Legal Framework and Taxation of Cyprus Investment Funds
Angelos Gregoriades, Member of the Board, Head of Tax and Corporate Services
KPMG Ltd
July 2011
Introduction
Cyprus is a cost-effective EU, OECD, FATF and Euro Zone jurisdiction with the lowest corporate tax rate in the EU. Its business and commercial law is based on English law. It offers platforms for pursuing alternative investment strategies both through Cyprus UCITS and through Cyprus alternative investment funds. Cyprus has also reputed professionals regarding investment fund administration and taxation; e.g. 90% of Cyprus accountants hold one of the two top UK professional qualifications and have acquired significant experience in the financial centre of London. At the same time big audit houses, including all “big four”, as well as international law firms specialised in alternative investments are actively present in the financial services sector. Cyprus’ cost-effectiveness, its EU Membership rendering the set-up and pan-European marketing of UCITS possible, its OECD and FATF compliance as well as the competitive level of local service providers motivate its presentation as a jurisdiction eligible for (re-)domiciling alternative investment platforms.
Cyprus investment funds can be categorised as UCITS and as alternative investment funds (non-UCITS). The new Cyprus UCITS law transposing the UCITS IV Directive into Cyprus law (draft law) is expected to be voted during the summer session of the House of Representatives. Regarding non-UCITS, Cyprus currently provides for the set-up of International Collective Investment Schemes of private type (ICIS/private ICIS respectively) under the ICIS Law of 1999.
Legal framework of Cyprus UCITS
Depending on the desired balance of power between investors and management, a Cyprus UCITS can be set-up either as a Common Fund (CF) or as a Variable Capital Investment Company (VCIC). The CF is a platform primarily for retail investors, while the platform primarily suitable for professional investors, claiming co-decision in certain matters, would be the VCIC. Both CF and VCIC can issue different classes of units/shares respectively.
Pursuant to the UCITS IV Directive, a UCITS management company authorised in an EU jurisdiction may manage UCITS authorised in other EU jurisdictions without having to demonstrate any physical presence in these latter jurisdictions (‘management company passport’). In case of remote management of a Cyprus UCITS by virtue of the ‘management company passport’, the applying management company must submit an Information Flow Agreement (IFA) with the Cyprus based depositary. A Cyprus authorised UCITS management company apart from being equipped with such a passport can also obtain a passport for certain core and non-core MiFiD investment services. Furthermore, it may also be authorised to manage collective investment schemes other than UCITS. A Cyprus UCITS management company must have an initial minimum capital of 125.000 EUR fully paid-up in cash and dispose of at least two executive Directors of sufficient repute and experience.
