Tool
Cyprus IP Box Calculator
Enter income and expenditure for a qualifying intangible asset. The nexus fraction, not the headline deduction, is what decides the outcome.
Methodology
How this is calculated
The calculation follows the OECD modified nexus approach under BEPS Action 5, as applied by the Cyprus IP Box. Every step below is applied in this order, and reversing any two produces a different answer.
The formulas
OI = License/Royalties + Services - Direct CostsQE = Internal R&D + External R&DUE = min(30% x QE, Asset Cost + Related R&D)OE = QE + Asset Cost + Related R&DNexus = min((QE + UE) / OE, 1)QP = OI x NexusDeduction = 80% x QPTP = OI - DeductionPT = TP x 15%ETR = (PT / OI) x 100%Why the uplift exists
The uplift allows a company to add up to 30 percent of its qualifying expenditure to the numerator, capped at the amount of non-qualifying expenditure actually incurred. It exists so that a company which acquired an asset, or used some related-party development, is not permanently locked out of the regime. It cannot take the fraction above one.
Where overall expenditure comes from
Overall expenditure is qualifying expenditure plus the two non-qualifying categories: acquisition cost and related-party development. Marketing spend and general overhead are not expenditure on the asset and do not enter the fraction on either side.
On the 3 percent figure
Three percent is the ceiling case, reached only where the nexus fraction is one. At 1,000,000 of overall income and a fraction of one: qualifying profit is 1,000,000, the deduction is 800,000, taxable profit is 200,000, and tax at 15 percent is 30,000, which is 3 percent of the original income.
The 2.5 percent figure still widely quoted was correct when the Cyprus corporate rate was 12.5 percent. The rate rose to 15 percent on 1 January 2026, and the corresponding floor rose to 3 percent. A company whose fraction is below one pays proportionally more than either figure.
What this model does not do
- It treats a single asset. Where several assets exist, the fraction is computed per asset.
- It applies the fraction to the current period. In practice qualifying and overall expenditure are measured cumulatively over the life of the asset, so a fraction improves as further qualifying spend is incurred.
- It assumes the income entered is attributable to the qualifying asset. Separating software income from hosting, support and brand is a transfer pricing exercise and is the step most often missing.
- It does not model losses, group relief, or any deduction other than the IP Box deduction.
Published for general information. It is a model, not advice on any specific set of facts, and it does not create a client relationship. Results depend entirely on the figures entered and on assumptions that may not hold for a particular structure.
Illustrative only, not a determination
This calculator applies published rules to the figures you enter. It does not know your facts, and a position that holds on these numbers may not hold on yours. A short conversation establishes which of the assumptions above actually apply to your situation.
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