IP Holding Company

Overview

For software and AI groups the effective Cyprus structure is a two-entity model. A Cyprus IP holding company owns the software, the algorithms, the models and the codebase. A separate operating company handles customer contracts, billing, support and daily operations under a licence, and pays a royalty back for it.

That royalty is deductible to the operating company and is income of the IP company, where the IP Box deduction applies. Commercially the structure does what founders want: the most valuable asset sits outside the entity carrying trading risk, it can be licensed to several operating companies as the group enters new markets, and an acquirer can value it distinctly.

What makes the structure work is where the development is funded from. The nexus fraction rewards research the claimant itself incurred, so the IP company should contract the engineering directly, whether through its own technical staff in Cyprus or through unrelated R&D partners. Geography is not the constraint; the contractual relationship is.

Where the operating company funds the development instead, that spending is related-party expenditure and the fraction is compressed. That is a structuring question with practical remedies rather than a reason to abandon the model.

What is included

• Review of the current ownership position and where development is actually funded from
• Structure design, ordinarily an IP holding company licensing to one or more operating companies
• Assignment chain: written assignments from founders, employees and contractors
• Intercompany licensing agreements on arm's length terms where licensing is required
• Transfer pricing documentation supporting royalty rates and intercompany arrangements
• Independent valuation coordination where an asset is being transferred
• Nexus impact modelling for each ownership option before anything is implemented
• Governance so the owning entity's technical and commercial decisions are taken in Cyprus
• Ongoing maintenance of the assignment record as contributors join and leave

How Doviandi approaches this

We ask which entity pays the engineers. That single question shapes the structure, because the nexus fraction follows the spending rather than the name on the chart. The answer usually points to contracting the development from the IP company, which is straightforward to arrange at the outset.

Assignment gaps are closed before anything else. Founder-written code vests in the founder. Many contractor agreements grant a licence rather than assign copyright. Both are ordinary and both are discovered at the worst possible moment if left.

Transfers are modelled, not assumed to be neutral. Moving an asset is a disposal requiring valuation and transfer pricing support, and the acquisition cost enters overall expenditure without improving the numerator. We show what that does to the fraction over the following years so the decision is made on the full picture.

Existing structures are improved forward. Where ownership and funding have been separated, moving the development contracts into the owning entity raises the fraction from that point, and because the measure is cumulative it recovers as qualifying spending accumulates. We set out that trajectory with the uplift applied, so the path back is a plan rather than a write-off.

Related knowledge

Background reading on the questions this service answers:

• Should IP be owned by a holding company? on the two-entity model, how nexus is maintained within it, and the arrangement that needs care.
• Where should a founder own software IP? on the three positions founders arrive in and what to do before spending starts.
• Cyprus IP Box on the regime the ownership decision is being optimised against.