(a)Asset
Qualifying IP asset
A patent, copyrighted software, utility model, orphan drug designation or similar right that came out of research and development. A brand never qualifies, however valuable.
Cyprus IP box · tax year 2026
How much of your IP profit qualifies for the Cyprus IP box, and the rate you pay after 2026.
The headline is 3%. Whether you get it depends on one fraction: how much of the development behind your patent or software the Cyprus company paid for itself. Calculate yours, test each asset, and see what paying a sister company to build the product costs you.
(21)Income Tax Law, section 9(1)(l)
(22)In force since 1 July 2016
(30)OECD modified nexus approach
1080%Of qualifying profit is deducted as a notional expense
123%Effective rate on fully qualifying profit at 15% corporation tax
1430%Uplift on qualifying spending, capped at acquisition and related-party costs
1620%Of a qualifying IP loss that can be carried forward or group relieved
Sheet 1 · ClaimsCyprus IP box rules as at October 2026
[0010] Rules
The regime, set out as sixteen claims.
The 2026 reform raised corporation tax to 15% and left the IP box mechanics alone. Each rule below is stamped with how sure we are. Where sources disagree, we say so and leave it for the adviser to sign off.
In law enacted, sources agree, in force for 2026
Confirm sources differ or practice is unsettled
| Rule | Value | Status |
|---|---|---|
| Legal basis | Section 9(1)(l) of the Income Tax Law and the Intangible Assets Regulations 336/2016, following the OECD modified nexus approach, in force from 1 July 2016. Some commentary cites the section as 9(1)(k) | Confirm |
| The deduction | A notional deduction of 80% of qualifying profit. The company may claim all of it, part of it, or none in a given year | In law |
| Effective rate from 2026 | 3% on fully qualifying profit: 20% taxed at the 15% corporation tax rate. It was 2.5% at 12.5% until the end of 2025 | In law |
| Qualifying assets | Patents, copyrighted software, utility models, plant and genetic material protections, orphan drug designations and patent extensions, where they result from research and development | In law |
| Other IP for small entities | Non-obvious, useful and novel IP, certified by a competent authority, where IP-related revenue is under €7.5m and group revenue under €50m, both on a five-year average | Confirm |
| Excluded assets | Marketing IP: trademarks, brand and business names, image rights. Also customer lists and know-how that is not certified | In law |
| Qualifying profit | Overall income × (qualifying expenditure + uplift) ÷ overall expenditure. The fraction cannot exceed 100% | In law |
| Qualifying expenditure | Research and development by the company itself: staff, direct costs, facility costs, supplies, and work outsourced to unrelated parties. Excludes acquisition costs, interest, property and amounts paid to related parties | In law |
| Uplift | The lower of 30% of qualifying expenditure and the total of acquisition costs plus related-party outsourcing | In law |
| Overall expenditure | Qualifying expenditure plus acquisition costs plus related-party outsourcing, counted cumulatively over the life of the asset | In law |
| Overall income | Gross income from the asset less its direct costs, including amortisation. Covers royalties, licence fees, embedded income and compensation. Gains on disposal are exempt and left out | Confirm |
| Losses | Where the calculation produces a loss, only 20% of it can be carried forward or surrendered to group companies | Confirm |
| Amortisation | Cost of acquiring or developing an intangible asset, other than goodwill, written off over its useful life, up to 20 years | In law |
| Tracking and tracing | Expenditure and income must be traced to each asset, or to a product or product family where asset-level tracking is impractical, and kept for the life of the asset | Confirm |
| Old regime grandfathering | The pre-2016 IP box closed to new assets on 30 June 2016. Grandfathering ended on 30 June 2021 | In law |
| Research and development super-deduction | 120% deduction for qualifying research and development spending, extended to 2030 by the 2026 reform. Not available twice on the same spending as the IP box | Confirm |
Reading the claims. Claims 7 to 10 are the arithmetic of the calculator below. Claim 16 is stamped Confirm because the reform extended the super-deduction but the published summaries describe its interaction with the IP box in different words. Groups with revenue of €750m or more are also inside the 15% global minimum tax, which can top up an IP box rate.
