The IP Box regime is a company tax regime used by some countries to stimulate research and development activities.

In Cyprus, this regime is mainly used by companies producing computer programs. Thanks to the benefits provided by it, one of the largest game development companies, Wargaming, has relocated to Cyprus.

The IP Box regime provides companies with tax incentives for the income derived from qualified intellectual property (licenses, sub-licenses, sale and/or transfer of intellectual property assets). Intellectual property (hereinafter - IP) is the result of any intellectual activity, like computer programs, mobile applications and video games, innovative algorithms and formulas, inventions, trade secrets and know-how, industrial practices, marketing concepts, works of art, designs, images, names and inventions used in trade.

Intellectual property is one of the most valuable assets of a company. One of the advantages of most IP assets is the lack of a fixed geographic reference. Because of its non-physical nature, intellectual property is also convenient to work with.

An IP object can easily be relocated between different jurisdictions at no significant cost, depending on the circumstances and the tax systems. 85% of multinational companies use this advantage to reduce the overall tax burden by allocating valuable intellectual property to those companies of the group that are registered and operate in the countries with the most tax-friendly IP Box regime. Today more than 2,000 IT companies use Cyprus as their tax base, while the bulk of their operations are carried out abroad.


Before moving on to the peculiarities of Cyprus's regime of taxation of intellectual property, it is necessary to determine which IP objects are classified by the legislation of Cyprus as qualified IP objects (assets) used in the taxation under the IP Box scheme. Qualified IP objects in Cyprus include:

  1. Patents (as defined in the Patent Law).
  2. Copyright-protected computer programs (including mobile applications and video games).
  3. Other intangible assets classified according to the principle of usefulness and novelty.

Qualifying IP objects do not include names, brands, trademarks, copyrights, images, and other marketing rights.

In accordance with the Cyprus IP Box regime, the following are exempt from corporate tax:

1) 80% of the profit from the sale of intellectual property right.

80% of the profit from the sale of the related intangible assets is not recognized for tax purposes. This is a significant exception compared to other regimes (see the table below).

2) 80% of the income from the use of intellectual property rights.

Four-fifths (80%) of the income generated from the use of intangible assets are deductible for tax purposes. Thus, only 20% of IP revenue after deducting the revenue generation costs is taken into account. Thus, Cyprus' corporate tax rate of 12.5%, which is one of the lowest in the EU, provides an effective tax rate of 2.5%.

Apart from that, the Cyprus IP Box regime offers the companies a 5-year amortization period for IP capital expenditures.

Capital expenditures related to the acquisition or development of intellectual property can be deducted in the first tax year in which these expenditures were incurred, as well as in the next 4 years. In practice, this can bring the effective tax rate down to less than 2%.


Countries are striving to attract innovative businesses by providing reduced tax rates for companies that have established proper accounting for intellectual property rights and related cross-border transactions.

One jurisdiction may be better than others in some aspects, while another may offer different benefits. The similarities and differences, advantages, and disadvantages of jurisdictions need to be evaluated and compared with each other based on the particularity of a specific company and the main characteristics of a potential jurisdiction in order to make the best business decision.

Below we have provided a table that shows the main characteristics of IP Box regimes operating in different European countries.

Country Cyprus Belgium Hungary Luxemburg Netherlands France United Kingdom
Effective Tax Rate, % 2.5% 4.44% 4.5% 5.2% 7.0% 10.0% 10.0%
Qualifying IP objects Patents, computer software, utility models, other IP rights assets like non-obviousness, usefulness and originality (novelty) Patents and additional patent certificates, copyrighted software
utility models, 
copyrighted software
Patents, trademarks, designs, domain names, models and software copyrights, brands for services for goods, like manufacturing and marketing know-how Proprietary intellectual property related to patents, copyrighted software, or approved research and development

Patents, service certificates, copyrighted software



Patents and similar rights

Invalid objects of intellectual property Company names, trademarks, image rights, marketing activities Know-how, trademarks, designs, models, formulas and processes Design Formulas, copyrights (excluding software) Trademarks, brands and acquired intellectual property

