Cyprus has established itself as one of the major EU investment fund jurisdictions over the past few years. As of 30 June 2019, the Cyprus funds industry has risen to a total of €6.8 billion worth of assets.
Investment funds are vehicles, registered or domiciled in Cyprus that offer eligible investors significant benefits in terms of tax neutrality, speed, flexibility and pragmatic regulation. They are typically used to pool investments for private equity funds, venture capital funds, distressed opportunities funds, real estate funds, mezzanine funds, funds of funds and hedge funds.
The Cyprus legislation is in the full alignment of local legislation with the relevant EU Directives, including the Alternative Investment Funds Manager Directive. In terms of number of Alternative Investment Funds (AIFs), there are now 42 authorised AIFs, 119 authorised AIFs with limited number of persons and 18 Registered AIFs.
Cyprus is probably the most flexible and cost-efficient fund jurisdiction in the EU, a member of the European Securities and Markets Authority (ESMA), and boasts a comprehensive funds and related services workforce.
Most dividend income and capital gains of a Cyprus tax resident fund is tax-free. Interest income is taxable, but effective tax can be significantly reduced taking into account the notional interest deduction (NID) on new equity. Services provided by the investment manager of the fund are not subject to VAT.
Tax resident funds are eligible to all benefits available under a double tax treaty or EU Directives and there is:
- No withholding tax on any type of payments to non-residents
- No subscription tax on net assets of a fund
- No capital gains tax on disposal of shares/units by the holders
Sovereign Trust (Cyprus) can assist with the formation of funds in Cyprus. Services include incorporation and licensing of the fund, drafting of the fund prospectus and of the necessary agreements between the fund manager and investment manager and others such as custodians, investment advisors, bankers, registrars and company secretaries.