The Cyprus Government has announced that it will soon introduce legislation to allow mutual funds on the island. The introduction of mutual funds is expected to help develop local capital markets by enabling investors to spread and lower risk through diversified investment funds.
Under the draft legislation currently before the Council of Ministers, mutual funds will need a minimum start-up capital of CY£1m and a separate Mutual Funds Management Company with a minimum capital of CY£450,000 which will be legally responsible to fund members.
Mutual Funds will be restricted to offshore borrowing for investment purposes. The regulations will also allow 'open-ended investment companies' and will permit banking institutions and other legal entities to provide custodian services for mutual funds.
To encourage the growth of mutual funds the government has put together an attractive tax package. Mutual funds will only charge 50% of the normal income tax on fund profits and will receive special exemptions from withholding tax and dividends paid to similar firms. It is expected that mutual fund members (investors) will also be exempt from all taxation on income earned from mutual funds.
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