Increased Tax Deduction for Research and Development Expenses

An amendment to the Income Tax Law (the ‘Law’) was voted by the Cyprus Parliament on 7 July 2022 in order to allow for an increased tax deduction on the actual expenditure incurred for scientific research as well as research and development.

According to the amended Law, expenses for scientific research and those for research and development, as recognized on the basis of the international accounting standards, will qualify for an increased allowance of 20% for tax purposes, thus giving a 120% total deduction from taxable income.

Such expenses will need to be incurred by a person carrying on a business. Furthermore, that person needs to have the economic ownership of the intangible asset/s that will or may be derived from the activities on which such expenditure is incurred.

The increased deduction will also apply on expenditure of a capital nature, for which capital allowances will be claimed.

The enhanced allowance will not be granted in cases qualifying for the so called IP Box Regime, considering the fixed 80% exemption of profits to which they are entitled.

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