Sheet 2 · CalculatorFIG. 1
[0020] Nexus fraction
Your fraction, your qualifying profit, your rate.
Enter one asset or product family. Use cumulative spending since development began, because the fraction is measured over the life of the asset, not one year. Income and costs are for the year you are testing.
Nexus fraction and effective rate
Tool 1 of 3This year, from the asset
€
€
Development spending, cumulative
€
€
€
€
Attributable costs include this year's development expense and amortisation of the asset. Related parties are group companies and anyone under common control.
10In-house
12Unrelated outsourcing
14Uplift
16Related-party outsourcing
18Acquisition
Calculation
aOverall income from the asset
Qualifying expenditure
Uplift, capped
Overall expenditure
bNexus fraction
cQualifying profit, a × b
d80% deduction
eTaxable profit, a − d
fTax at 15%
Effective rate on IP profit
Tax with no IP box
Annual saving
Assumptions. Corporation tax 15% for 2026. Deduction 80% of qualifying profit, claimed in full. Qualifying expenditure is in-house research and development plus unrelated outsourcing. Uplift is the lower of 30% of qualifying expenditure and acquisition costs plus related-party outsourcing. Overall expenditure is qualifying expenditure plus acquisition costs plus related-party outsourcing. The fraction is capped at 100%, and is zero if no spending is entered. Overall income is IP income less attributable costs. Where that is a loss, the qualifying part of it (loss × fraction) is restricted to 20%, and the non-qualifying part is treated as usable in full, which an adviser should confirm. No interest, no other income, no global minimum tax top-up, and no super-deduction on the same spending. One asset or product family at a time.
Sheet 3 · DescriptionFIG. 3
[0030] Explained
Eight terms that decide the whole calculation.
The IP box is short in law and long in practice. These are the definitions the Tax Department will test, in the order the calculation uses them.
(b)Ratio
Nexus fraction
The share of the asset's profit you may treat as qualifying: (QE + U) ÷ OE. It rewards the company that did the development work, not the one that bought it.
(c)Numerator
Qualifying expenditure
What the company spent on research and development itself, or paid unrelated firms for. Salaries of your engineers in Limassol count. A fee to your group's development centre does not.
(d)Top-up
Uplift
An extra 30% of qualifying expenditure added to the numerator, but never more than your acquisition and related-party costs. It forgives a little outsourcing, not a lot.
(e)Denominator
Overall expenditure
Everything spent on the asset: qualifying expenditure plus acquisition costs plus related-party fees, added up from the start of development. Old spending never drops out.
(f)Relief
The 80% deduction
A notional expense equal to 80% of qualifying profit. It is a deduction, not an exemption, so it shapes losses too. Only the remaining 20% is taxed at 15%.
(g)Income
Embedded income
IP profit hidden inside the price of a product or service, such as a SaaS subscription. It qualifies only once you strip out hosting, support and other routine returns.
(h)Evidence
Tracking and tracing
The records that link each euro of spending and income to an asset or product family, year by year. Without them the fraction cannot be proved, and the claim fails.
Explainer 1 · The 2026 reform
Why the effective rate moved from 2.5% to 3%, and what that means for existing structures.
Nothing in the IP box itself changed on 1 January 2026. The deduction is still 80% of qualifying profit. What changed is the rate applied to the 20% left over. Corporation tax rose from 12.5% to 15%, so the floor rose from 2.5% to 3%, an increase of a fifth.
For a structure that was fully qualifying, the cost is small and predictable: half a percentage point of IP profit, or €5,000 on every €1m. For one that was not, the effect is larger, because the non-qualifying share of profit now bears the full 15% instead of 12.5%. A company with a fraction of 40% sees its rate rise from 8.5% to 10.2%.
