| 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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