[PL] Cyprus R&D and Innovation Incentives: 120% Super-Deduction Extended to 2030

[PL] The 120% R&D Super-Deduction

[PL] Cyprus provides a 120% deduction for qualifying research and development expenditure. This means that for every €100 of eligible R&D spending, the company can deduct €120 from its taxable income — a net tax benefit equivalent to 3% of qualifying expenditure (the additional 20% deduction at the 15% CIT rate).

[PL] The super-deduction was originally introduced for a limited period and has now been extended to 31 December 2030, providing certainty for multi-year R&D projects.

[PL] Qualifying R&D Expenditure

[PL] Qualifying expenditure for the super-deduction includes:

• [PL] Staff costs — salaries and employer contributions for employees engaged in R&D activities
• [PL] Direct materials consumed in R&D activities
• [PL] Cost of prototypes and testing equipment (to the extent used in R&D)
• [PL] External R&D contracts with unrelated third parties (subject to limitations)
• [PL] Overhead costs directly allocated to R&D activities on a reasonable basis

[PL] Expenditure on the acquisition of IP or technology from related parties does not qualify for the super-deduction. Capital expenditure on equipment may qualify for capital allowances separately.

[PL] Combining R&D Super-Deduction with IP Box

[PL] The R&D super-deduction and the IP Box operate at different stages of the IP lifecycle and are not mutually exclusive. The strategy for a Cyprus-based IP and technology company would typically be:

1. [PL] Conduct R&D in Cyprus — deduct 120% of qualifying R&D costs during the development phase
2. [PL] Develop qualifying intangible assets (software, patents, trade secrets) in Cyprus
3. [PL] Commercialise the IP from Cyprus — apply the IP Box 80% deduction on royalty income and other qualifying IP income
4. [PL] Combined effect: reduced taxable income during development (cash-flow benefit) + ~3% effective rate on income (ongoing benefit)