The law governing the registration of International Investment Companies is the International Collective Investment Schemes Law No. 47(I) of 1999.
With the enactment of this law, and by providing the required services and facilities for the incorporation of investment companies, classifies Cyprus once again as among of the major International financial centres worldwide.
By International Collective Investment Scheme Company (ICIS), otherwise known as an investment company, we mean a corporation which collect’s together investor’s monies generally to invest it in stocks, warrants, bonds, equities, commodities, futures and other derivatives.
The investors are participating in the mutual fund by purchasing shares (units) of the entire pool of assets, thus diversifying their investment and hence reducing risk. The pool of assets is invested by Professional Managers (Fund Manager) who buy and sell securities on behalf of Fund.
There are 4 different ICIS, which can be incorporated in Cyprus:
• International Fixed Capital Company
• International Variable Capital Company
• International Unit Trust Scheme
• International Investment Limited Partnership
The basis of all above ICISs is the collective investment funds of uniholders. The units, as per its constitutional documentation, are at the option of the uniholders to be redeemed directly out of the assets of the scheme.
Uniholder is the owner of the units, which may be:
• an ICIS
• an International Business Company
• a person not being a permanent resident of Cyprus for the purpose of the Exchange Control Law
The above 4 types of ICISs may apply either to the “general public”, or solely to “experienced investors”, or to a private international collective investment scheme. Furthermore these can be established for limited or unlimited duration.
An “experience investor ” is a legal or natural person:
• Who provides financial services to the public OR
• Who frequently enters into investment transactions, which, on average are substantial size and such person, having regard to all relevant facts, can reasonably be expected to appreciate the risks inherent in investment transactions.
ICISs are subject to tax like any other legal entity (10% corporate tax). For the ICIS, it is significant that the
• Exemption from tax on foreign dividends
• Exemption form tax on profit from the sale of securities
• No withholding tax on income repatriation by the ICISs.
• Sale or disposal of units are exempted from Income tax
• The redemption of a unitholding in a collective investment scheme does not constitute a reduction of capital under the Deemed Distribution provisions of the Special Contribution for Defence Law (SCD) and, therefore, there will not be any tax implications on the distribution arising from the redemption.
• The Cyprus Income Tax Law has been amended abolishing the existing rules on taxation of interest income and introducing a uniform treatment in relation to the taxation of interest income derived by natural and legal persons. Interest income derived by a person will be exempt from corporate income tax unless such interest is closely connected or related to the taxpayer’s trading activities, in which case such interest income will be taxed under Income tax.
• Note: In the case of companies, such interest income will be taxed under Corporate Income Tax at the rate of 10%. In the rare occasions where an individual may derive “active” interest income; such income will be taxed at the escalated personal tax rates. The amendment goes on to make clear that interest income derived by a collective investment scheme is considered to be “active” interest income and taxed only at 10% corporate income tax.
• The Special Contribution for Defence Law has been amended accordingly to make clear that interest derived by a collective investment scheme is not considered to be interest for SCD purposes and therefore is not subject to Defence tax.
• Dividend Income
• The Special Contribution for Defence Law has been amended in order to abolish the minimum participation requirement of 1% when it relates to dividends received from abroad by a Cyprus tax resident Company. The above amendment will also apply to collective investment schemes that have stakeholdings in various investments that may be less than 1%. Note: In order to obtain full exemption, dividends received from abroad should qualify for either one of the following conditions:
1. The company paying the dividend must not engage directly or indirectly more than 50% in activities which lead to passive income (non-trading income), or
2. The foreign tax burden on the income of the company paying the dividend is not substantially lower than the tax burden in Cyprus. (An effective tax rate of at least five percent (5%) in the country paying the dividend satisfies this condition).
Deemed Dividend Distribution Collective Investment Schemes will be imposed a 3% taxation under the Special Contribution for the Defence Law [instead of 15%] in the event where the scheme fails to distribute at least 70% of its accounting profits within a period of two years from the tax year to which the profits relate, to the extent that the collective scheme has Cyprus tax resident unitholders. The above taxation on Deemed Dividend Distribution is not applicable in the event where the unitholders of the Collective Investment Scheme are not tax residents in Cyprus.
ICISs must be approved by the Central Bank of Cyprus (private only — public have to be approved by the Cyprus Security Commission).
In order to recognize the fund, the Central Bank must be satisfied that
♦ The directors, the promoters, the man-agers, and the trustee of the scheme are competent and honest and that the manager, the general partner, and the trustee act independently of each other.
♦ The manager and trustee meets the necessary requirements as per the legislation of the Central Bank regulations.
Additionally, the central Bank must be satisfied that the constitutional documentation and Offering Memorandum of the scheme contain the information prescribed by the bank and that they are in a form acceptable to the bank.
Following the recognition by the Central bank, the scheme will be designated as:
• A scheme to be marketed to the General Public
• A scheme to be marketed solely to Experienced Investors
A Private International Collective Investment Schemes
• Our office can assist in the registration of any International Collective Investment Scheme by providing the following services:
• Drafting the constitutional documentation and Offering Memorandum
• Drafting the application and participating in meetings until the recognition of the scheme
• Administration services
