New Cyprus licensing regime offers opportunity for Medical Cannabis businesses

The Ministry of Health is in the process of issuing the first three licences to successful applicants under a new framework that has legalised and now regulates the import, export, cultivation, production, sale, supply, possession and use of medical cannabis in Cyprus. It is expected that more licences will follow.

In February 2019, the Cypriot Parliament approved and passed an amendment to the Drugs and Psychotropic Substances law of 1977 and introduced the Drugs and Psychotropic Substances Regulations of 2019, which came into force on the 6 March 2019.

Louis Panayi, Head of the Pharmaceutical Services at the Ministry of Health, said the Cypriot economy would enjoy a significant boost from the production, distribution and exporting of the medicinal cannabis grown in Cyprus.

It is estimated that Cyprus could produce up to €230 million of medicinal cannabis every year and that potential exports could be substantial given that the global market for the cultivation and production is still young.

Cyprus believes it has a comparative advantage over more experienced cannabis-producing countries, such as the Netherlands, due to its ideal climatic conditions and long periods of sunshine. And unlike Israel, another country investing heavily in medicinal cannabis, Cyprus is part of the EU single market, enabling Cyprus-based firms to ‘passport’ services across EU member states without multiple regulatory checks.

The new legislative framework brings Cyprus to the forefront of research and development in the field of medical cannabis within the EU and provides an excellent opportunity for attracting further investment in pharmaceutical research and development on the island.

New and existing medical cannabis businesses have an opportunity to benefit from establishing in Cyprus for the following reasons:

• Licensing regime provides a key regulatory safeguard;
• Full EU membership and direct access to the EU Single Market;
• Advantageous tax regime and wide network of double tax treaties;
• Superb climatic conditions with long periods of sunshine;
• Opportunities in relation to agricultural land;
• Highly educated workforce.

The Cyprus Intellectual Property (IP) Box regime, which was amended in 2016 to be compliant with Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project, aims to attract IP intensive companies and those engaging research and development by affording them highly attractive tax incentives and advantages. It has also been assessed as fully compatible with EU standards.

The IP Box regime provides for favourable tax treatment in relation to income generated from any type of IP rights, patents as well as providing for generous capital allowances for acquisition and development of such rights.

It applies only to patents and patent equivalents, copyrighted software, utility models and other IP assets that are non-obvious, useful and novel. Other IP assets that may qualify include assets that provide protection to plants and genetic material, utility models, orphan drug designations and extensions of patent protection.

The qualifying intangible asset is defined as an asset that was acquired, developed or exploited by a person (corporate or individual) as part of a business and it represents intellectual property which is the result of research and development.Qualifying persons include Cyprus tax resident taxpayers, tax resident permanent establishments (PEs) of non-tax resident persons as well as foreign PEs that are subject to tax in Cyprus.

Cyprus offers an 80% income tax exemption for worldwide royalty income generated from IP owned by Cypriot resident companies, net of any direct expenses. The remaining 20% will then be subject to the standard corporation tax rate of 12.5%, to give an effective tax rate of 2.5% or less.

It is important to note that the 80% exemption also covers capital gains upon disposal of IP. This allows the owners of the IP rights not only to enjoy tax benefits on the income generated from the use of such rights, but also provides for a tax efficient exit route in the future.

Cyprus imposes no withholding taxes on payments to non-tax resident persons (companies or individuals) in respect of dividends, interest and royalties used outside Cyprus, irrespective of whether the recipient of the payment resides in a treaty country or not. In addition, the EU Directive on Interest and Royalties provides for zero withholding taxes between EU countries and Cyprus also has an extensive worldwide network of double tax treaties.

This provides for excellent profit repatriation opportunities and, when combined with the use of Cyprus companies and its IP regime, positions Cyprus as an ideal IP holding jurisdiction.

Both natural and legal persons, can apply for the Medical Cannabis Licence. In the case of a legal person applicant, the Cyprus company can be part of a larger group. Applicants must demonstrate relevant and adequate experience, a well-defined business and security plan, and sufficient funding strength. They must also have been active for at least five years in the field of cultivation and production of medicinal cannabis on the world market.

Sovereign Trust (Cyprus) Limited can assist with the preparation and submission of a licence application and managing the application process through to completion. We can also provide the required corporate set-up in Cyprus and the administrative support to maximise opportunities and achieve long-term sustainability, from full back-office solutions to assistance with tax and regulatory compliance. This includes accountancy, human resources, pensions, insurance, obtaining local licences and permits, executive relocation and specialist tax advice.

In the May edition of the The Great Britain-Cyprus Business Association’s online newspaper, George Ayiomamitis, Managing Director of Sovereign Trust (Cyprus), expresses his personal opinion on the economic impact of COVID-19 to the services industry in Cyprus, as well as the Sovereign Group’s view on the way forward.

Click here to read the whole interview.