Cyprus is now considered as an ideal tech hub for a company looking to launch its business operations. With the growth of various defining sectors, the island has progressively evolved from a vacation resort to a modern entrepreneurial powerhouse for gaming, gambling and tech companies. Wargaming, Outfit7, Melsoft, and Nexters, all of which have their headquarters in Cyprus, have created important video games and other technologies that have influenced the cultural scene in Cyprus and around the world.
There are various reasons for such development, and why you should set up the headquarters of your gaming and IP business in Cyprus as some of the biggest names in the industry already did.
One of these reasons is the beneficial tax regime with significant tax benefits for companies and individuals, specifically designed to attract foreign businesses for headquartering. Others are the location – quality of living of the island, as well as other operational benefits, all of which are explained in detail below, give you a better understanding on why Cyprus is an ideal jurisdiction to come and operate here.
Operational benefits from setting up headquarters in Cyprus
Cyprus over the years has been developed in an attractive destination for gaming/tech companies in general for reasons illustrated below:
- Access to EU (EU member state) and adoption of all EU directives.
- Cost-effective setting-up and on-going operational services.
- Highly educated, qualified and multilingual personnel. Ability to attract more from abroad through incentive schemes (see below).
- Tax benefits (i.e. 50% tax exemption) for high-earning employees gives you the opportunity to attract high-caliber employees.
- Modern and efficient legal, accounting and banking services based on English practices.
- Worldwide connectivity through two modern international airports in Larnaca and Paphos. Easy access to Southwest Asia and Northeast Africa (due to geographical position).
- High standard quality of life, with lots of sunshine, good schools and English speaking people, helps attract high-quality workforce from around the world.
- Ability to rent / own high quality premises at reasonable prices (depending on the city you set-up base).
- Access to certain trade routes that facilitate easier trade within Europe.
- Non- residency ownership: This means you can be the direct owner of your business, with no need for a nominee.
- Asset Protection – that is limited personal exposure to the owners of the Company.
Tax benefits from setting up headquarters in Cyprus
Some of the tax benefits relevant to a gaming/tech business are as follows:
- Low corporate income tax rate (currently 12,5%).
- IP Box Regime, can reduce the effective tax rate of the Cyprus company as low as 2.5% (more on this below).
- Notional Interest Deduction (NID) is available for ‘new equity’, and can achieve an effective tax rate as low as 2,5%.
- Tax residency is based on the management and control concept (from 31/12/2023 incorporation test also introduced).
- One of the most favorable EU and OECD-approved tax regimes.
- Dividend income for companies is taxable only in rare situations.
- Cyprus does not levy any withholding taxes on dividends, interest and royalties paid to non-residents of Cyprus except in the case of dividends paid to a company tax resident of an EU ‘blacklisted’ jurisdiction, and in the case of royalties earned on rights used within Cyprus.
- Extensive double tax treaty network.
For more information on the tax benefits of Cyprus and why we advise you to setup base in Cyprus please click here.
Easy to incorporate a Cyprus Company
Before we proceed with anything else, we should note the first step required in the process of coming to Cyprus, is the incorporation of a Cyprus Company. The process is relatively easy and we can assist through all stages of the process. A couple of quick points are that the shareholders/directors do not need to come to Cyprus to incorporate the Company, as well as that no originals are required and that the Company can be incorporated 4-5 business days after the submission of the required documents to the Registrar of Companies. More information on the incorporation process and how we can assist can be found here.
Intellectual Property – IP Box Regime for Gaming & Tech companies
Cyprus is considered as one of the most tax-efficient jurisdictions for holding IP assets in Europe and is a main benefit for setting up base and headquarters in Cyprus. The effective tax on the profits could be as low as 2.5% (depending on several factors). If you have a gaming or tech Company with IP(s) tied to it then you seriously need to consider Cyprus as a jurisdiction for your headquarters for reasons explained below.
To start with, Qualifying Assets (QA) is the term used to describe assets qualifying for this regime. Such assets can be patens as defined in the Patent Law, software computer programs, video games, gambling software, and other intangible assets such as utility models, intellectual property intangible assets which provide protection to plants and genetic material, orphan drug designations and patent extensions and other assets that are non-obvious, useful and novel. Trademarks are exempt, but most ‘software related’ assets usually qualify.
Its worth noting that exploiting an acquired (developed) software does not provide to a Cypriot company the benefits of the IP box of Cyprus; such benefits can be claimed when there is a R&D behind the IP. For example if you just transfer a developed IP from a related party this does not mean that the asset qualifies for the regime.
To continue with, the revenue (royalty, licensing fees, compensation income, trading profits from the disposal of IP, capital nature gains from the disposal) generated by the IP should be considered as ‘qualifying revenue’.
If so, the IP profits’, defined as ‘qualifying profits’ (QP), should be subject to a ‘notional tax deduction’, which effectively reduces the final tax rate. Non-qualifying profits would be taxed at 12.5% (which is still relatively low compared to other jurisdictions).
