Cyprus ICIS – A Flexible Fund Scheme
The International Collective Investment Schemes Law, 1999 has provided the requisite legal framework for the registration, regulation of operations and supervision of International Collective Investment Schemes (ICIS).
ICIS’s may come in the legal forms of unit trusts, variable or fixed capital companies or investment limited partnerships. All four legal forms of ICIS may be designated only as Private International Collective Investment Schemes.
The sole objective of an ICIS is the collective investment of funds of its unit-holders. Clients who set up and operate such schemes include financial services companies, fund managers, investment firms and high net worth individuals. They include the following circumstances:
· Funds for property investments especially in central Europe, Russia and ex-USSR countries
· Accumulating funds of high net worth individuals in a collective scheme, which is flexible, with minimum regulatory supervision and trade-able
· Investments in securities, bonds and other financial instruments, capitalizing tax free gains
· Collective fund of several sub-fund portfolios with varied risk profiles
· Fund of a number of other funds or sub-funds each with a specific objective, projected target return and risk profile
· Fund managers providing an investment tool for their clients
Tax and other advantages
An ICIS is subject to tax in an identical manner to any other Cypriot entity. In short, what is especially significant from a tax perspective are the following:
- Exemption from tax on profits from sale of shares and other financial instruments
- Exemption from tax on foreign dividends received
- Absence of any withholding taxes of interest payments made abroad
- Absence of withholding taxes on dividend payments from Cyprus
- No thin capitalization rules
- Relative simplicity and certainty of Cypriot tax regime
- Favorable network of tax treaties with some 40 countries
- Straight-forward legislation as well as comfortable Central Bank of Cyprus regulations
- Cyprus has the lowest corporate tax rate in the EU
a) Cyprus is an EU country and compliant with EU law.
b) Legislation has been put in place and is constantly under review, to regulate and harmonize operations in the financial services sector.
c) Facilitation of operations of brokerage firms and enhanced prestige on the international markets.
d) Licensing and existence of regulatory framework improves transparency and legitimacy with respect to shareholders, employees, authorities, etc.
e) Cyprus can be used as a springboard for immediate access and easy setting up in prestigious financial markets within the EU (Frankfurt, London etc) through the use of Cyprus financial services entities which can operate under a portfolio management license and act as fund managers to ICIS
f) The island enjoys sound reputation.
g) Cyprus has a pool of highly educated and qualified professionals who can advise clients and provide expert support.
Structure of the ICIS
Form and objectives
The most commonly used ICIS legal form is that of an International Variable Capital Company. This is a company whose legal form is much the same as a Cyprus international business company, except that it has variable capital. In other words, the shares in the company are issued or redeemed as investors buy in or sell their investments in the fund. The sole object of an ICIS must be the collective investment of funds of the investors/shareholders.
The shares issued by an ICIS must, at the option of the investors, be redeemed or repurchased directly out of the assets of the ICIS. The ICIS may be established with unlimited or limited duration.
A private ICIS does not need to have a minimum subscription.
An ICIS must be approved by the Central Bank of Cyprus which is the regulatory and supervising authority for the schemes, for their managers and their trustees, if applicable. In this respect, a written application to the Central Bank must be submitted as follows:
- In the case of an international fixed capital and an international variable capital company, the written application must be submitted to the Central Bank of Cyprus by the applicant company or its local professional advisers.
- Pre-printed questionnaires will need to be completed for the directors (minimum 2) and founder members.
- Standard application will need to be completed along with the required details and references.
- An offering memorandum should be prepared that describes the purpose and objectives of the fund and which needs to be approved by the Central Bank of Cyprus prior to its circulation to prospective investors. To approve the scheme, the Central Bank of Cyprus must be satisfied that:
a) The directors, the promoters, the managers and the trustee of the scheme are competent, experienced and honest and that the manager, the general partner (as the case may be) and the trustee (as the case may be) act independently of one another.
b) The manager meets the necessary legal requirements and the Central Bank of Cyprus regulations.
c) The trustee (where applicable) meets the minimum legal requirements and the Central Bank of Cyprus regulations.
d) The name of the scheme is not undesirable or misleading.
Furthermore, the Central Bank of Cyprus must be satisfied that the constitutional documentation and the offering memorandum of the scheme contain the information prescribed by the bank and that they are in an acceptable form.
It is possible, but not a requirement, to appoint a fund manager approved by the Cyprus Securities and Exchange Commission, which will exclusively be managing the finances of the unit-holders. The manager is required to have an established place of business in Cyprus.
What PROFEL can do:
We can advise clients from the early phases of the application stage as well as with their on-going requirements. Our services include:
- Advice and application to the Central Bank of Cyprus, on behalf of clients, to obtain their initial approval;
- Assistance in drafting the offering memorandum, incorporation and legal documents;
- Provision of administrative services including nominees, office facilities, administration of affairs, accounting etc;
- Arranging the provision of external audit and tax services;