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Cyprus International Collective Investment Schemes (ICIS)
Cyprus is an established, reputable international financial business centre with an extensive tax incentives regime on which global investors can rely and ultimately benefit from. Its favourable geographic location, its most favourable tax and legal regime and its EU Membership as well as the wide network of double tax treaties concluded make Cyprus a preferred jurisdiction for hosting the activities of International Collective Investment Schemes (ICIS). Taxand Cyprus sets out the purpose of ICIS and why setting up and operating an ICIS scheme can ultimately benefit funds for property investments.
The purpose of ICIS is the collective investment of funds as these are injected in such schemes by the unit-holders. The establishment, operation and regulation of ICIS are governed by law since 1999.
Accordingly, ICIS are regulated by the Central Bank of Cyprus and may take either one of the following legal forms:
- International Variable Capital Company
- International Fixed Capital Company
- International Unit Trust Scheme
- International Investment Limited Partnership Scheme.
The above schemes enjoy sufficient flexibility and retain the option of being established with limited and unlimited duration. ICIS can nevertheless be marketed to the general public, to experienced investors solely, or even a private international collective investment scheme (with 100 or even less investors). Additionally, an ICIS can benefit from the tax incentives in Cyprus as it is treated as any other Cypriot entity.
Taking into consideration the Cypriot tax regime, Cypriot ICIS are commonly used for the accumulation of funds and collective investments in amongst other countries Russia, Poland, Ukraine and India. Investments in the Balkans are equally most favourably structured via Cyprus. Notwithstanding the above, collective investments in securities or other financial instruments can also be tax efficiently structured via Cyprus.
In line with the above, and in terms of tax, ICIS are treated identically to any other Cypriot entity. Consequently, 10% corporate income tax shall be charged on the annual net profits earned worldwide. Furthermore, the Cypriot jurisdiction offers the ability to pull profits from the country of the subsidiary with no or very low withholding tax, provided a Double Tax Treaty (DTT) is in existence. Recent changes further indicate the abolition of the participation exemption requirements (>1%) found under the Cypriot legislation, providing therefore for a more favourable treatment. In conjunction with this, a wide network of DTTs has been concluded with more than 40 countries worldwide, securing tax incentives and extensively encouraging deeper co-operation and an investment boost.
Latest amendments in the Cypriot legislation expanded the provisions on deemed dividend distribution to ICIS provided that companies are being dissolved. The redemption of units or participations in ICIS does not constitute a reduction of capital, and as a result distributions deriving thereof are exempt from the imposition of the 15% special contribution to defence. This particular provision is ultimately beneficial for Cypriot investors given that non-residents are in any case exempt from this withholding tax obligation.
The expansion of the definition of securities and titles in Cyprus is also deemed to include units in collective investment schemes. Accordingly the revised legislation provides that any gains from the redemption of units or other participations in such schemes (ICIS) constitute a disposal of securities are tax exempted.
ICIS were further reinforced with additional benefits as far as interest is concerned. Interest received by an ICIS is solely subject to 10% corporate income tax and extensively, such interest income does not fall within the scope of Special Defence Contribution tax. Irrespective of the aforementioned, any allowable expenses are also deductible.
Regulated private funds are constantly encouraged under the Cypriot jurisdiction with its further financial instruments available and tax incentives in place. Setting up and operating an ICIS scheme can ultimately benefit funds for property investments in jurisdictions with which Cyprus maintains a Double Tax Treaty and further reinforce investments in 'securities' and other financial instruments.
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