The Cyprus IP Box: 3% tax on income from software and patents

If your company earns money from software you wrote or a patent you hold, the IP Box is the largest tax break available to you in Cyprus — and it is one of the few that survived the 2026 reform untouched.

What it actually does

80% of qualifying profit from a qualifying intangible asset is deducted before tax. Only the remaining 20% is taxed, at the normal corporate rate.

Corporate tax rose from 12.5% to 15% on 1 January 2026. So the arithmetic is now:

Qualifying profit	€100,000
80% notional deduction	−€80,000
Taxable	€20,000
Tax at 15%	€3,000

An effective rate of about 3%. You will still see "2.5%" quoted all over the internet — that was correct while corporate tax was 12.5%, and it has not been updated on most sites. The relief is unchanged; the rate underneath it moved.

Which assets qualify

• Patents
• Copyrighted software
• Other intangibles that are non-obvious, useful and novel, certified as such, where the company meets the size conditions

Which do not — and this is where people are disappointed

Marketing intangibles are excluded. Trademarks, brand names, image rights and customer lists do not qualify, however valuable they are.

This catches out founders who assume "our brand is our IP". For IP Box purposes it is not. What qualifies is the thing you built and can point to as an invention or as code.

What counts as qualifying income

• Royalties and licence fees for the use of the asset
• Embedded income — the IP-derived part of the price of a product you sell, even when nobody pays you a separate royalty. This is the route most software companies actually use
• Capital gains on disposal of the asset
• Compensation or insurance proceeds relating to it

The nexus rule: the part that decides how much you get

The regime follows the OECD modified nexus approach. In plain terms: the benefit is proportional to how much of the R&D your own company actually did and paid for.

Spending on your own development counts. Buying the IP in, or paying a related company abroad to develop it, does not count towards your ratio — so a company that acquires finished IP and licenses it out gets little or nothing here, while a company whose developers are on its own payroll gets close to the full benefit.

This is deliberate. The rule exists so the relief goes to businesses genuinely doing the work in Cyprus, and it means the IP Box is not a structure you can bolt on at year end. It rewards how the company is actually built.

Who it is for

• Software companies and development studios, especially with embedded income in a product price
• Businesses holding patents on something they invented
• Founders relocating a development team to Cyprus, where the R&D spend will sit in the Cypriot company

It combines well with non-domicile status: the company pays about 3% on qualifying profit, and a non-dom owner takes the remainder out as dividends with no Special Defence Contribution.

What it requires of you

Real accounting. You need to be able to show which income came from which asset, and which costs were incurred developing it. That means the books have to separate qualifying from non-qualifying income from the start — reconstructing it afterwards is painful and sometimes impossible.

The deduction is calculated annually, on each asset, and it needs supporting records that stand up to review.

Common mistakes

Assuming the brand qualifies. Trademarks are excluded.

Buying IP and expecting the full benefit. The nexus ratio reduces it, often to very little.

Still planning around 2.5%. The rate is about 3% from 2026.

Leaving the bookkeeping until the year end. Qualifying income has to be traceable, not estimated.

Treating it as the only decision. The IP Box sits inside a wider picture — substance, salaries, dividends and the owner's personal tax position all interact.

What we do

We assess whether your asset and your structure actually qualify before anything is committed — including the uncomfortable answer, that some businesses do not qualify and should not restructure hoping to.

Where it does fit, we set it up: the company, the ownership of the asset, the accounting separation that makes the annual calculation possible, and the coordination with your accountant so the deduction is claimed correctly each year rather than argued about later.

This is a paid advisory service, and it needs a qualified tax adviser alongside it — the figures above are the framework, not advice on your specific case. Tell us what your company does and where the development happens, and we will tell you honestly whether this is worth pursuing.