Cyprus introduces investing framework for innovative enterprises:The Parliament of the Republic of Cyprus aims to introduce a new framework which offers tax incentives for investing in innovative enterprises following a vote to amend Income Tax Law.
What is the new framework?
According to the amendments, an innovative enterprise is defined as a small and medium enterprise (SME), named innovative SME. However this is subject to certain qualifications set out below:
(a) the operations of such enterprise are situated in the Republic of Cyprus and
(b) the enterprise is an unlisted SME and has a business plan for its risk finance investment.
At least one of the following conditions must be fulfilled:
(i) it has not been operating in any market or
(ii) it has been operating in any market for no more than seven (7) years following its first commercial sale or
(iii) it requires an initial risk finance investment which, following a business plan bases on the penetration of a new market or product, is higher than 50% of its average annual turnover in the preceding 5 years, and it has been approved by the Ministry of Finance or other official authority as being a qualifying innovative SME.
Cyprus introduces investing framework for innovative enterprises: Investment Methods
According to the new provisions, an investment into such enterprises may take the following forms:
- direct or indirect equity investment,
- quasi-equity investment,
- loans and finance leases
- any of the above mixed together
According to the new provisions, private investors who are natural person which finance such innovative programmes directly or indirectly through multilateral trading facilities or investment funds, may benefit from tax deductions as explained below:
(a) the allowable deduction shall not go beyond 50% of the individual’s taxable income in the year the investment is undertaken,
(b) the deduction can be carried forward and claimed in the following five (5) years, subject to the 50% cap.
(c) the total deductible amount cannot go above the maximum amount of €150.000 per year,
(d) the investment must be held for at least 3 years in order for the deductions to be granted by the Commissioner.
The amendment is effective as from January 1, 2017 and is applicable for three (3) years.
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