The reform did not make the IP box worse. It made a weak nexus fraction more expensive.
What to do now. Re-run the fraction for each product with 2026 figures. Check whether development fees paid within the group could move into the Cyprus company or to unrelated contractors. If your group has revenue of €750m or more, check the global minimum tax as well, since a 3% rate may be topped up to 15% elsewhere.
Explainer 2 · Related parties
The related-party outsourcing trap.
Many groups build their software in a development centre in another country and hold the IP in Cyprus. The Cyprus company pays the centre a cost-plus fee. It feels like ordinary outsourcing. Under the nexus approach it is the worst possible model, because a fee to a related party sits in the denominator and never in the numerator.
Counts in the numerator
Salaries of developers employed by the Cyprus company, wherever they sit.
Fees to unrelated contractors and agencies, in any country.
Up to 30% extra as uplift, if you have some related costs.
Denominator only
Cost-plus fees to a sister development company.
The price paid to buy the IP, from anyone.
Work done for you by a shareholder's other business.
The point is not geography. A team of unrelated contractors in Kraków gives the same full fraction as an in-house team in Limassol. A related company in the same street does not. Tool 3 below shows the three models side by side with the same costs.
There are three usual fixes. Employ the developers in the Cyprus company, including through a branch abroad that is taxed in Cyprus. Move work to unrelated suppliers. Or accept a lower fraction and price the intercompany fee at arm's length, with a transfer pricing file to support it.
Explainer 3 · Evidence
The evidence you need for each asset or product family.
The claim stands or falls on records. The Tax Department can ask for the cumulative calculation back to the first euro of development, so the file has to be built as you go, not reconstructed at year end.
- Ownership. Patent certificates, software copyright evidence such as dated repositories, assignments from employees and contractors, and licences in.
- Development record. Project codes, timesheets and payroll for the research staff, contractor invoices, each tagged to an asset or product family.
- Related or not. A list of every supplier with a note of whether it is a related party, and the transfer pricing file for any that are.
- Income split. For embedded income, the method that separates IP profit from hosting, support and brand, applied the same way every year.
- Annual nexus schedule. Qualifying, related and acquisition spending, year by year and cumulative, reconciled to the accounts.
Choose asset-level or product-family tracking once, explain why, and keep to it. Switching methods between years invites the question of which one gave the better answer.
Sheet 4 · EmbodimentsThree worked cases at 15%
[0040] Examples
Three companies, three very different rates.
Same regime, same 15% tax rate. The effective rate runs from 3% to over 13%, and the only thing that changes it is who did the development and how it was paid for.
€3m of licence income, its own team
A Limassol company licenses its data platform to European customers. It has employed its own developers since day one, plus €100,000 of unrelated agency work. Costs against the income, including this year's development, are €1.9m.
Overall income€1,100,000
Fraction, €2.5m ÷ €2.5m100%
Tax at 3%€33,000
Without IP box€165,000
Effective 3.00%
Saves €132,000 a year. The work now is the income split: support and hosting fees must be carved out of subscription revenue before the box applies.
Saves €132,000 a year. The work now is the income split: support and hosting fees must be carved out of subscription revenue before the box applies.
IP company pays a sister developer in Ukraine
The Cyprus IP company earns €4m and has €2.5m of attributable costs. Its development is done by a sister company in Kyiv for €2.2m at cost plus 10%. The Cyprus company's own product team costs €250,000.
Overall income€1,500,000
Fraction, €325k ÷ €2.45m13.27%
Tax€201,122
Without IP box€225,000
Effective 13.41%
The uplift adds only €75,000. If the Kyiv developers were employed through a Cyprus company branch, the fraction would reach 100% and tax on the same profit would fall to €45,000.
The uplift adds only €75,000. If the Kyiv developers were employed through a Cyprus company branch, the fraction would reach 100% and tax on the same profit would fall to €45,000.
