unrelated parties. Route (a) treats past R&D as already deducted, so no amortisation arises. Routes (b) and (c) amortise the price straight line over the useful life, capped at 20 years, and the deduction stops once the life ends. Route (c) assumes an arm’s length price and counts the seller group’s share of later R&D as related-party outsourcing. Route (d) taxes the same profit at 15% with no box and no amortisation. Marketing IP gets a nexus fraction of nil. Where profit after amortisation is a loss, the box is not claimed, because only 20% of a box loss survives. The 120% R&D deduction, foreign withholding on income received and Pillar Two top-up tax are not modelled.
Written the way a patent states its claims: one idea each, numbered, and narrow enough to rely on. The detailed description below explains how they interact.
1.1The box applies to qualifying profit: royalties, embedded IP income inside product sales and compensation for infringement, less the costs of earning it, including amortisation. A company licensing software for €1 million with €400,000 of costs claims on €600,000, not on the million.
2.1Every euro of R&D the Cyprus company does itself, or pays an unrelated lab or contractor to do, raises the fraction. Buying the asset, or paying a group company to develop it, lowers it. A 30% uplift forgives part of the second kind.
3.1A purchase price is amortised over the asset’s useful life, up to 20 years, whether or not the asset qualifies for the box. A €5 million patent family with ten years to run gives €500,000 of deductions a year, worth €75,000 in tax.
4.1A Cyprus company paying a foreign licensor withholds 10% only if the licensed right is exploited in Cyprus. Rights used abroad carry no Cyprus withholding, unless the recipient is an associated company in an EU-listed jurisdiction.
5.1Since 2020 there is no balancing charge on the sale of a bought-in intangible, so amortisation already claimed stays claimed. A gain that is capital in nature falls outside tax. Whether it is capital or trading depends on how the company held the asset.
6.1Qualifying R&D spending earns an extra 20% deduction until the end of 2030. It suits the years before an asset earns money. Once the IP box is claimed on that asset, the extra 20% falls away, so the two are sequenced, not stacked.
7.1Under the OECD transfer pricing guidelines, the return on IP belongs to the company that performs and controls its development, enhancement, maintenance, protection and exploitation. A Cyprus company with legal title and no decision-makers earns little more than a fee.
8.1Marketing IP is outside the box by design. A Cyprus brand company still benefits from amortisation of a purchase price, nil withholding on most incoming EU royalties and a wide treaty network, but its rate on profit is 15%.
The nexus fraction is cumulative. It is worked out from everything spent on the asset since it was created or acquired, so it moves slowly and it remembers. A Limassol software house that wrote its platform with its own engineers will sit at or near 100%. A holding company that bought the same platform for €3 million and spends €600,000 a year improving it starts near 22% and climbs year by year.
Own salaries, cloud costs and unrelated contractors all count as qualifying spend.
The fraction stays high, often 90% or more, so most profit gets the 80% deduction.
The price enters overall spend but never qualifying spend, beyond the 30% uplift.
Amortisation over up to 20 years is the main relief, and it ends when the life ends.
The practical lesson is to decide early where development will happen. Moving a development team to Nicosia after purchase raises the fraction for the future. Paying the seller to keep developing the asset does the opposite, because related-party outsourcing counts against you once the uplift is used up.
Every licence creates two tax questions on each payment: does anyone withhold tax at source, and who accounts for VAT. For a Cyprus company the answers depend on direction.
Use the withholding checker in FIG. 3 to test a specific payment before the licence is signed, not after the first invoice.
Cyprus is a strong home for IP that is developed by people in Cyprus, or by unrelated contractors they manage. It is a weak one for IP that only has its legal title here. We would rather say so now than after a restructuring.
If nobody in Nicosia can explain the product roadmap, approve the budget and sign the licences, the profit does not belong in Nicosia.
