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Cyprus IP Box for one-man software company

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Unterminator

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Dec 5, 2023
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#1
Hi Folks,

I was wondering if it's actually possible to use the Cyprus IP Box as a one-man software company?
There's the Modified Nexus Shite to contend with, but the following setup should work, methinks:

1. Start company.
2. Employ yourself as programmer for 1000€/mo or something. Pay social insurance, etc.
3. Document work hours and development progress if necessary.
4. Capitalise those salary expenses, as per IAS 38.
5. Claim IP Box.

I'm less sure whether you would need a physical office to pull this off. Formally, there is no such rule,
so an employed local resident working from home should contribute to the Nexus just fine.
Whether the authorities concur is another question, of course ;)

I'm tempted to actually try this, as I'm moving to Cyprus very soon, but doubts remain...

Has anybody here done something like this before? And would it be crazy to try this without an advance tax ruling?
 
#2
Unterminator said:
Hi Folks,

I was wondering if it's actually possible to use the Cyprus IP Box as a one-man software company?
There's the Modified Nexus Shite to contend with, but the following setup should work, methinks:

1. Start company.
2. Employ yourself as programmer for 1000€/mo or something. Pay social insurance, etc.
3. Document work hours and development progress if necessary.
4. Capitalise those salary expenses, as per IAS 38.
5. Claim IP Box.

I'm less sure whether you would need a physical office to pull this off. Formally, there is no such rule,
so an employed local resident working from home should contribute to the Nexus just fine.
Whether the authorities concur is another question, of course ;)

I'm tempted to actually try this, as I'm moving to Cyprus very soon, but doubts remain...

Has anybody here done something like this before? And would it be crazy to try this without an advance tax ruling?
Click to expand...
Find an experienced auditor to advise you in this regard. There are some experts in this field and then there are big offices that don't even know how to apply.

Note that there is no requirement that the R&D be performed within Cyprus for the expenditure to be classified as ‘Qualifying Expenditure’, but you cannot outsource to related parties.
 
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#5
sergeylim88 said:
can you transfer existing IP to your new company in Cyprus and ask for IP box regime?
Click to expand...
Yes

Unterminator said:
Hi Folks,

I was wondering if it's actually possible to use the Cyprus IP Box as a one-man software company?
There's the Modified Nexus Shite to contend with, but the following setup should work, methinks:

1. Start company.
2. Employ yourself as programmer for 1000€/mo or something. Pay social insurance, etc.
3. Document work hours and development progress if necessary.
4. Capitalise those salary expenses, as per IAS 38.
5. Claim IP Box.

I'm less sure whether you would need a physical office to pull this off. Formally, there is no such rule,
so an employed local resident working from home should contribute to the Nexus just fine.
Whether the authorities concur is another question, of course ;)

I'm tempted to actually try this, as I'm moving to Cyprus very soon, but doubts remain...

Has anybody here done something like this before? And would it be crazy to try this without an advance tax ruling?
Click to expand...
It appears possible. Would the employee be involved in the R & D of the IP itself?
Best thing is to file forna tax ruling , so you know for sure, but more importantly you keep it on file as a binding document to the appropriate tax treatment. We have done this fir carious clients and we can help. Let me know if you would like to discuss this.
 
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#6
sergeylim88 said:
can you transfer existing IP to your new company in Cyprus and ask for IP box regime?
Click to expand...

CyprusLawyer101 said:
Yes
Click to expand...
Are you sure about this? I thought that transferring existing IP from a related party was the one thing you definitely couldn't do under Nexus rules.

CyprusLawyer101 said:
It appears possible. Would the employee be involved in the R & D of the IP itself?
Click to expand...
Yes, I'd officially employ myself as a software developer and then assign myself to work on the IP-related project.

CyprusLawyer101 said:
We have done this fir carious clients and we can help. Let me know if you would like to discuss this.
Click to expand...
Sure. PMs welcome.
 