Bought a patent, then developed it
A medical device start-up bought a patent from an unrelated university spin-out for €600,000 and has since spent €300,000 on its own engineers. Net income from the device this year is €250,000.
Uplift, lower of €90k and €600k€90,000
Fraction, €390k ÷ €900k43.33%
Tax€24,500
Without IP box€37,500
Effective 9.80%
The fraction rises as development continues. After another €600,000 of in-house work it reaches 78% and the rate falls to 5.64%.
The fraction rises as development continues. After another €600,000 of in-house work it reaches 78% and the rate falls to 5.64%.
Sheet 5 · EligibilityAsset by asset
[0050] Eligibility
Does this asset qualify at all?
Before the fraction, the asset has to be the right kind, properly protected, and owned by the Cyprus company. Run each one through separately.
Asset eligibility checker
Tool 2 of 3The asset
Size, five-year averages
€
€
How it decides. Categories follow the Income Tax Law and Regulations 336/2016. Marketing IP and assets that are not the result of research are excluded outright. Software copyright arises on creation, so registration is not required, but authorship and dates must be evidenced. Patents, utility models, plant protections, extensions and orphan designations need the right to be granted. The treatment of income before a patent is granted is not settled and is shown as a condition. The other IP category needs certification and both size tests: IP-related revenue up to €7.5m and group revenue up to €50m, on five-year averages, as published by PwC. Acquired and related-party routes still qualify, but reduce the fraction. All to be confirmed by the adviser.
Sheet 6 · ComparisonFIG. 2
[0060] Development models
Same product, same cost, three tax bills.
Build the same product three ways. The money spent is identical in each column. Only who employs the developers changes, and with it the fraction.
Development model comparison
Tool 3 of 3The product, each year
€
€
€
Treated as both this year's cost and the cumulative nexus spending.Model detail
%
€
Assumptions. Corporation tax 15%, 80% deduction, 30% uplift capped at acquisition plus related-party costs, fraction capped at 100%. Overall income is IP income less other attributable costs less the development cost, which is the same in each model. In the two outsourced models, the share kept in Cyprus counts as in-house qualifying spending and the rest is paid to the outsourcer. The related-party fee is entered at cost, so a cost-plus mark-up, which raises the denominator further, would make that column worse. Acquisition costs, if entered, apply to all three. No global minimum tax top-up.
Sheet 7 · MethodFour steps
[0070] Process
From asset register to claim, in four steps.
Most of the work is done once. After the first year it becomes an annual update of the schedule and the income split.
Weeks 1 to 2
Map the assets
List every patent, software product and other right, who owns it, how it was created, and whether it falls in a qualifying category.
Patent certificates, repository history, employee and contractor IP assignments.Weeks 2 to 6
Build the nexus file
Trace development spending since inception to each asset or product family, split into in-house, unrelated, related and acquisition costs.
Payroll, timesheets and project codes are the evidence most often missing.Weeks 4 to 8
Split income and price the group flows
Separate IP profit from routine returns in embedded income, and set arm's length prices for any related-party development or licences.
A transfer pricing file supports both the income split and the intercompany fees.With the tax return
Claim and keep the file
Claim the 80% deduction in the company's annual corporate tax return and keep the calculation, cumulative schedule and evidence on file.
For a new structure, consider asking the Tax Department for a ruling first.Sheet 8 · QuestionsThirteen answers
[0080] Questions
What founders and finance leads ask first.
Answered plainly, with the review date carried in the page's structured data.
Ask one we missed →01What is the Cyprus IP box tax rate in 2026?
An effective 3% on fully qualifying IP profit. The company deducts 80% of qualifying profit and pays 15% corporation tax on the rest. Until the end of 2025 the same arithmetic gave 2.5%, because the rate was 12.5%. If your nexus fraction is below 100%, your rate is higher.
02Does SaaS subscription revenue qualify for the Cyprus IP box?
