Innovation and Start-Ups
Creating value through ideas and having the potential of becoming a key driver of economic growth, the development of the Start-Ups sector is deemed of great importance for Cyprus. In this direction, significant incentives have been introduced by the Cyprus government in order to boost innovation and enterpreneurship, such as the approval of a package of tax incentives of investment into start-ups, as well as the introduction of the Start-up Visa for third country nationals.
The tax incentives package includes an up to 50% tax exemption on investment in innovative and start-up companies. The exemption will be afforded to individuals who invest in an innovative enterprise, either directly or through an investment fund. The maximum annual amount to be exempted is €150,000. The investment could be in the form of acquiring shares, a loan, or providing guarantees to innovative enterprises.
To be considered innovative, a company must have spent 10% of its operating expenses on research and development in at least one of the last three years, a fact which will be determined by an external auditor. Start-ups will be assessed based on their business plan.
The definition of innovative enterprise has also changed. To date, the definition was limited, only including specific sectors of research and development. Now it covers a wide spectrum that is not restrictive and can be effectively used by businesspeople, young people with innovative ideas that can be turned into entrepreneurship and commercial products.
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The Cyprus ecosystem is further enhanced with the introduction of the Start-up Visa for third country nationals. This scheme concerns individual investors and groups of investors who will be in a position to establish a startup in Cyprus.
These investors will have to be citizens of third countries, with a 50 thousand euro capital, who will set up their headquarters and their tax residency in Cyprus, will be university graduates and have a good knowledge of either Greek or English, while businesses must be certified startups.
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Intellectual Property (IP) regime)
The new regulations introduce the OECD recommended “nexus approach.” This approach limits application of the IP box regime if research and development (R&D) is being outsourced to related parties. The approach links the benefits of the regime with the R&D expenses incurred by the taxpayer.
As per the new IP box regime, qualifying taxpayers will be eligible to claim a tax deduction equaling 80% of qualifying profits resulting from the business use of the qualifying assets. A taxpayer may elect not to claim the deduction or only claim a part of it.