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A Cyprus fund provides an attractive mechanism for tax efficient investment in various jurisdictions. The purpose of an International Collective Investment Scheme (ICIS) is the collective investment of funds by unit-holders. The establishment, operation and regulation of ICIS are governed by law since 1999 and regulated by the Central Bank of Cyprus.
An ICIS may take either one of the following legal forms:
1) International Variable Capital Company
Is an international company incorporated under Companies Law and recognised to operate as an international variable capital company by the ICIS law. Its assets and unit holders are non residents of Cyprus and the share capital of the company may vary according to the investors participating/exiting the fund.
2) International Fixed Capital Company
Is an international company incorporated under Companies Law and recognised to operate as an international fixed capital company by the ICIS law. Its assets and unit holders are non- residents of Cyprus and the share capital of the company cannot increase or decrease.
Initial minimum capital is set to US$100,000 which will be marketed to the public or to experienced investors except in the case where the fixed capital company is a private ICIS having 100 or less investors therefore exempt from this requirement.
3) International Unit Trust Scheme
Is an international trust created under the International Trusts Law recognised to operate as an International Unit Trust Scheme by the ICIS law.
A trust is legally defined as a relationship by a person (the settlor) who places assets under the control of the trustee for the benefit of a third party (the beneficiary). These assets are separate and are not part of the trustee’s own estate.
The title of the trust assets stands in the name of the trustee and the trustee is empowered to manage the assets held in trust in accordance with the terms of the trust agreement.
Under section 2 of the International Trust Law, a trust qualifies as a Cyprus international trust where:
- The settlor is not a permanent resident in Cyprus;
- At least one trustee is a permanent resident in Cyprus;
- No beneficiaries are permanent residents in Cyprus, and;
- The trust property does not include immovable property situated in Cyprus.
4) International Investment Limited Partnership Scheme
Is a limited partnership that is registered under the Partnership and Business Names Law recognised to operate as an international investment limited partnership according to the ICIS law.
The partnership must appoint a general partner who acts as the manager of the fund and who is responsible for any debt and obligations of the scheme that may arise. Limited partners are also members of the scheme and their liability is limited to the amount they have contributed to the scheme.
A legal entity can also be a partner with limited liability. The partners or unit holders of the fund that have limited liability should not take part in the conduct of the business of the scheme or have the power to contract on behalf of the international investment limited partnership. All contracts, deeds, instruments, letters and documents whatsoever shall be entered into, drafted, signed and executed by the general partner on behalf of the international investment limited partnership.
The above schemes enjoy sufficient flexibility and retain the option of being established with limited and unlimited duration.
FUND TYPE
Taking into account the investment policy and the particular investment objectives, an ICIS may be designated as one of the following:
- Marketed to the general public (regulated by the Cyprus Securities and Exchange Commission)
- Marketed solely to experienced investors (unlike private ICIS, can have more than 100 investors, and Investment Manager with EU licence is required), or
- A private fund (maximum of up to 100 investors)
COMMON USES OF CYPRUS FUNDS
Clients who set up and operate ICIS include financial services companies, fund managers, investment firms and high net worth individuals. The following are the most common uses of a Cyprus fund:
- Property investments, namely in countries having double tax treaties with Cyprus (i.e. India, Russia, Poland and others).
- Accumulation of funds of high net worth individuals in a private fund.
- Investments in securities (as defined in Cyprus tax legislation), bonds and other financial instruments, capitalising tax free gains.
- Collective fund of several sub-fund portfolios.
- Fund of a number of other funds or sub-funds each with a specific objective, projected target return and risk profile.
ADVANTAGES
Tax Advantages
- Treated as a regular Cyprus company, thus subject to CIT of 10%, being the lowest rate in the EU.
- No tax on disposal of securities as defined by tax law (in brief, titles are defined as shares, bonds, units, debentures, founder and other titles of companies or legal persons and rights thereon).
- Participation exemption system on dividends and profits from abroad, with no minimum holding period.
- No withholding taxes on payments of dividends, interest, and royalties (subject to some conditions) paid to non residents.
- No thin capitalisation rules.
- Wide network of double tax treaties.
Other Advantages
- Greater operational flexibility, in terms of both the choice and structuring of the investment portfolio, and in relation to the internal structuring of the Fund itself. This largely owes to the fact that less "red tape" and formal regulation is generally allowed by fund legislation as compared to creation of collective investment vehicles in other high-tax countries. Cyprus investment funds have access to the widest possible variety of investment instruments and may often pursue more aggressive investment strategies than if they were registered in a "traditional" jurisdiction.
- Flexible regulator.
- Minimum regulation and statutory requirements.
- EU member state and compliant with EU laws and regulations.
- Recognition as a mature international business centre with developed infrastructure, a resilient economy, and highly qualified professionals.
- Licensing in Cyprus and the existence of a regulatory framework improves transparency and legitimacy with regard to shareholders, authorities and others.
- Legislation is in place and is continuously reviewed in order to both regulate and harmonise operations in the international business sector.
- A Cyprus fund can list easily on any stock exchange within the EU.
- Access to European Securities Markets.
STRUCTURE OF ICIS
1) Legal Form
The most commonly used ICIS legal form is that of an International Variable Capital Company. This is a company whose legal form is much the same as a Cyprus LLC, except that it has variable capital i.e. can be issued and redeemed as investors buy in and sell units of the fund.
2) Minimum subscription
The minimum subscription by investors in an ICIS marketed solely to experienced investors is US$50,000 or equivalent. In the case of a a private ICIS, no minimum subscription requirements exist however the Central Bank of Cyprus typically requires a EUR€ 50,000 minimum investment.
3) Fund Manager
It is possible, but not a requirement, to appoint a fund manager licensed by the Cyprus Securities and Exchange Commission. Such manager will manage the finances of unitholders and is required to have an established place of business in Cyprus i.e. the registered office address of the fund.
OUR SERVICES
S&A have a great deal of expertise in both advising on and formation of ICIS structures. We can also assist with the ongoing management and operation of a Cyprus fund. Our fund services include:
- Advice regarding the effective utilisation of a Cyprus fund structure.
- Application to the Central Bank of Cyprus to obtain approval for fund licensing.
- Formation of Cyprus company which will apply for fund license.
- Assistance in drafting the offering memorandum and other legal and secretarial documentation which is required.
- Provision of administrative services including nominee directors, secretary, registered office facilities and management, where applicable.
- Compliance services including accounting, VAT, internal audit , due diligence and fund valuations.
