Following our recent post on the new Income Tax Law Amendment (Law 135(I) of 2016) regarding the new tax relief for private investors in qualifying small and medium sized innovative enterprises, we are posting today the process through which SME’s can obtain the qualification as “innovative”.
A small and medium-sized enterprise (SME) qualifies as ‘innovative SME’ if:
(a) Its operations are carried out in the Republic of Cyprus and
(b) At the time of the investment it is an unlisted SME having a business plan (prerequisite only if it has no financial records) for its risk finance investment and fulfils at least one of the following conditions:
(i) It does not operate in any market; or
(ii) It has not been operating in any market for more than 7 years (this restriction does not, under certain conditions, apply for follow-on investments) following their first commercial sale; or
(iii) It requires an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographical market, is higher than 50% of their average annual turnover in the preceding 5 years.
To qualify as innovative, an enterprise should:
(a) acquire a statement provided by an independent auditor confirming that the research and development expenditure (that may also include capitalized costs) represent at least 10% of its total operating costs-
(i) In at least one of the three (3) years preceding the granting of the aid or,
(ii) In the case of a startup enterprise without any financial history, in the audit of its current fiscal period.
In the absence of audited financial statement, with regard to startups, the MoF approval may be provided on the basis of a business plan.
Process for obtaining certification for innovative SME
To acquire a certificate as an innovative SME, the company must submit to the Ministry of Finance via email (email@example.com), an application form.
The Ministry of Finance shall assess the application and it will either approve or reject it. In the case of approval a certificate will be issued characterizing the enterprise as an "innovative small and medium-sized enterprise (SME)" within one month from the date the application was submitted. In case of rejection of the application also the decision should be issued within one month from the date the application was submitted.