Large groups. Groups with consolidated revenue of €750 million or more are subject to the 15% global minimum tax, collected in Cyprus through a domestic top-up tax since 2025. For them the box rate of about 3% is largely topped back up. Brand-only portfolios. Trademarks never qualify, so the case rests on amortisation and treaties alone. Exit tax at home. Moving IP out of Germany, France or the UK often triggers tax there on its market value, which can outweigh years of Cyprus savings. No people. A Cyprus company that cannot carry the development, management and protection functions will lose the transfer pricing argument, whatever the box says.
Illustrative cases with round numbers, worked at the 2026 rate of 15%. Each figure can be reproduced in FIG. 2 above.
A SaaS group’s Cyprus company owns the copyright in its platform and licenses it to sales companies in Germany and Poland for €2.4 million a year. Its own engineers spent €3.1 million building it, contractors €400,000, and a group development centre €1.5 million.
A Nicosia company pays an unrelated seller €4 million for patents with 12 years to run and licenses them to a pharma partner for €900,000 a year, with €150,000 of costs. It has spent €1 million on its own Cyprus R&D since the purchase.
A family-owned group transfers its trademarks to a Cyprus company at an independently valued €6 million, useful life 15 years. The Cyprus company collects €1.5 million of royalties a year from EU subsidiaries and spends €200,000 managing the brand.
Two working tools for the licence agreement and the purchase agreement. Use the first before signing a licence. Use the second to show your board how a purchase price turns into tax relief.
Assumptions. The payer is a Cyprus tax resident company. Domestic withholding is 10% on royalties for rights used in Cyprus and 5% for cinematograph films, nil for rights used only abroad. Associated companies in jurisdictions on the EU list of non-cooperative jurisdictions, at the payment date and in the previous year, suffer 10% whether or not the right is used in Cyprus, and the tool applies 10% to films as well; both points are stamped Confirm. Royalties to associated companies in a low-tax jurisdiction on the 2026 list, taxing below 7.5%, are not deductible, and the tool prices that at 15% of the payment. Directive relief assumes a direct holding of at least 25% for two years and a beneficial owner; the holding period and conditions are stamped Confirm. Treaty relief is applied at source on a valid tax residence certificate. Withholding is declared and paid by the end of the month after payment, to be confirmed. Reverse charge VAT at 19% is shown for information and is recoverable by a fully taxable payer.
Assumptions. Straight-line amortisation over the useful life, capped at 20 years, with an indefinite life spread over 20 years. The first year is pro-rated by months owned and any remainder is claimed in a final short year. The full amount is claimed every year, although the claim is elective and unused amounts can roll forward. No deduction is taken in the year of sale. Since 1 January 2020 no balancing statement is prepared on disposal, so past amortisation is not clawed back and an unamortised balance is not deducted. The gain over cost is treated as capital and outside tax, which depends on the facts and is stamped Confirm. The pre-2020 comparison shows a balancing charge capped at amortisation claimed, or a balancing allowance where the price is below written-down value. Excludes the IP box, which would also tax any trading gain on a qualifying asset at its nexus share.
The order matters more than the speed. A valuation done after the transfer, or a licence signed before the transfer pricing analysis, is the usual source of a later dispute.
List each patent, copyright, software module and trademark, who owns it today, where it was developed and what income it earns. Decide which pieces could qualify for the box.
Registration certificates, development contracts, employee IP assignments and current licences.Obtain an independent valuation and a transfer pricing analysis of the sale price and any licence, based on who performs the development, management and protection functions.
Check exit tax in the seller’s country before agreeing a price.Sign the assignment, record the new owner with each patent and trademark office, and put the licences in the Cyprus company’s name with royalty terms that match the analysis.
Stamp duty on the agreements was abolished from 1 January 2026.Keep track-and-trace records of qualifying and overall spend per asset, prepare the transfer pricing file, declare withholding on outgoing royalties and claim amortisation and the box in the tax return.
Records support the nexus fraction for the whole life of the asset, so keep them for longer than six years.Fourteen questions, answered plainly. Each answer carries the review date in this page’s structured data.
