Cyprus IP Box and Online Courses Memberships

[MarkusCostigan]

Selling online courses by subscription (The user pays a monthly subscription and get a license to access the courses) + tutoring support, can it be considered within the IP BOX in Cyprus? Thank you.

 

[Marzio]

Short answer: no way because an online course isn't considered a qualified asset and even if it did, you are missing qualifiying expenditure defined as the sum of all R&D costs incurred during any given tax year wholly and exclusively for the development, improvement or creation of qualifying intangible assets.

Cyprus IP Box Regime - Intellectual Property Law - Taxes and Accounting

CYPRUS IP BOX REGIME - discover more about Intellectual Property Law and Nexus Fraction in Cyprus to start boosting your company business

ipbox.cy

 

[MarkusCostigan]

Short answer: no way because an online course isn't considered a qualified asset and even if it did, you are missing qualifiying expenditure defined as the sum of all R&D costs incurred during any given tax year wholly and exclusively for the development, improvement or creation of qualifying intangible assets.

Cyprus IP Box Regime - Intellectual Property Law - Taxes and Accounting

CYPRUS IP BOX REGIME - discover more about Intellectual Property Law and Nexus Fraction in Cyprus to start boosting your company business

ipbox.cy

Thank you Marzio, you are very kindly

 

[CyprusLawyer101]

Are you developing those online courses yourself ?

 

[MarkusCostigan]

Are you developing those online courses yourself ?

Yes. Coding courses + mentorship.

Are you developing those online courses yourself ?

For convenience, I use third party platforms to manage subscriptions where users see the courses (for example Thinkific, Teachable etc...).

 

[AndyAresa]

Has anyone on this forum actually used the Cyprus IP box incentive in their business? It would be great to hear the timeline, the actual steps to ensure the 80% exemption, setbacks during the process if any, and recommendations of advisors to handle the whole process.

 

[CyprusBusiness]

Has anyone on this forum actually used the Cyprus IP box incentive in their business? It would be great to hear the timeline, the actual steps to ensure the 80% exemption, setbacks during the process if any, and recommendations of advisors to handle the whole process.

First you need to examine whether the IP falls within the definition of qualifying assets of the Cyprus IP Box. Please explain what type of intellectual property you own or intend to develop so that we can advise. Happy to PM as well if you have specific questions

 

[AndyAresa]

First you need to examine whether the IP falls within the definition of qualifying assets of the Cyprus IP Box. Please explain what type of intellectual property you own or intend to develop so that we can advise. Happy to PM as well if you have specific questions

Thanks. It is specialized software to be licensed to companies operating in a specific online industry, not related to adult or crypto. Is getting a pre-approval from the tax authorities required in order to apply the ip box? how long does it take? which are the most likely reasons for disallowing the application of the incentive? are there any known cases when the exemption was initially granted but later withdrawn, causing payment of additional taxes and/or penalties?

 

[CyprusBusiness]

Thanks. It is specialized software to be licensed to companies operating in a specific online industry, not related to adult or crypto. Is getting a pre-approval from the tax authorities required in order to apply the ip box? how long does it take? which are the most likely reasons for disallowing the application of the incentive? are there any known cases when the exemption was initially granted but later withdrawn, causing payment of additional taxes and/or penalties?

Thank you, just to clarify - I assume that the pre-approval you mention relates to the tax ruling application. If so, this is not mandatory and not required by law. However, it is the recommended course of action to make sure that the Tax Office will not challenge the tax status at a later stage.

For a positive outcome of the tax ruling the application needs to be supported with evidence that the IP is a qualifying asset under the Regime and that the R&D expenses are subject to capitalisation in accordance with IAS 38 (International Accounting Standard 38). As such, to make sure that a positive outcome is achieved a detailed reference to accounting standards needs to be made showing eligibility for capitalisation of R&D costs.

From experience, once the tax ruling returns with a positive outcome this cannot be annulled and will grant the company indefinite protection.

 

[AndyAresa]

Thank you, just to clarify - I assume that the pre-approval you mention relates to the tax ruling application. If so, this is not mandatory and not required by law. However, it is the recommended course of action to make sure that the Tax Office will not challenge the tax status at a later stage.

For a positive outcome of the tax ruling the application needs to be supported with evidence that the IP is a qualifying asset under the Regime and that the R&D expenses are subject to capitalisation in accordance with IAS 38 (International Accounting Standard 38). As such, to make sure that a positive outcome is achieved a detailed reference to accounting standards needs to be made showing eligibility for capitalisation of R&D costs.

