Private Investments Funds (ICIS) in Cyprus: the New Trend
Cyprus is definitely on the map as a prominent forum for the establishment of private investment funds, also known as private International Collective Investment Schemes (private ICIS). An ICIS can also be formed as a public fund, however the purpose of this brief is to provide a general overview of the primary advantages of a private ICIS.
The purpose of a private ICIS is the collective investment of funds injected in such schemes by the unit-holders. A private ICIS can have up to 100 investors, also known as unit-holders. It provides an arrangement that enables a number of investors to add collectively their assets, have these professionally managed and invested by independent managers/entities and, in case of successful investment, extract their profits in a tax efficient manner.
The primary advantages of a private ICIS are flexibility, regulation, transparency, straightforward formation, clear legal framework and tax efficiency. These are examined in brief below:
(1) Flexibility. Private ICIS can be established with limited and unlimited duration or with variable or fixed capital. They can also take the form of a limited company, trust or partnership, depending on the underlying circumstances applicable in each specific occasion.
(2) Regulation. Private ICIS are fully regulated by the Central Bank of Cyprus. In order to issue an approval of the scheme, the supervising authority must be satisfied that the directors, promoters, managers and trustees of the scheme are competent, honest and meet certain legislative requirements and, also, that the manager(s) or the general partner(s) or the trustee(s), as applicable, act independently. The constitutional documentation and the offering memorandum of the scheme must contain the information prescribed by the law and be drafted in a form acceptable to the supervising authority. After formation, the Central Bank of Cyprus pursues a substantial monitoring role.
(3) Transparency. Annual and half-yearly reports must be prepared by the managers in relation to each ICIS. The former reports must contain financial statements, information on borrowing, portfolio information, report by trustees and report by auditors. The latter must as a minimum contain financial statements, including balance sheet, income and expenditure account, statement of the sources from which the total income of the ICIS has been generated, statement of income distribution and allocation and statement of duties, charges and fees paid out.
(4) Straightforward Formation. Formation can be effected within 6 weeks.
(5) Tax Incentives. Cyprus private ICIS benefit from significant tax incentives. A private ICIS is treated identically to any other Cypriot entity and, accordingly, enjoys a 10% flat corporate income tax on the annual net profits earned worldwide. In addition, the following tax advantages are especially significant for an ICIS: (a) exemption from tax on profits from sale of shares and other financial instruments; (b) exemption from tax on foreign dividends received; (c) no withholding on interest and dividend payment made from Cyprus abroad; (d) no withholding tax on income repatriation; (e) exemption on profits on disposal of securities; and (f) a wide network of Double Tax Treaties is in place with more than 40 countries worldwide, securing tax incentives and encouraging the channelling of funds in other countries without or with reduced further taxation.
Cyprus private ICIS are commonly used for the accumulation of funds and collective investments in countries such as Russia, Poland, Ukraine and India. Investments in the Balkans are equally favourably structured via Cyprus. These can be combined by alternatives or more elaborate tax structures, such as a private ICIS operating as a subsidiary of funds established in other international jurisdictions (“Feeder Funds”). The development of ICIS law and practices in Cyprus has strengthened the position of Cyprus as a reputable and strong international financial centre and has attracted considerable international investment.
Up to 30 July 2010, 52 private ICIS have been successfully registered and operate in Cyprus.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.