Cyprus Taxation Incentives for Investing in Innovative Enterprises
General
Cyprus taxation incentives for investing in Innovative enterprises are in effect as from 1st of January 2017. The new Cyprus tax incentive aims to support new Cyprus enterprises in the development of innovative products and services and to strengthen the Cypriot business ecosystem. The Cyprus taxation incentive is in line with EU rules on state aid, as outlined in the EU Regulations 651/2014.
Eligibility for the Cyprus taxation incentive
According to the Cyprus law a “qualifying investor” that makes a “risk-finance investment” in an “innovative small and medium-sized enterprise (SME)” may deduct the costs of the investment from his/her taxable income, subject to the following limitations:
- Percentage Limit: The tax deduction is limited to 50% of the investor’s taxable income in the year in which the investment is made, as calculated before allowing for this deduction but after allowing deductions for life insurance premiums and contributions to provident and other approved funds.
- Annual Limit: The total deductible amount may not exceed EUR 150,000 per year.
- Carry forward: The remaining investment cost not claimed as tax deductible may be carried forward and deducted from the taxable income of the subsequent five years, subject to the aforementioned restrictions.
Examples
(I) Independent Investor, whose annual taxable income is shown below, invests in an innovative enterprise the amount of € 400.000 in year 2017.
The Cyprus tax benefit is presented below:
| Tax Year | 2017 | 2018 | 2019 | ||
| € | € | € | |||
| Annual Taxable Income | 500.000 | 400.000 | 300.000 | ||
| Discount for investment, lower than: | |||||
| 50% of annual income tax 2017- €250.000 2018 – €200.000 2019 – €150.000 | (150.000) | (150.000) | (100.000) | ||
| Annual Taxable Income subject to tax | 350.000 | 250.000 | 200.000 | ||
| 2017 – €400.000 – €150.000 | 250.000 | ||||
| 2018 – €250.000 – €150.000 | 100.000 | ||||
| 2019 – €100.000 – €100.000 | 0 | ||||
- Maximum Yearly Discount €150.000.
- Remaining investment amount (transferred for 5 years)
| Tax Year | 2017 | 2018 | 2019 | ||||||
| € | € | € | |||||||
| Annual Taxable Income | 50.000 | 80.000 | 30.000 | ||||||
| Discount for investment, lower than: | |||||||||
| 50% of annual income tax 2017 – €25.000 2018 – €40.000 2019 – €15.000 | (25.000) | (20.000) | (15.000) | ||||||
| Annual Taxable Income subject to tax | 350.000 | 250.000 | 200.000 | ||||||
| 2017 – €100.000 – €25.000 | 75.000 | ||||||||
| 2018 – €75.000 – €20.000 | 55.000 | ||||||||
| 2019 – €55.000 – €15.000 | 40.000 | ||||||||
(Can be transferred in years 2020-2022)
- Maximum Yearly Discount €150.000.
- Remaining investment amount (transferred for 5 years)
Eligible individual investors “qualifying investor”
Eligible are individual investors that are independent from the enterprise. An investor is deemed to be independent, if he/she is not an existing shareholder of the enterprise, unless he/she was one of the founders of the enterprise upon its establishment. Individuals can carry out their investment either directly or indirectly
Eligible investments “risk-finance investments”
The incentive is provided for risk-finance investments. Risk finance investment is equity and quasi-equity investments, loans including leases, guarantees or a mix thereof. The incentive is also provided to “follow-on investments”
To view full Cyprus tax department guide on Cyprus Taxation Incentives for Investing in Innovative Enterprises click here
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