Incentives or Tax deductions for investment in small and medium size innovative business
The Cyprus Government aiming to give motive and to produce investments introduced a new framework with tax incentives for investments in small and medium sized innovative business.
Under the new Article 9A of the Income Tax Law 2002 introduced by the Income Tax (Amendment)(No.2) Law 2016(135(i)/2016 qualified independent investors that make a risk-finance investment in an “innovative small and medium sized enterprise” are allowed to deduct the cost of the investment from their taxable income in the year the investment is made.
What is defined as small or medium sized company under EU regulations
Under Annex 1 of EU Regulation 651/2014 a small or medium sized company is one
- Has fewer than 250 employees
- Its annual balance sheet annual turnover does not exceed Euro 50 million
What is classified as innovative business in Cyprus
According to the definition provided in Article 9A of the Income Tax law a qualified investee company must:
- operate in Cyprus.
- at the time of the investment it is not a listed company- unless it is listed in an alternative trading platform, or
- It operated in the market for less than seven years following its first commercial sale (this restriction does not apply under certain conditions for follow-on investments), or
- it requires an initial risk finance assessment which is based on a business plan prepared in view of entering a news market that gives a higher than 50% of its average annual turnover in the preceding 5 years AND
- it has been approved by Cyprus Ministry of Finance as a qualifying innovative small or medium size enterprise (SME) on the basis of the SME’s research and the accounted research and development expense (R&D) is at least 10% of its total operating costs as verified by an external auditor.
The definition of innovative business now covers a broad range as it now allows the more effective use of innovative ideas by entrepreneurs and people to facilitate the way toward commercially successful products.
Thus, there is a move away from the restrictive concept of scientific research and it refers to innovation in its broader sense and it now includes:
- The successful commercialisation of product and service innovations
- The industrial exploitation of innovative manufacturing technologies
- Innovative business models
How Areti Charidemou & Associates LLC can help
Our office experts can assist both sides either as an investor or as the investee
Our team shall evaluate your current needs or possible future set up by checking the company’s facts in order to utilise and take advantage of the incentives provided by the law as there are some limitations that should be taken into consideration.
Areti Charidemou & Associates LLC