There is no doubt that Cyprus is becoming one of Europe’s most dynamic hubs for Game Studios and in general the tech and IP driven creative industries. The footprint of the industry in Cyprus is growing significantly from year to year.
There are many reasons that contribute to the above and of course the Excellent tax Framework Cyprus offers is a major drive towards this direction:
There are many tax incentives available, where below the most important are highlighted:
Cyprus offers a very attractive IP box regime which can reduce the effective corporate tax rate of businesses from 15% to as low as 3%. This is achieved through a notional deduction of up to 80% of qualifying profits.
The CY IP regime complies with the provisions of the OECD “Nexus approach” whereby for an intangible asset to qualify for the benefits of the regime, there needs to be a direct link between the qualifying income and the qualifying R&D expenses contributing to that income.
In simple words it is designed to reward companies that actually create and develop IP, rather than simply owning it on paper.
To give more context to the IP Box regime, and what needs to be considered to establish the correct IP structure and qualify for the tax benefits, several core conditions must be met. There must be a qualifying intangible asset, and
A qualifying intangible asset is one that is acquired, developed, or exploited in the course of a business and results from research and development activities, typically carried out from the Cyprus Company.
The key message here is simple: The more real innovation and development work a company does, the greater the benefit.
Finally, and important note is that, where royalties paid to Cyprus are subject to withholding tax abroad, those taxes can generally be claimed as a tax credit in Cyprus, even in the absence of a double tax treaty.
Expenditure for scientific research incurred by a person carrying on any business, as well as R&D expenses carried out by small and medium-sized innovative companies, are deductible from taxable income if they were wholly and exclusively incurred to produce income. For expenses incurred during the years 2025-2030, including expenses of a capital nature, companies can enjoy an additional tax deduction of 20% for R&D expenses. Effectively, 120% of the actual eligible R&D expenses will be deducted from taxable income.
The 120% super deduction cannot be claimed in combination with the IP Box regime.
The above measure supports real R&D activities even further.
Gains from stock options under approved employer schemes are taxed at a flat rate of 8%.
Stock options are particularly important in the IP Creative industries, where competition for talent is intense. They allow companies, especially startups, to attract, retain, and motivate highly skilled professionals, while aligning employee incentives with long-term company growth and shareholder value.
The 8% tax rate applies only to the portion of the benefit that does not exceed twice the employee’s or director’s annual employment remuneration in the year of vesting (excluding the benefit itself). Any excess is taxed at the standard income tax rates.
To qualify, the rights must meet the following conditions:
Additionally, the total benefit eligible for the 8% rate is capped at €1 million over a ten-year period of employment.
The above does not apply where the rights are granted to an individual considered a related party under Article 33 of the Income Tax Law.
Cyprus has concluded double tax treaties with more than 65 countries worldwide, making it a highly attractive jurisdiction for game studios and IP-driven creative industries that engage in cross-border transactions.
As a member of the European Union, Cyprus benefits from a stable and well-developed tax framework, aligned with EU Directives and OECD standards, contributing to regulatory reliability and tax transparency.
Equity introduced to a company (new equity) in the form of paid-up share capital or share premium, and others, is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as a percentage (reference rate) on the new equity. The relevant reference rate is the yield of the 10-year government bond (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company, plus a 5% premium (subject to a minimum rate which is the yield of the 10-year Cyprus government bond as at the same date, plus a 5% premium).
The NID is equal to the new equity multiplied by the relevant reference rate, and it is subject to a cap equal to 80% of the taxable profit (as calculated prior to the NID), arising from the new equity.
It is noted that the above is a notional interest and thus it is deductible only for tax purposes and thus does not trigger accounting entries, which ultimately may have an impact on the profits available for distribution.
This is an important consideration, as IP development often requires substantial capital investment. It therefore makes sense to also take advantage of available tax efficiencies from a fiscal perspective.
This results to a higher net pay for the employee whereases the cost of the Employer remains untouched. In essence a salary increase!
Practical example:
To demonstrate, we assume an individual with an annual income of €100.000 gross. Without the 50% exemption, a €100.000 income would result in a taxation of €20.250 and a net income of €71.036, after factoring the various social insurance contributions. However, should the 50% exemption be utilized, taxation will only be €4321, resulting in a net pay €86.964. Effective tax rate of 4.32%.
The rules under Article 8(21B) apply to both employees and self-employed individuals, in contrast to Articles 8(21A) and 8(23B), which cover employment income only.
All of the above, combined with the recent rise of the tax-free threshold to €22,000 and updated income tax brackets, Cyprus now offers a highly attractive personal tax framework.
The above, specifically article 8(23A) are targeted incentives aimed to attracting talent, widely regarded in practice as one of Cyprus’ key tax measures for encouraging the relocation of highly skilled professionals.
The Special Defence Contribution (SDC) applies only to individuals who are Cyprus tax residents and are also Cyprus-domiciled. Non-tax residents, as well as Cyprus tax residents who are non-domiciled, are exempt from SDC.
This is particularly relevant in relation to dividend income at shareholder level.
For Cyprus tax residents who are non-domiciled, the SDC exemption can generally be applied for at least 17 years (with a possible extension). During this period, only the National Health System (NHS) contribution of 2.65% applies, capped on income up to €180,000.
For example, a dividend distribution of €10,000,000 from a Cyprus company to a Cyprus tax resident individual who is non-domiciled would result in only an NHS contribution of €4,770 (calculated as €180,000 × 2.65%).
In contrast, non-Cyprus tax residents receiving dividends from Cyprus are fully exempt from Cyprus taxation, including both SDC and NHS. However, they may be subject to taxation in their country of tax residence.
This is particularly relevant in practice, as shareholders in the IP and creative industries are often either non-Cyprus tax residents or Cyprus tax residents with non-domiciled status.
An important factor as usually shareholders in the IP creative world are usually Non CY tax resident or Cyprus tax residents with a Non Dom Status.
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