Certificate of Innovative Enterprises (CIE)
Investing in Certified Innovative Enterprises (CIE) through Crowdbase allows you to reduce your taxable income.
The Deputy Ministry of Research, Innovation and Digital Policy has renewed the tax incentives scheme for investing in Certified Innovative Enterprises. It aims to promote the development of entrepreneurial ventures in Cyprus through the support of local investors.
Who is eligible?
To be eligible for the tax deductions, one must satisfy ALL of the following conditions:
- An individual who is currently taxed in Cyprus.
- An independent investor in that you are not already invested in the business. An exception applies to founders and private investors when starting a new business.
- Invest directly or through an investment fund/alternative trading platform (like Crowdbase) in an innovative business.
- Securities are not purchased from other investors.
Income Tax Relief
Investors can deduct the whole invested amount from their taxable income, subject to the following provisions:
- The deduction may not exceed 50% of the total taxable income of that person in the tax year in which the investment is made.
- The amount deductible may not exceed €150,000 a year.
- Deductions not claimed due to the above conditions may be carried forward for up to five (5) years.
In practice, the tax savings can be as high as 35% of the investment in an innovative enterprise, depending on your personal income tax bracket. This represents a significant portion of the investment and can be claimed regardless of the company’s performance. Therefore, the tax deduction can be considered a minimum guaranteed return for your investment.
Tax Relief Calculator
Calculating taxes and deductions is a complicated and lengthy process that nobody wants to do.
Therefore, we created a simple tax relief calculator so you can easily see how much you could save from an investment in an innovative enterprise.
Simply input your annual taxable income and the proposed investment amount to see how much you can save.
Claiming your (CIE) tax relief
Have you invested in a company with a Certificate of Innovative Enterprise (CEI) through our platform? These are clearly marked with the “CIE Tax Relief” tag on our platform. Here’s how to claim your deduction.
When you are filling in your annual income tax claim for allowances (TD 59), in part B, point 10 (marked in the image below), you can add your investment in the company to be deducted from your gross taxable income.
In accordance with the restrictions of the scheme we have described above, the deduction is restricted to 50% of income after all deductions, including deductions for health, life, provident and others.
At the end of each campaign that is eligible for the tax relief, we will issue a relevant investment certificate to every investor, so they can use it as supporting evidence in the case they are asked by the tax authorities.
Before investing and claiming your tax deductions, you may also want to consider the circumstances in which the tax relief may not be granted:
- If you do not hold the investment in the innovative enterprise for a minimum of 3 years.
- If you claim a deduction that exceeds the allowance set by the legislation. We suggest using our calculator above to verify your own calculations to avoid mistakes.
For each innovative enterprise, a relevant certificate will be issued, which will have a duration of 3 years.
For investments made through Crowdbase, innovative enterprises will be clearly marked with the “CIE Tax Relief” tag (Certified Innovative Enterprise) on the crowdfunding campaign page, and the certificate will be displayed in the Documents tab of the campaign.
Alternatively, the State Department maintains a list of all the certified innovative businesses here, which you can use to verify a company’s status.
How is an innovative SME defined?
According to the legislation, an SME can be registered as innovative if it meets the following criteria:
- It operates in Cyprus; and
- Has drawn up a business plan for the venture capital investment and, in addition, meets at least one of the following conditions:
- Is not currently active in any market, or
- Operates in any market for less than seven years after its first commercial sale, or
- Requires an initial business risk financing investment based on a business plan drawn up for a new product or penetration into a new geographic market, which is higher than 50% of its average annual turnover over the past five years; and
- The company must not be listed on the Cypriot or any other stock exchange; and
- A company stops being innovative if it receives more than €15 million in investments.
How do I apply to become an innovative business in Cyprus?
If your business satisfies the criteria set above, then you can submit an application to the Deputy Ministry at [email protected]. However, before sending your application, you should read through all available information on the dedicated page.
Below we provide a summary of the evaluation process depending on whether your company has an existing financial history, no financial history or is eligible for a certificate without an evaluation.
For existing companies with a financial history
Companies with an existing financial history will need to provide a certificate from their external auditors verifying that they have invested more than 10% of their operating expenses in research and development in at least one of the previous three years.
This certificate must be consistent with the company’s audited financial statements. Additionally, the expenditure on research and development must be clearly stated in the financial statements.
If the company satisfies this condition and is verified by the Deputy Ministry, then the company is eligible for a certificate.
For new ventures and startups without financial history
If you are a newly founded startup without any financial history, then you will need to submit a business plan as per Annex 3.
The business plan must be in English, in PDF format and should be between 10 and 15 pages. The plan should describe the ability to develop new or clearly improved products, services or processes with high technological or industrial risk, which are characterised as innovative in their sector.
In addition, the business plan must cover the following topics:
- Value proposition: Describe the business in a single sentence, including what it does, how it does it, and why.
- Problem: Outline what the problem is today and why the current solutions are inadequate.
- Solution: Demonstrate your company’s value proposition to solve the problem described above and why now is the right time.
- Market Opportunity: Provide evidence and research of the potential market and steps you have taken to validate it.
- Competition: List all competitors currently in the market and how you will differentiate from them.
- Proprietary Technology: Describe any proprietary technologies or intellectual property you have developed.
- Monetisation Strategy: Describe the top source of revenue, pricing model, break-even point and other business metrics/KPIs.
- Marketing Plan: Describe the channels through which you will find and engage with your customers.
- Team and Key Stakeholders: Highlight key team members, including the skills, expertise and prior experience which make them suitable for their positions.
- Financial Projections: Provide a three-year financial forecast, including cash flow analysis and unit economics.
Two independent evaluators will then evaluate the business plan based on the criteria described above. If the business plan secures a score greater than 11 (out of 15) from both evaluators, then the company is eligible for a certificate.
In the rare case that the business plan scores 11 (or higher) out of 15 from only one evaluator, it is scored by a third evaluator. If the third evaluator gives a score greater than 11, the company is eligible for certification.
Eligible companies that receive a certificate without evaluation
Companies that have previously participated in various local and European programs may be eligible for a certificate without further evaluation. If your company satisfied any of the following conditions in the last three years, then it is eligible for certification:
- The company has secured funding from one of the SME Instrument Programs, EIC Pathfinder and EIC Accelerator of the EU Horizon 2020 Financing Program or Horizon Europe 2021-27.
- The company has received a Seal of Excellence in the Programs mentioned above.
- The company has secured funding from the PRE-SEED, SEED, or INNOVATE Innovation Programs or other innovation programs of the Research and Innovation Foundation.
- The company has secured a Startup Visa.
Qualifying companies can submit proof that they meet at least one of the above criteria. Upon confirmation of the receipt by the Deputy Ministry, the company is eligible for a certificate.
Approval or rejection of an application
The State Department approves or rejects the designation of the company as an innovative small and medium enterprise (SME) within one month of receiving a completed application. In addition, the State Department may request additional information and clarifications about the company before issuing the certificate.
Procedure for renewal of an innovative company certificate
To renew the Innovative Business Certificate, the company submits an External Auditor Certificate, certifying that research and development costs represent at least 10% of its total operating costs in at least one of the previous three tax years.
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