Partly. The part of the subscription that pays for the software qualifies as embedded income. The parts that pay for hosting, support, onboarding and the brand do not. You need a consistent method, usually a profit split or a residual approach, documented in a transfer pricing style report.
03Do I need to register software copyright in Cyprus to use the IP box?
No. Copyright in software arises when it is written. What you need is evidence: who wrote it, when, under what contract, and that the rights were assigned to the company. Dated repositories and signed IP assignments from every developer and contractor are the core of it.
04Can trademarks or brand royalties go into the Cyprus IP box?
No. Marketing IP is excluded under the nexus approach, including trademarks, brand and business names and image rights. Brand royalties are taxed at the full 15%. Where a licence covers both software and a brand, the royalty has to be split.
05Why does paying our group development company reduce the IP box benefit?
Because amounts paid to related parties are left out of qualifying expenditure but included in overall expenditure. They lower the fraction directly. The 30% uplift gives a little back, but if most development is bought from a sister company the fraction can fall below 20%.
06We bought our patent. Can we still use the Cyprus IP box?
Yes, but the purchase price sits in the denominator and not the numerator. The benefit comes from the development you do afterwards. The fraction grows each year you spend on your own team or unrelated contractors, because the calculation is cumulative.
07Is the Cyprus IP box nexus fraction calculated every year?
It is applied every year, but the spending in it is cumulative from the start of development. Last year's in-house development still counts this year. That makes the record of past spending as important as the current year's accounts.
08What happens if our IP makes a loss in Cyprus?
Only 20% of a loss from qualifying IP can be carried forward or surrendered to other group companies. This mirrors the 80% deduction on profits. It matters for start-ups, which often have years of losses before the IP box saves anything. Sources differ on the detail, so the adviser should confirm it.
09Can we claim the 120% research and development deduction and the IP box together in Cyprus?
Not on the same spending. The 2026 reform extended the 120% super-deduction to 2030. Development spending can feed the nexus fraction, which sets how much income qualifies, but you should not expect a double benefit on one euro. The exact interaction is one for the adviser.
10Does the Cyprus IP box still work for groups under the global minimum tax?
For groups with revenue of €750m or more, a rate below 15% in Cyprus can be topped up under the minimum tax rules Cyprus has adopted. The box still lowers the Cyprus corporation tax, but the group may pay the difference as top-up tax. Below that threshold the minimum tax does not apply.
11How long can a Cyprus company amortise an acquired patent or software?
Over its useful economic life, up to a maximum of 20 years. This applies to all intangible assets except goodwill, whether or not they qualify for the box. Amortisation is a direct cost, so it reduces the overall income the fraction is applied to.
12Is the old Cyprus IP box from before 2016 still available?
No. It closed to new assets on 30 June 2016 and grandfathering for existing assets ended on 30 June 2021. All claims now run under the nexus regime, and any old structure should have been moved onto it.
13Do we need substance in Cyprus to benefit from the IP box?
In effect, yes. The fraction rewards development the Cyprus company pays for itself, through its own staff or unrelated contractors. A company that only holds the IP and pays a related developer will get little benefit. Directors, decision making and the development team should be real and documented.
Free template
IP box tracking and tracing file template.
- Asset and product family register
- Cumulative nexus schedule by year
- Related-party supplier log
- Embedded income split worksheet
- IP assignment and ownership checklist
- Annual claim and evidence index
Request the template →
Spreadsheet and two-page guide, sent by the adviser. Ask for it in the form below.
Sheet 9 · ApplicantWho stands behind this page
[0090] Provider
Aqualis Ltd, chartered accountants in Nicosia.
Aqualis advises technology and life-science companies on the IP box, the nexus file, transfer pricing for development and licence flows, and Tax Department rulings. The adviser named here signs off every figure on this page.
ICPAC memberICAEW memberEnglish and Greek
Tax adviser[name, title]
Office[address], Nicosia, Cyprus
Tax advisoryaqualis.com.cy/tax-advisory
ResponseWithin one working day