Cyprus R&D Super-Deduction 2026 — 20% Extra Deduction, Eligibility, Stacking with IP Box

1. What 'R&D super-deduction' means

Normally a Cyprus company deducts 100% of qualifying business expenses against taxable profit. The 2026 super-deduction adds another 20% on top for qualifying R&D — meaning €1M spent on qualifying R&D yields a €1.2M deduction. At 15% CIT, the cash-tax saving on that extra 20% is €30,000 per €1M of R&D spend, on top of the normal 15% saving (€150,000) on the underlying €1M.

2. Qualifying R&D — categories

The qualifying-R&D definition tracks the OECD Frascati Manual and EU Horizon-Europe categorisation. Three categories qualify:

• Basic research — original investigation to acquire new knowledge without specific commercial application.
• Applied research — investigation directed at a specific objective or commercial application.
• Experimental development — systematic work using existing knowledge to produce new products, processes, or services.

3. Qualifying expenditure types

• Personnel costs — wages, salaries, employer social contributions of staff directly engaged in R&D.
• Contract R&D — payments to unrelated third parties performing R&D on the company's behalf (capped at 50% of total qualifying spend).
• Materials, supplies, consumables — consumed in the R&D activity.
• Computing, cloud, software-tooling costs — directly attributable.
• Depreciation of plant and equipment — to the extent used in R&D.

4. Stacking with the IP Box

The super-deduction operates BEFORE the IP Box exemption. Practically: (1) compute taxable profit applying the 120% R&D deduction; (2) separately, calculate qualifying-profit under IP Box and apply the 80% exemption to it. The two regimes are independent and complementary — the super-deduction reduces overall taxable profit; the IP Box exempts the qualifying IP-derived slice.

Worked example. HypoCo has €5M revenue, €1M qualifying R&D, €0.5M other costs, €3.5M operating profit. Without super-deduction or IP Box: tax = 15% × €3.5M = €525k. With super-deduction only: extra €0.2M deduction → tax = 15% × €3.3M = €495k. With IP Box only (assume €2M qualifying profit, nexus 1.0): exempt 80% × €2M = €1.6M; taxable = €3.5M − €1.6M = €1.9M; tax = €285k. With BOTH: super-deduction first cuts taxable to €3.3M, of which €1.9M qualifies for IP Box (80% exempt = €1.52M deducted); taxable = €3.3M − €1.52M = €1.78M; tax = €267k. Combined saves €258k vs the no-incentive baseline, on a €1M R&D budget.

5. Cap and minimum

There is currently no announced per-company cap on the super-deduction, but the Cyprus Tax Department applies anti-abuse principles. R&D outsourced to related parties is excluded from the super-deduction (only unrelated third-party R&D is eligible, capped at 50%). Self-attestation is not sufficient — contemporaneous documentation (timesheets, project logs, contracts, invoices) is required.

6. Practical claim process

1. 1Maintain a project log per R&D activity, attributable hours per FTE, qualifying-expense ledger.
2. 2Compute the qualifying-expense total each year as part of year-end accounting.
3. 3Claim the 20% super-deduction on the IR4 corporate tax return.
4. 4Retain supporting evidence for the standard 6-year retention period (Article 30, Assessment and Collection of Taxes Law 4/1978).
5. 5Be prepared to defend the qualifying characterisation if challenged on audit; we recommend an annual short opinion from an ICPAC-registered adviser.

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Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently. Consult a qualified Cyprus adviser for guidance specific to your situation. The information on this page is general guidance only and does not constitute legal, tax, accounting, immigration or financial advice. Specific advice should be obtained based on the facts of each case.