Medical Cannabis as an Economic Opportunity for Cyprus
The Cyprus Ministry of Health is in the process of issuing the first three licenses to successful applicants under the new system that has legalized and now regulates the import, export, cultivation, production, sale, supply, possession, and use of medical cannabis in Cyprus. More applications and licenses are expected to be granted in the near future.
In February 2019, the Cypriot Parliament approved and adopted an amendment to the Narcotic Drugs and Psychotropic Substances Law of 1977 and enacted the 2019 Narcotic Drugs and Psychotropic Substances Regulations, which came into effect on March 6, 2019. Louis Panayi, head of the Pharmaceutical Services of the Ministry of Health, stated that the Cypriot economy will receive a significant boost from the production, distribution, and export of medical cannabis grown in Cyprus. It is estimated that Cyprus could produce up to 230 million euros worth of medical cannabis annually, and that potential exports could be substantial, given that the global cultivation and production market is still young.
Cyprus believes it has a comparative advantage over more experienced cannabis-producing countries such as the Netherlands, thanks to its ideal climate and long periods of sunshine. Unlike Israel, another country investing heavily in medical cannabis, Cyprus is part of the EU single market, allowing Cypriot firms to provide services and distribute medical cannabis to EU member states without numerous regulatory checks.
The new legislative framework puts Cyprus at the forefront of research and development in medical cannabis within the EU and offers an excellent opportunity to attract additional investment in pharmaceutical R&D on the island.
Business Opportunities in Medical Cannabis
New and existing medical cannabis businesses have the opportunity to profit in Cyprus due to the following factors:
- The licensing regime provides key regulatory assurance
- Full EU membership and direct access to the EU Single Market
- Favorable tax regime and a wide network of double taxation treaties
- Excellent climate with long periods of sunshine
- Opportunities regarding agricultural land
- Highly educated workforce
Both individuals and legal entities can apply for a medical cannabis license. In the case of a legal entity, a Cypriot company can be part of a larger group. Applicants must demonstrate relevant and adequate experience, a clearly defined business plan and security plan, as well as sufficient funding. They must also have been active for at least five years in the field of cultivation and production of medical cannabis on the global market.
Intellectual Property and Tax Incentives
It is also important to note that, with the spread of medical cannabis licenses, amendments are planned to the legislation regulating the IP Box regime in Cyprus to comply with BEPS Action 5. This aims to attract companies heavily involved in intellectual property and R&D by offering attractive tax benefits and incentives.
The Cyprus IP Box provides a favorable tax regime for income derived from any IP rights, patents, and trademarks. This applies only to patents and patent equivalents, copyright-protected software, utility models, and other IP assets that are non-obvious, useful, and novel.
Other qualifying IP assets may include those that provide protection for plants and genetic material, utility models, designations for pharmaceuticals, and patent extensions. A qualifying intangible asset is defined as an asset acquired, developed, or exploited by a person (corporate or individual) as part of a business, representing intellectual property resulting from R&D. Qualified persons include Cyprus tax resident taxpayers, permanent establishments (PEs) of non-resident taxpayers, and foreign PEs subject to tax in Cyprus.
Cyprus offers an 80% exemption from income tax on worldwide royalty income earned from IP owned by Cyprus resident companies, after deducting any direct expenses. The remaining 20% is subject to the standard corporate tax rate of 12.5%, resulting in an effective tax rate of 2.5% or less. Importantly, the 80% exemption also applies to capital gains from the sale of IP. This allows IP owners not only to benefit from tax incentives on income generated from the use of such rights but also ensures an effective tax exit in the future.
Cyprus does not levy withholding taxes on payments to non-residents (companies or individuals) for dividends, interest, and royalties used outside Cyprus, regardless of whether the recipient resides in a treaty country. Additionally, the EU Interest and Royalties Directive provides for zero withholding taxes between EU countries and Cyprus, and Cyprus has an extensive global network of double taxation treaties. This creates excellent opportunities for profit repatriation and, combined with the use of Cypriot companies and their IP regime, positions Cyprus as an ideal jurisdiction for IP ownership.