From experience, once the tax ruling returns with a positive outcome this cannot be annulled and will grant the company indefinite protection.

Thank you CyprusBusiness. Yes, I apparently meant the tax ruling.
Your info is great, thanks. I wonder if there is anyone on this forum who implemented it in its own business? E.g. an IT company owner? it would be great to hear the first-hand experience of businesses on Cyprus ip box.

 

[CyprusBusiness]

Thank you CyprusBusiness. Yes, I apparently meant the tax ruling.
Your info is great, thanks. I wonder if there is anyone on this forum who implemented it in its own business? E.g. an IT company owner? it would be great to hear the first-hand experience of businesses on Cyprus ip box.

Thank you for your kind words. We have assisted many clients with securing a tax rulling. The only downside and potential issue we faced so far was that certain group companies owning a Cyprus IP company implemented an aggressive scheme of re-charging expenses and recognising excessive royalty income on Cyprus level (without the existance of a trasnfer pricing study) and without 100% commercial sense. These actions were sought by the foreign tax office as an aggressive tax scheme and depending on the case the foreign tax office may revoke DDT and try to tax the income locally.

 

[AndyAresa]

Thank you for your kind words. We have assisted many clients with securing a tax rulling. The only downside and potential issue we faced so far was that certain group companies owning a Cyprus IP company implemented an aggressive scheme of re-charging expenses and recognising excessive royalty income on Cyprus level (without the existance of a trasnfer pricing study) and without 100% commercial sense. These actions were sought by the foreign tax office as an aggressive tax scheme and depending on the case the foreign tax office may revoke DDT and try to tax the income locally.

Thank you CyprusBusiness again. So essentially any problems that you encountered were from the foreign tax office, not the Cyprus tax authorities?

When you say –
revoke DDT – you mean they charged withholding tax on the royalties, even though they should be exempt from taxation under the tax treaty?

tax the income locally – disregard royalties as deductible expenses in the foreign country and recognize them as income of the company which paid royalties?

Do you mind sharing foreign tax offices of which countries attempted such actions, in your experience?

 

[CyprusBusiness]

Thank you CyprusBusiness again. So essentially any problems that you encountered were from the foreign tax office, not the Cyprus tax authorities?

When you say –
revoke DDT – you mean they charged withholding tax on the royalties, even though they should be exempt from taxation under the tax treaty?

tax the income locally – disregard royalties as deductible expenses in the foreign country and recognize them as income of the company which paid royalties?

Do you mind sharing foreign tax offices of which countries attempted such actions, in your experience?

We had just a couple of cases that the 2.5% IP Box regime was conceived by the foreign tax office as tax aggressive scheme and all related to German tax office. Of course, these cases were high profile clients involved in the energy and aviation sector.

Yes, your understanding is correct regarding WHT and DDT annulment, but do note that these were high profile cases that ended up in court. The end result was for the German tax office to accept the DTT provisions in exchange for the Group to become liable for a 12.5% Cyprus corporation tax so that no German WHT be applied as a settlement.

Aside from this we faced no other incidences with any foreign tax office.

 

[adventuks]

Why nobody mention that for IPBox you need to pay salaries to developers in CY and have real physical office. Only then you can calculate your IPBox profits based on the money you have spent on development (full salaries with taxes and social contributions, etc).

It's not like you can come to CY and say "hey I've developed this software and want all profits to be taxed at 2.5%".

It's only valid option for real software companies with development staff inside Cyprus, not one person companies.

Correct me if I'm wrong here.

 

[Marzio]

Why nobody mention that for IPBox you need to pay salaries to developers in CY and have real physical office.

Because we were waiting for your contribution.

 

[AndyAresa]

Why nobody mention that for IPBox you need to pay salaries to developers in CY and have real physical office. Only then you can calculate your IPBox profits based on the money you have spent on development (full salaries with taxes and social contributions, etc).

It's not like you can come to CY and say "hey I've developed this software and want all profits to be taxed at 2.5%".

It's only valid option for real software companies with development staff inside Cyprus, not one person companies.

Correct me if I'm wrong here.

I believe that in addition to, or in stead of, internally employed developers, one may also use the services of unrelated companies or contractors. Then the requirements for Cyprus IP Box incentive are still met.