On the 14th of July 2015, Iran and the Permanent Members of the UN Security Council and Germany reached a historic agreement. The sanctions imposed on Iran for its nuclear activities were lifted after the agreement of Iran to gradually limit such activities.
Iran, the economy of which suffered its greater blow in the years following 2012, especially after the foreign direct investments in the country reached zero, is now able to return to the global markets.
The omens of an early financial recovery are, prima facie, impressive, whilst the impact on the global economy is anything but negligible. It is said that Iran will be able to recover in its pre-2012 position in less than two years-time.
Iran is one of the main oil-producing countries. Its production capabilities reach 1 billion barrels per day, whilst its stockpiles reserves are said to reach 30-40 million barrels on the day immediately following the lift of the sanctions. This effectively means that Iran will cause a reduction in the oil prices by 14%, i.e. USD 10, therefore large oil importers such as EU and US will be in a more advantageous position by having the capability to increase their petrochemical-related productions.
As oil-exports in Iran are reinstated, the country’s economic orbit will also start functioning again. This, in addition to the USD 107 billion worth of frozen assets and the USD 15 billion of revenue expected to be produced in Iran in the first year of sanction lift, will allow Iran to boost the sectors which were most profitable prior to 2012. Therefore, it is expected that Iran will boost its automobile, pharmaceuticals, manufacturing and tourism, banking and other services sectors. It has also been suggested that Iran should increase its competitiveness in high-technologies industries and the telecommunications sector, in an effort to modernise the same.
Cyprus – Iran cooperation: the cooperation potentials
The lift of the sanctions in Iran as well as the industries constituting the pillars of Iran’s economy, create important prospects of economic prosperity both for Iran as well as its’ trading partners. Cyprus, being in the forefront of this recent historic development, concluded, on the 4th of August 2015, an important cooperation agreement with Iran, namely the double tax treaty agreement (“DTT”).
The DTT effectively provides for favorable taxation of, inter alia, royalties and dividends.
Royalties are taxed at a fixed rate of 6% whilst the provisions on dividends distinguish between companies the beneficial owner of which holds at least 25% of the issued and allotted capital of the company that pays the dividends, and other cases. In relation to the former, the withholding tax rate is 5% whilst in all other cases is 10%.
Regarding dividends, it is important to note that, currently neither Iran nor Cyprus imposes withholding tax on dividends (the treaty rates will only apply in the event where the relevant legislation of either or both countries imposes such tax).
The provisions of the DTT constitute important incentives for the promotion of cooperation between the two countries, especially if viewed in light of the provisions of the Cyprus IP Box Regime, considered below.
The Cyprus IP Box Regime- the time is now
Intellectual property rights have already been widely recognised as the most valuable asset of a business. The same was recognised in a flamboyant manner by the Cyprus authorities in 2012, when the IP Box Regime was introduced. The IP Box Regime applies to all intellectual property rights and allows Cyprus companies which are the owners of intellectual property rights to be 80% exempted off withholding tax applying on the exploitation and disposition of such intellectual property rights as well as make use of a five year amortization period in respect of the acquisition of such rights.
Cyprus elected to opt for an IP Box the purpose of which was to attract new investments. Therefore the same does not restrict its application to companies that have borne the research and development costs. Nonetheless, the IP Box regime will be gradually forced to extinction, pursuant to the OECD Nexus Approach policy. Pursuant to the same IP Boxes should turn towards the promotion of research and development and not towards investment attraction. Therefore, the final call for applicants wishing to exploit the advantages of the IP Box regime is the 30th of June 2016. This date is considered as the lock down date, since no further entrants will be accepted whilst current entrants will not be allowed to exploit any additional intellectual property rights. The IP Box regime, as it currently stands, will continue to apply to existing entrants only, until the 30th of June 2021.
Geographical Proximity: a leap into Europe
It is no secret that Cyprus’ geopolitical position, the same being in the Mediterranean Sea and the crossroads of three continents, i.e. Europe, Asia and Africa, is a pole of attraction for many businesses around the globe.
Similarly, the island is expected to attract Iranian businesses as well as businesses wishing to do business in Iran. Apart from the many legislative and fiscal advantages some of which have already been mentioned above; the island is also a Member of the European Union as from the 1st of May 2004. This, in addition to the fact that Cyprus is in the center of some of the most important trade partners of Iran, namely Britain, Turkey and Saudi Arabia as well as in good terms with countries such as China (currently the most important trading partner of Iran) and India are expected to boost the potentials of the cooperation between Cyprus and Iran.
The Intellectual Property Rights Aspect
Iran provides for immense opportunities in the field of intellectual property, the reason being that Iran’s economy is based on sectors such as the automobile, pharmaceuticals, manufacturing and service provisions. Considering that the majority of its economy depends on exports into, inter alia, Europe and the US, it may be argued that the need for community and international trademarks, patents and pharmaceutical product certificates, copyrights and trade secret protection, branding, marketing and product advertising as well as corporate restructuring and fiscal advise is expected to be in high demand in the near future. Cyprus, offering the advantages already mentioned herewith, is undeniably ideal both in terms of geographical positions as well as in terms of legislative framework.
The DTT between Cyprus and Iran triggered the unfolding of the Cyprus legislative framework, jurisdictional advantages and the ability of the same to assist in Iran’s reinstatement in the global markets.
As far as intellectual property rights are concerned, the industrial activity of Iran, being export-depended, and the European flair of Cyprus, in conjunction with the recent advantages introduced by the DTT as well as the IP Box regime prove that the cooperation potentials between Iran and Cyprus are more than the wishful thinking of two Economy ministers.