FINANCIAL SERVICES COMPANIES

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Cyprus Investment Firms (CIF's)

General

Cyprus is a very attractive place for financial services due to its location it can become a hub towards the European markets. Under the 'free services' regime within Europe, a CIF can provide services throughout Europe with minimum requirements.

 

Tax legislation is very favorable for investment companies giving an additional investment for setting up an Investment Firm in Cyprus.

 

Tax advantages:

• The following tax advantages exist for Cyprus Investment Firms (CIF's)
• The corporate tax is only 10% on the profits of the Company.
• Dividend income is exempt (with certain exceptions)
• Profits from disposal of securities is not taxable.
• There is no withholding tax on payment of dividend or interest to non residents

Investment services that can be provided by CIF's

Investment services:

• Reception and transmission of orders in relation to one or more financial instruments

• Execution of orders on behalf of clients

• Dealing on own account

• Portfolio management

• Investment advice

• Underwriting of financial instruments and/or placing of financial instruments on a firm

• commitment basis

• Placing of financial instruments without a firm commitment basis

• Operation of Multilateral Trading Facility

 

Ancillary Services

• Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management

• Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction

• Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings

• Foreign exchange services where these are connected to the provision of investment services

• Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments

• Services related to underwriting

 

Application process:

 

The application process involves the following:

• Preparation of questionnaires by beneficial shareholders and management of the company
• Provision of certificates of clean criminal record and non-bankruptcy certificates for the shareholders and management of the company
• Preparation of a Business Plan
• Preparation of an Internal Procedures Manual covering all internal procedures and other organizational requirements

 

The documentation is filed with the Cyprus Securities and Exchange Commission who have the right to request any additional information or documentation at the time of evaluation.

 

A decision is normally reached within 5-6 months upon filing the application.

 

PRIVATE INTERNATIONAL COLLECTIVE INVESTMENT SCHEME (PICIS)

 

General

  

a.       The purpose of an ICIS is the collective investment of shareholders funds. There are various legal forms of such schemes however the most common is a Private International Collective Investment Scheme with a variable share capital. The scheme by its constitutional documentation restricts the right to transfer its shares (or units) and limits the number of its shareholders to a maximum of 100 private investors which can be individuals, corporations, listed or unlisted entities, other funds, e.t.c

 

b.       The supervisory authority for such a Scheme is the Central Bank of Cyprus which regards it as a private arrangement. A private ICIS is prohibited from making any invitation in any part of the world to the public to purchase units or shares in the scheme

 

c.        The registration process takes between 3-4 months.

 

d.       The management shares (or voting shares) will be issued to the beneficiaries of the ICIS. The ICIS cannot issue bearer shares, therefore the Central Bank of Cyprus will require full information on the beneficiaries. Thereafter new investors will be issued participating shares (or non-voting units) at unit asset value at the time of issue. For their shareholding the secretary will issue share certificates (signed by the Director(s) and secretary) in their names and on a quarterly basis report to CB all new investments in the fund. The Secretary is obliged by law to maintain a share register at the ICIS's registered office.

 

e.       The company is required by law to maintain books and records in Cyprus (all original contracts, contract notes, bank statements, e.t.c) an exercise our accounting department can undertake. The ICIS in its books will show two different classes of shares:

• Management shares (voting) issued to beneficiaries at nominal value
• Participating (non-voting) shares or units issued to new investors at their issuance value (Le. unit asset valuation at the time of issuance)

 

f.         The ICIS can have for each client a sub-fund (in the form of a separate legal entity) and under each subfund each investor's funds can be separately invested. For each sub-fund separate books and records will be maintained and reports can be issued to investors on a regular basis of the status and performance of their individual investments. Each sub- fund will have its own offering terms/memorandum for the specific investor(s) and the investment strategy will be agreed in advance. All these sub-funds can be registered with the CB at the same time as the ICIS.

 

g.       The ICIS will sign an investment management agreement with each investor at the time of application for investment in the fund. The agreement will set out the terms, fees, strategies, brokers, e.t.c. The ICIS will open brokerage accounts with different trusted brokers around the world, in the countries in which investments will be carried out and appoint a custodian of its assets in Cyprus. Under Cyprus legislation and at the request of the CB the custodian should be a Cyprus or offshore bank located in Cyprus licensed by CB to provide custodian services.

 

The custodian will be responsible for the monies and assets of the ICIS and sub-funds and will regularly report to CB on the performance of its duties. Custodian service providers charge usually a fee ranging from 0,5% - 1,5 % of managed assets. We can assist in the setting up of such a custodian agreement with a local bank should you decide to proceed. The reason for the appointment of a custodian is that the funds of the investors will primarily be routed through the local bank account of the ICIS & sub-funds and later for the local Bank to monitor the investments and report to CB accordingly

 

h.       All of the above are safeguards to protect investors and their funds/assets/investments from potential losses. There is a reduced possibility of litigation by investors against the ICIS as the safeguards to be put in place ensure that all transactions are legitimate. The most important issue is the directors to be appointed on the ICIS (or the asset manager's directors) to be trustworthy, with integrity, loyalty and most importantly of being qualified and capable of performing their duties

 

i.         Different classes of non-voting shares (class "a", "b", e.t.c) can be issued in order to define different rights among investors, although it will be administratively difficult to match funds to investments. The preferred structure is for each investor to hold shares in a different sub-fund, thus concentrating his investments in a single fund with distinct investment strategy

 

j.         Each investor thereafter will receive a dividend in line with the performance of the sub-fund in which he has invested in, something which is legally justifiable

  

TAXATION OF ICIS

 

Resident Companies

• Under the new tax legislation that came into effect as of 1 January 2003, taxable profits of all Cyprus resent companies are taxed at the rate of 10 per cent . IBCs subject to special perm from Central Bank of Cyprus will be allowed to generate income and trade in 'Cyprus. Further rules that apply in the case of resident companies are as follows:

• Profits generated from buying and selling of shares are not taxable Dividend income is taxable for defence tax only at 15% less withholding taxes paid at source or nil if investment company more than 1 % of share capital of investee and that the company does not earn more than 50% of its income from investment activities and that company's profits area subject to tax at rates comparable to those payable in Cyprus.

• Resident companies are eligible for double tax treaty benefits.

• Can obtain tax residency certificates

 

Application process

 

a.       A preliminary application is made, where a draft offering memorandum, draft business plan and draft documentation is provided to the Central Bank for its views and comments.

b.       Upon receipt of Central Bank's initial comments, a detailed application is made for registration and recognition as an ICIS.

c.        The complete application is filed together with the Personal Questionnaire (form PQ) for each Director of the ICIS and also for each of the shareholders holding more than 10% of the capital of the fund. Each one needs to provide a detailed CV, bank reference from a reputable bank and details of a minimum of three referees that Central Bank may contact with via fax or mail to obtain, character and business references.