In an effort to attract new investments and businesses in Cyprus, an enhanced tax deduction for Research & Development (R&D) expenses was incorporated into Article 9(1)(d) of the Cyprus Income Tax law (ITL).
The most significant change of the amending law is as follows:
- For expenses incurred during the years 2022, 2023 and 2024, including expenses of a capital nature, for which deduction is granted in accordance with the provisions of Article 9(1)(l) of the ITL, an additional tax deduction is granted for R&D expenses, equal to 20% of the relevant expenses. Effectively, 120% of the actual eligible R&D expenses will be deducted from taxable income.
- The additional deduction cannot be claimed alongside the deduction provided under the Cyprus IP regime (Article 9(1)(k) of the ITL).
In addition, the amending law provides the following:
- The person carrying on a business should have the economic ownership of the intangible asset that arises or is likely to arise from incurring such expenses.
- In case where the relevant expenses are of a capital nature, the deduction is claimed in accordance with the provisions of Section 9(1)(l) of the ITL which provides that the expense is distributed over the life duration of the intangible asset in a reasonable manner, according to accepted accounting principles with a maximum period of 20 years.