Cyprus has been grabbing headlines, establishing itself as an investment funds jurisdiction and has gained a competitive position within the global financial services industry. In this commentary we summarize the main drivers and share what we consideration are valuable information for all regarding the Republic of Cyprus ecosystem.

In summary, the following have been key facts for decision makers:

• Cyprus can boast a considerable - and still growing - talent pool, of experienced professionals in the financial services space, and the availability of professional services at competitive rates compared to other investment funds jurisdictions.
• Investment firms, investment funds, the AIFM, in Cyprus work within a modern legal system based on the common law, supported by audit services conducted by qualified auditors and a reformed banking system supervised by the European Central Bank.
• An AIFM that is not based in the European Union can access the more than 400 million population of EU by selecting Cyprus as their Member State of Reference and thus their entrance point into EU.
• An AIFM once licensed in any EU Member State can manage and market funds in all EU Member States. Therefore, Cyprus acts as the gateway to the whole Europe Union by Passporting (see below).
• Alternative Investment Funds (AIF) can be listed on the Cyprus Stock Exchange, and to other stock exchanges.
• The Depository role can be undertaken by other Cyprus entities such as investment firms regulated by CySEC and is no longer reserved for credit institutions.
• A highly competitive Tax Environment (see below) for AIFM, AIF and RAIF based in Cyprus, having one of the lowest corporate tax rates across EU while the investors who are not Cypriot tax residents benefit at the time of redemption, from an extensive double tax treaty network. Additionally, there is no withholding tax imposed on dividend distribution where the recipient is a foreign company or individual.

Tax Environment

Investment funds (be it AIF or RAIF) are legal entities incorporated in Cyprus, benefit from these tax incentives:

• At 12.5% Cyprus offers one of the lowest corporate tax in EU.
• The services of fund management are not subject to VAT.
• At 19% VAT Cyprus has the lowest in EU for ancillary management services.
• There are tax exemptions for
  • dividends received,
  • gains arising from the trading of securities,
  • capital gains from sale of property abroad and
  • capital gains from sale of shares of foreign property companies.
• There is no minimum participation on inbound dividends to qualify for the tax exemption.
• There are no stump duties on the subscription, redemption, repurchase or transfer of units.
• There is no subscription tax on the net assets of the investment fund.
• Cyprus has established more than 50 double tax treaties.

These are the added tax incentives for foreign investors:

• There is no withholding tax on dividends.
• There is no taxation on redemption of investment fund units.
• There are no deemed distribution restrictions.

These are the added tax advantages for Cyprus tax resident investors:

• There is no withholding tax on dividends if the investor is an entity.
• There is a withholding tax on dividends is 17% if the investor is an individual.
• There is no taxation on redemption of investment fund units.

Passporting to EU

Alternative Investment Funds Managers (AIFM), authorised by CySEC in Cyprus, can manage, market and distribute the units of the investment funds based in the Republic of Cyprus in all other European Union Member States using the regulator-to-regulator notification mechanism. This means that there is no need for a CySEC regulated fund to seek permission from each Member State.

Additionally, a CySEC regulated AIFM can benefit from the cooperation arrangements between CySEC and regulators in third countries where non-EU AIF are established so that, under certain conditions, a CySEC AIFM can use the third country passport to market the units of non-EU AIFs to professional investors in the EU and to manage non-EU AIF marketed outside the EU.

To conclude, the Cyprus investment funds industry and ecosystem appears perfectly positioned to further continue its establishment in the years to come. Please, do contact us if you require further information at [email protected].

We look forward to supporting you in finding an appropriate solution.

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.