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Royalties are the payment of license fees or commissions by one individual or entity to another for the use of intellectual property such as:
patents
trademarks
copyright
For many international companies, the development and licensing of intellectual property can be considered as one of their most important activities. Licenses can be granted to third parties or related parties. Adequate structuring of the ownership of the intellectual property and channeling of the license payments can lead to significant tax benefits.
Royalty companies operate in much the same way as finance companies. Income from royalties is included in the computation of the taxable profits of a Cyprus tax-resident company and is subject to tax in Cyprus at the rate of 10%. Royalty payments are deductible expenses in the computation of the taxable profits of a Cyprus tax-resident company. The gross amount of any royalty premiums payable for the use of the intellectual property outside Cyprus are not subject to WHT unless the IP is used within Cyprus. In that case there is withholding tax at 10% (5% if it relates to cinema films), unless the double tax treaty (DTT) provides for a lower rate or the EU interest royalty directive applies.
