On 18 March 2022 the extension of the tax incentives for investments in innovative small and medium-sized enterprises was announced. The scheme was introduced in 2017 and its expiration, following the amendment of the law, has been extended until 30 June 2024.
It should be reminded that the purpose of the incentive is to boost entrepreneurship and innovation in Cyprus as well as to strengthen the Cypriot business ecosystem. These incentives are in line with EU rules on State Aid as outlined in the EU Regulations 651/2014.
According to the Cyprus law a ‘qualifying investor’ that makes a ‘risk-finance investment’ in an ‘innovative small and medium-sized enterprise (SME)’ may deduct the costs of the investment from their own taxable income, subject to the following limitations:
- Tax deduction is limited to 50% of the investor’s taxable income in the year in which the investment is made.
- The total deductible amount per year may not exceed EUR 150,000.
- Any remaining investment cost that is not claimed as tax deductible may be carried forward for tax deduction for five years, subject to the aforesaid restrictions.
An eligible individual is a physical person who is independent from the enterprise (i.e. not being an existing shareholder of the enterprise, unless he/she was one of the founders upon its establishment). Individuals can carry out their investment either directly or indirectly.
A risk finance investment is equity and quasi-equity investments, loans including leases, guarantees or a mix thereof; including follow-on investments.
Innovative small and medium-sized enterprises (SMEs)
According to the definition provided in Article 9A of the ITL, a SME will qualify as an innovative SME if it meets the following requirements:
- It operates in the Republic of Cyprus; and
- At the time of the investment, it is an unlisted SME (unless it is listed on an alternative trading platform) that has a business plan for its risk-finance investment and fulfils at least one of the following conditions:
- It has not been operating in any market; or
- It has been operating in any market for less than seven years following its first commercial sale; or
- It requires an initial risk-finance investment which, based on a business plan prepared in advance of a new product offering or the entering of a new geographical market, is higher than 50% of its average annual turnover in the preceding five years; and
- It has been approved by the Cyprus Ministry of Finance or other authority as a qualifying innovative SME.
A business will automatically lose its innovative SME status, if at any time, the total amount of risk-finance investment received exceeds EUR 15 million.
How can we help you at KSA?
We are at your disposal to discuss how the above incentives may affect your business and your personal investment plans.