Non-patentable inventions, R&D

Trademarks, copyright and design
Internal development or acquisition? Proprietary IP, designed and acquired IP rights developed independently or acquired or licensed from third parties Proprietary IP, designed and acquired IP developed and acquired internally, but not IP obtained form a related party Only proprietary IP developments Proprietary intellectual property, designed and acquired Proprietary intellectual property, designed and acquired
R&D restrictions Yes Yes No No Yes No No
Income subject to the regime

Royalties, license fees, compensation income, trading profits from the sale of IP, capital gains from the sale that are not subject to any tax

Patent income Royalties Royalties net of costs (depreciation, R&D costs, percent) Net income from qualifying assets Net profit from licensing, sublicensing or sale of certain IP rights Net income from qualified IP
%  reduction in tax rate 80% 85% 50% 80% Irreducible tax rate Irreducible tax rate Irreducible tax rate
Is there a limit to the decline in profit? No 100% profit before tax 50% profit before tax No No No No
Sales profit included? Yes No Yes Yes Yes Yes Yes 


Based on the data in the comparison table it can be concluded that the Cyprus IP taxation scheme is the most flexible and efficient one compared to the schemes offered by other European countries:

  1. The Cyprus IP Box regime provides for a maximum tax rate of 2.5% on the income derived from intellectual property assets. Its closest competitors with a comparable indicator are Belgium - 4.44%, Hungary - 4.5% and Luxembourg - 5.2%, with their tax rate being, however, almost twice as high. They are followed by the Netherlands with 7%, and France and Great Britain with a 10% lag falling slightly behind the Netherlands, but far behind Cyprus.
  2. The Cyprus IP Box regime applies to a wider range of income compared to other similar European schemes, most of which limit the benefits to the income from patents and additional patent certificates.
  3. While IP Box regime schemes in Belgium, Hungary, Luxembourg, the Netherlands, and the United Kingdom offer partial exemptions from sales profits, their benefits become less attractive to IP holders than those offered by the Cyprus scheme due to their restrictions on qualifying assets and a smaller rate cut.


  Variant 1 Variant 2 Variant 3 Variant4
"Qualifying Assets" are designed, created and then improved by the company itself. All R&D was carried out independently, nothing was outsourced. "Qualifying Assets" - purchased by a Cypriot company ready-made. R&D was outsourced to an unrelated party for further improvement. "Qualifying Assets" - acquired by a Cypriot company ready-made. R&D was outsourced to a related party for further improvement. "Qualifying Assets" - acquired by a Cypriot company ready-made. R&D was outsourced to a related and unrelated party for further improvement.
Overall Income (OI)
(Revenue-Direct Costs)
1,000,000 Euro 1,000,000 Euro 1,000,000 Euro 1,000,000 Euro
Overall Expenditure (OE) 500,000 Euro 500,000 Euro 500,000 Euro 500,000 Euro
The cost of acquiring qualifying assets 0 Euro 300,000 Euro 300,000 Euro 200,000 Euro
R&D Expenditure transferred to a related party 0 Euro 0 Euro 200,000 Euro 75,000 Euro
Qualifying Expenditure
EXCLUDED: costs of acquiring qualifying assets and costs of R&D outsourced to a related party
500,000 Euro 200,000 Euro 0 Euro 225,000 Euro
R&D Expenditure carried out by the company itself 500,000 Euro 0 Euro 0 Euro 200,000 Euro
R&D Expenditure transferred to an unrelated party 0 Euro 200,000 Euro 0 Euro 25,000 Euro
Uplift Expenditure (UE)
(the lower of the two values is used for the calculation)
30% of the total size of the Qualifying Expenditure (QE) 150,000 Euro 60,000 Euro 0 Euro 67,500 Euro
The costs of acquiring qualifying assets + RD costs transferred to a related party 0 Euro 300,000 Euro 500,000 Euro 275,000 Euro
Qualifying Profit (QP) 1,000,000 Euro 520,000 Euro 0 Euro 585,000 Euro
Tax incentive (80%) 800,000 Euro 416,000 Euro 0 Euro 468,000 Euro
Taxable income
(Total income minus tax incentive)
200,000 Euro 584,000 Euro 1,000,000 Euro 532,000 Euro
Tax amount (at the rate of 12.5%) 25,000 Euro 73,000 Euro 125,000 Euro 66,500 Euro

Thus, the greatest benefit in terms of taxation in Cyprus is received by the companies that create and improve intellectual property products independently.