The arithmetic, and why the figure changed
The IP box exempts 80 % of qualifying profit from qualifying intellectual property. The remaining fifth is taxed.
| To tax year 2025 | From tax year 2026 | |
|---|---|---|
| Corporate tax | 12.5 % | 15 % |
| Taxed share | one fifth | one fifth |
| Effective rate | 2.5 % | 3 % |
Nothing changed about the IP box itself. The 80 % deduction stands unchanged, and so does the nexus formula. What changed is the rate underneath, and because the effective rate is a fifth of it, it rises too.
The details of the rate increase are in the guide to corporate tax.
The nexus approach cuts back, usually more than expected
The 80 % is a ceiling, not an automatic entitlement.
Under the modified nexus approach the deduction is weighted by the share of research and development the Cyprus company carried out itself or had carried out by unrelated contractors.
What reduces the share:
- acquired rights: software bought ready-made brings no development share of its own
- development by related parties: a sister company abroad does not count like an outside provider
At a nexus share below 100 % a blended rate arises: the qualifying part carries 3 %, the rest the full 15 %. How far the blended rate sits above 3 % depends solely on the structure, not on turnover.
What that means in practice
The regime rewards one set-up and penalises another.
It works when the developers are employed by the Cyprus company or engaged from independent providers, and when the product came into being there.
It does not work when the right was bought in or the development sits with a related company and only the licence income arises in Cyprus.
In between sits the normal case, and there the documentation decides. Qualifying profit, development expenditure per right and the resulting share have to be evidenced and carried forward every year. This is not a one-off application but an ongoing evidential duty.
What we could not substantiate
- The conclusive list of qualifying rights. Software, patents and utility models are named consistently, trade marks expressly excluded. We did not check the complete classification against the statutory text, and it decides whether the regime applies at all.
- The exact calculation of the nexus share. That acquired rights and related-party development reduce the share is not in dispute. How the fraction is formed in detail, including any uplift on your own expenditure, we did not trace for this article.
- The treatment of legacy cases. Whether and for how long earlier regimes continue to apply to rights registered before a cut-off date we could not establish.
All three points decide whether 3 % or 15 % stands at the end. That belongs with somebody who knows the case: Cyprus setup from one place.
Bookkeeping: no evidence, no deduction
The IP box is not a setting but a chain of evidence. It requires expenditure and income to be separately identifiable per right, over years.
In Volk Accountant the invoices and receipts sit in the same books the reports come out of, and the tax estimate calculates at the rate that actually applies. Your accountant sees the same position through the accountant portal.
Which other rates the reform moved is in the guide to the 2026 tax reform.