Cyprus targets hi-tech businesses with R&D incentives

Tax breaks are part of a package designed to entice innovative businesses and skilled employees

The Cypriot government has agreed further tax breaks for research and development (R&D) on the island.

Companies working in relevant areas will be able to set 120% of their R&D expenses against future profits. In effect, Cyprus will pay businesses to set up and conduct R&D.

The amendment to Cypriot tax law comes into force immediately and will be effective for the tax years 2022, 2023 and 2024, after which it will be reviewed.

Three years should give businesses – and especially software companies – ample time to design, test and perfect products and bring them to market.

Why is Cyprus offering further R&D tax breaks?

The new tax benefit is part of a concerted effort by the Cypriot government to bring more entrepreneurs and start-ups to the Eastern Mediterranean island.

The Cypriot economy expanded significantly during the 21st century but, according to the latest available figures, R&D expenditure is still below the European average.

The government is determined to diversify the economy and make innovative, research-led businesses a larger part of the mix.

This can be seen in initiatives such as the recently updated Cyprus IP Box scheme, now one of the most secure and financially beneficial intellectual property protection regimes in the world.

The new R&D tax announcement should be seen in that context. The government is successfully positioning Cyprus as an attractive destination for technology companies looking to transfer or expand their operations.

A range of benefits

The island has long promoted relocation and headquartering across sectors with a full package of measures. For example, Cyprus-resident companies benefit from a corporate tax rate of 12.5%.

In May, the government unveiled a series of incentives for businesses looking to open offices and relocate skilled employees to Cyprus.

Non-domiciled employees can expect a 50% tax deduction on annual employment earnings, as long as those earnings are at least €55,000.

The May bill also introduced a temporary work and residence permit of up to three years for third-country nationals and simplified the application process for permanent and long-term residence for employment purposes.

Finally, the government also introduced a “digital nomad” visa. This allows self-employed foreign nationals to work in Cyprus for up to three years.

Cyprus offers European stability and global reach

All of this adds to Cyprus’s existing advantages as a hub for financial and corporate services.

Cyprus benefits from EU membership but is also seen as a stepping stone to the wider region. A number of businesses run Middle Eastern and African operations from headquarters on the island.

They can do so because Cyprus is highly connected. For example, there are around 20 daily flights between Cyprus and Israel, and Israeli entrepreneurs who settle in Cyprus can be back in Israel in 20 minutes.

The island is also a professional services hub with global capabilities and a highly qualified workforce. Its legal system is based on UK common law. Digital connectivity is among the best in the Eastern Mediterranean.

Finally, it goes without saying that those who come to live and work in Cyprus enjoy a high standard of living and the sun-washed Mediterranean climate.

Accelerating Cypriot growth

Cyprus is clearly determined to attract a new generation of hi-tech companies and entrepreneurs involved in research.

The new tax benefits are part of a wider strategy that is already bearing fruit.

While R&D expenditure has been below the European average, it is growing rapidly. The EUR164.4M spend in 2019 represents an increase of 23% on the previous year.

In fact, Cyprus has enjoyed one of Europe’s highest average annual growth rates in R&D expenditure over the past two decades.

The latest announcements are an attempt to build on that momentum by specifically targeting innovation companies and their skilled employees.

Why Intertrust Group?

• Intertrust Group can guide clients through the entire process of incorporating and maintaining corporate entities in Cyprus, taking advantage of the full range of R&D benefits.
• As a strategic partner, our proprietary technologies are combined with global knowledge and experience to deliver a wide range of added-value services.
• Intertrust Group is a publicly listed company with 70 years’ experience in providing world-class trust and corporate services to clients around the world.