Ask one we missed →15%, up from 12.5% before 1 January 2026. Royalties and other IP income are taxed at that rate after deducting the costs of earning them. Qualifying profit in the IP box gets an 80% deduction first, which brings the effective rate on that profit to about 3%.
The company works out its profit from a qualifying asset, multiplies it by the nexus fraction, and deducts 80% of the result as a notional expense. The fraction compares the R&D the company did itself, or paid unrelated parties to do, with everything spent on the asset including its purchase price and work by group companies.
No. Trademarks, brand names and other marketing-related IP are excluded. Patents, copyrighted software, utility models and a few other technical assets qualify. A bought trademark can still be amortised over its useful life, up to 20 years, which reduces tax at the full 15% rate.
Yes, if the asset is a qualifying type, but the purchase price counts against the nexus fraction. If the company does no development of its own after buying, the fraction is close to nil and the box gives almost nothing. The amortisation of the price is then the main relief.
Over its useful life under accounting principles, with a maximum of 20 years. An asset with an indefinite life is spread over 20 years. The claim is optional each year, and anything not claimed is spread over the remaining life rather than lost.
Only where the licensed right is used in Cyprus. The rate is 10%, or 5% for cinematograph films, and treaties or the EU Interest and Royalties Directive usually reduce it to nil. Royalties for rights used abroad carry no Cyprus withholding, unless the recipient is an associated company in an EU-listed non-cooperative jurisdiction, which suffers 10%.
Not if the recipient is an associated company. From 1 January 2026, royalties paid to a group company in a jurisdiction taxing companies below 7.5% are not deductible. The 2026 list includes the British Virgin Islands, Cayman Islands, Bermuda, Bahamas, Jersey, Guernsey and the Isle of Man. A substance-based exception exists but is narrow.
For a bought-in intangible there has been no balancing charge since 2020, so amortisation already claimed is kept. A gain that is capital in nature falls outside Cyprus tax. Where the company trades in IP, or the asset is in the box, the gain is income, and 80% of the qualifying share is deducted.
No. The extra 20% on qualifying R&D spending, available until the end of 2030, cannot be combined with the box deduction on the same IP. A common pattern is to take the 120% while an asset is being developed and earns nothing, and move to the box once it produces income.
A licence to a business is taxed where the customer is established. A Cyprus licensor charging an EU business charges no Cyprus VAT and reports the sale on its EU sales statement. A Cyprus company paying a foreign licensor accounts for 19% itself under the reverse charge and recovers it if its own supplies are taxable.
In practice, yes. The box only rewards R&D the company carries out or manages, and transfer pricing gives the IP return to whoever controls development, maintenance, protection and exploitation. A company with legal title and a nominee board will struggle to defend more than a modest return.
From 2026, a full Cyprus Local File is needed where controlled transactions in a category pass €2.5 million a year, with higher limits of €10 million for financing and €5 million for goods. Below those limits the company still files a summary information table and keeps minimum documentation showing the royalty is at arm’s length.
Much less. Cyprus collects a domestic top-up tax from groups with consolidated revenue of €750 million or more, so profit taxed at about 3% in the box is largely topped up towards 15%. For those groups the case for Cyprus rests on treaties, people and cost, not the box rate.
Yes, by sale or in exchange for shares. Where IP is contributed for shares, the value used for amortisation cannot exceed market value and the Tax Commissioner must be satisfied with it, so an independent valuation is essential. The founder’s own country may tax the transfer, and that is worth checking first.
Bariono is a Nicosia firm licensed to provide audit services and regulated by the Institute of Certified Public Accountants of Cyprus. Its staff are members of ICPAC, ACCA and ICAEW, and it is an authorised ICAEW training employer. Its founder has worked in large Cyprus audit firms and as Financial Controller and Non-Executive Director at investment firms, across tax planning, corporate compliance, investment funds, shipping and construction. Marios Djalev signs off every figure on this page.
Send the route comparison you ran above and a line on where development happens today. Bariono reviews the position and replies directly.
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