Following the Action Plan announced in Q4 2021, which outlined a range of innovative tax incentives to attract new business to Cyprus, an improved tax deduction for Research and Development (R&D) expenses has been established into Article 9(1)(d) of the Income Tax Law (ITL) and is effective from 20th July 2022.

As per the previous Article:

‘Any expenditure for scientific research incurred by a person carrying on any business, as well as R&D expenses as recognised by international accounting standards carried out by small and medium-sized innovative companies as defined in article 9A of the ITL, shall be deducted from taxable income if they were wholly and exclusively incurred for the production of income, so long as the Commissioner is satisfied that such expenditure has been incurred for the use and benefit of the business.

No deduction shall be granted for such expenses incurred for the acquisition of plant and machinery or buildings, including staff accommodation, in respect of which a deduction may be granted according to Article 10 of the ITL.

Any such expenditure of a capital nature, in respect of which deductions may not be granted under Article 10, shall be distributed equally between the tax year in which it was incurred and the five immediately following years.’

The key points of the amended Law state that:

1/.  Expenses incurred during 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), an extra tax deduction of 20% is granted for R&D expenses. Therefore, 120% of the actual eligible R&D expenses can be deducted from the taxable income.

NB — The additional deduction cannot be claimed in conjunction with the deduction provided under the Cyprus IP regime (Article 9(1)(k) of the ITL).

Where the relevant expenses are of a capital nature, the deduction is claimed over the anticipated life duration of the intangible asset, according to accepted accounting principles and with a maximum period of 20 years.

2/. It is stated that the person carrying on the business should have economic ownership of the intangible asset that arises or is likely to arise from incurring such R&D expenses.

If you need any assistance in regard to establishing your business in Cyprus and benefitting from this or any of , feel free to contact us at care@accesstaxaccounting.com or by tel: +357 25 820 547