#10
You can't transfer an existing IP! You can, but the equation won't give you 2.5%.
To put it in simple terms, if you buy an existing IP for 10k and during the year add another 10k, the rate will be 5%, not 2.5%, because the first 10k won't qualify.
If you buy/transfer an existing IP worth 90k and add 10k in salaries/R&D, you effective rate will be 12.5%*0.9=11.25%


And remember finding a consultant Cyprus who won't screw you is the biggest challenge. I would stay away from "experts" on this forum for sure
 
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#11
5K1PP3R said:
And remember finding a consultant Cyprus who won't screw you is the biggest challenge. I would stay away from "experts" on this forum for sure
Click to expand...
I can recommend a qualified auditor for this.
 
#12
5K1PP3R said:
You can't transfer an existing IP! You can, but the equation won't give you 2.5%.
Click to expand...
I've been advised that this might not apply if the existing asset is contributed in kind upon company formation. However, this requires independent valuation, and would probably be fully subject to tax in the country of origin, so the benefits of such a transfer are non-obvious. In any case, this doesn't apply in my situation, so I went with the originally described setup. We'll see how it goes.
 
#13
5K1PP3R said:
You can't transfer an existing IP! You can, but the equation won't give you 2.5%.
To put it in simple terms, if you buy an existing IP for 10k and during the year add another 10k, the rate will be 5%, not 2.5%, because the first 10k won't qualify.
If you buy/transfer an existing IP worth 90k and add 10k in salaries/R&D, you effective rate will be 12.5%*0.9=11.25%


And remember finding a consultant Cyprus who won't screw you is the biggest challenge. I would stay away from "experts" on this forum for sure
Click to expand...
Hey , Ι have been advising clients on the IP regime in Cyprus and I am not sure I understand fully what you are saying. Are you just trying to say that the 2.5% tax is not a fixed figure but represents the lowest possible? Maybe you are thinking of a specific scenario where the IP is fully developed?
What would in your opinion be the treatment where an IP is injected as a capital asset in the company and is subject to ongoing development for its life duration? Could it not qualify to the IP regime treatment?
 
Last edited:
#14
lets say company buys an existing copyrighted software (ip), or company owner moves ownership from another non Cyprus entity to a Cyprus entity
will the Cyprus entity be able to use IP regime using that purchased/transferred intellectual property?
 
#15
To qualify for the IP Box regime the injected (ready to be used) IP needs to be subject to ongoing development (R&D) which is either incurred internally by the company or outsourced to a non related party. The development work must relate to enhancements/improvements or add-ons of the existing IP.

The statement above regarding valuation of the IP is correct as under Companies Law any in kind contribution to the company needs to be accompanied by a valuation (the valuation methodology must be aligned with IFRS13)

The R&D activity must involve development costs as defined by IAS38 (IFRS - accounting standards) and be eligible for capitalization.
 
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#16
sergeylim88 said:
lets say company buys an existing copyrighted software (ip), or company owner moves ownership from another non Cyprus entity to a Cyprus entity
will the Cyprus entity be able to use IP regime using that purchased/transferred intellectual property?
Click to expand...
see my previous reply, you won't get 2.5%. If you bought it at 100k and paid another 100k for R&D, you will get 5% and so on. I actually may be wrong about the exact numbers, but that's the idea. If you IP is fully developed using Cyprus company, you will get 2.5% from the formula, because all your expenses qualify (provided your income comes from that IP)

I am not sure if "moving ownership" can be done using company formation, you will probably need Valuation.

Another thing to consider is VAT. If you sell the IP as a person, the company needs to charge VAT, beware
 
#18
This will be 2.5% as long as there are internal development costs or costs outsourced to non-related parties. If you incur outsourced R&D service from related parties this will limit your deduction. Thus, a simple setup in case you are the sole developer is setup the company and arrange to be an on-payroll employee for the company
 
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