QP are the profits determined by multiplying the IP profits (revenue less directly related expenses) by a specific formula (the ‘nexus fraction’) shown below.
Depending on the formula’s ‘variables’ (see below), an amount, up to 80% of such profits, could be subject to a ‘deemed deduction’ (hence the 2.5% effective tax).
The fraction is a bit complex, but in brief, it ‘favors’ circumstances whereby the assets are either: 1. Internally developed (on the Cyprus Co – not transferred from related party), or 2. The development is outsourced to a third party, and ‘punishes’ (i.e. by reducing the ‘deemed deduction’) circumstances whereby the asset is developed by a related party.
CyCo’s acquisition price of the IP asset also affects the formula. The higher the price, the worse the formula becomes, and the less the amount of the ‘deemed deduction’.
Internally developing the asset (i.e. using in-house’ Cyprus based programmers) also favors the fraction. Future development undertaken by third parties favors the fraction.
Qualifying profit (QP) is defined as the proportion of the overall income (OI) derived from the qualifying asset, corresponding to the fraction of the qualifying expenditure (QE) plus the uplift expenditure (UE) over the overall expenditure (OE) incurred for the qualifying intangible asset. The amount of qualifying profit can be derived through the application of the following formula:
QP = OI x [(QE+UE)/OE]
For the purpose of calculating the taxable profit, 80% of the qualifying profit derived from qualifying intangible assets is treated as a deductible expense (deducted from the taxable profits of the Co). For each tax year, the taxpayer may elect to waive this allowance, either in part or in whole.
In case where a loss is incurred, only 20% of this loss can be surrendered to other group companies or be carried forward to subsequent years.
A tax ruling is usually a must when it comes to confirming IP cases to ensure that the Tax Authorities are in line that the Company qualifies for the IP Box Regime deduction and to avoid unpleasant surprises in the future.
Subsequently, the IP Box regime can bring multiple benefits to your gaming/tech firm as a total, by reducing the overall tax exposure, therefore its another reason to seriously thing about establishing in Cyprus and operating Intellectual Property from the island.
Easy to obtain work permits
A major headache for GAMING/GAMBLING/TECH companies is to find appropriate, talented personnel to work with them. Cyprus has this challenge in mind and alongside the tax and other incentives indicated in this article, it has already made the process for obtaining work permits more straightforward.
Foreign Interest Companies (FIC) can apply to the Civil Registry and Migration Department an application to be approved as an FIC employer and be able to bring employees on work permits to live and work in Cyprus. One of the main requirements for this is for the Company to have majority of the shareholders to be third country nationals (outside of EU), as well as the Company needs to have proper offices – bank account in Cyprus amongst others.
To continue with, all foreign nationals who want to take up paid employment in Cyprus are subject to a Cyprus work permit, except:
- Citizens of other European Union member states (a yellow slip is needed in such cases)
- Citizens of Iceland, Liechtenstein, Norway, and Switzerland (EFTA)
In that respect, and in light of the above, is evident that you will be able to bring workforce in Cyprus to live and work, and we do believe by explaining the generous tax incentives for foreign individuals, you will be able to attract most of your workforce on the island. More information on our immigration services can be found here. Information on tax residency, digital nomad scheme and taxation of individuals can be found here.
Tax Incentives for gaming/gambling employees (expats)
Imagine working in a country where the 50% of your income is tax-free. This is what Cyprus offers now to employees who earn more than €55.000 provided that they were not tax residents of Cyprus for a period of 10 consecutive years before their employment in the Republic. This exemption is applicable for 17 years.
In addition, anyone who earns less than €55.000 and hasn’t been a Cyprus resident for at least 3 years prior to taking up employment in the country will receive a 20% or €8,550 (lower of), for the next 7 years.
Further to the above, non-domiciled individuals can also benefit from tax free dividend income and no deductions on interest income.
The above exemptions were specifically designed to attract high-skilled workforce to the island, and in combination with other benefits mentioned above (good schools, good weather, a lot of people speaking English on the island etc), will assist a gaming and tech businesses in general to attract specialized workforce to Cyprus.
As video games are set to remain an integral part of the global entertainment industry, Cyprus continues to attract major international businesses to establish their regional headquarters on the island. Backed by a sophisticated communications infrastructure that can support businesses, in addition to its cost-effective services, favorable tax and business environment, the island is fast becoming the center stage for innovative game development companies who are levelling up the experience, at the same time defining culture, commerce, and community.
You can contact us for more information and how we can better assist you.
*This is a guide for information purposes. Laws may change, and you should always take professional advice for the situation in hand. You should seek updated information if required as Asterisk Corporate Services Limited does not take any responsibility for the validity of the material at the time of reading. We suggest allowing qualified professionals to implement and handle the necessary tasks.
Sources and external reading relating to the gaming industry in Cyprus: