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Balancing Statement for intangible assets

Tax Alert Balancing Statement for intangible assets

Tax Alert Balancing Statement for intangible assets

Date: 24.08.20 

On 14/08/2020, the Income Tax Law was amended via publication in the Cyprus Government Gazette introducing the abolition of the requirement for a balancing statement upon the disposal of intangible assets used in the business and further clarified the existing provisions for the possible carry-forward of any amortization not claimed in a tax year.

Under the current law, amortization may be claimed on expenditure of a capital nature for the acquisition and/or development of intangible assets used in the business. Such amortization can be claimed over the useful economic life of the intangible asset as this is determined in accordance with accepted accounting principles, with a maximum period of 20 years.  Though capital allowances are not typically optional, amortization for intangible assets is elective on an annual basis and the taxpayer may choose to use all or part of the eligible amortization amount. There are no provisions explicitly allowing or prohibiting the carry-forward of unused amortization.

Upon disposal of the intangible asset, a balancing statement needs to be prepared under the current income tax legislation identifying the tax written down value (TWDV) of the intangible asset (capital expenditure less accumulated tax amortization claimed). If the disposal proceeds exceed TWDV, a taxable ‘balancing addition’ capped to the amount of cumulative tax amortization previously claimed is added to the profit subject to tax whereas if lower, a tax-deductible ‘balancing deduction’ is deducted from the profit subject to tax.

With the introduction of the amending provisions, taxpayers would no longer be required to prepare a balancing statement.

Further, the amending provisions allow the carry forward to future tax years of any tax amortization elected not to be claimed in a tax year. Such carry-forward is spread over the remaining useful economic life of the intangible asset.

For the sake of clarity, the term intangible assets does not refer to grandfathered IP rights or goodwill for the purposes of this amendment or other intangible assets falling under article 10 of the Income Tax Law.

 

The law is entered into force with effect as of 01 January 2020.