Cyprus Investment Firms (CIF) are companies established in Cyprus and licensed by CySEC to provide one or more investment services to third parties or/and perform one or more investment activities under the applicable laws and regulations. Accordingly, an Investment Firm licensed in Cyprus, can be used for the provision of investment services from Cyprus in all EU markets by simply passporting its license, while it can also offer investment services to third countries.
The services can be offered on a cross-border basis or by establishing a physical presence in the jurisdiction into which the services will be provided. Cyprus Investment Firms, extensively used for forex trading, brokerage services, investment portfolio management and investment advice, benefit from Cyprus' beneficial corporate tax regime featuring a tax rate of 10%, the lowest in the EU.
Investment Services subject to authorization by CySEC consist of the following 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 (non-core) Services subject to authorization by CySEC consist of the following services( it should be noted that no license can be granted for the provision of non-core services alone):
- Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management;
- Grant 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;
- Provide advice to undertakings or capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings;
- Provide 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;
- Safe custody services.
The criteria imposed for the creation of an Investment Firm in Cyprus include significant requirements as to the owners, the management, the share capital and the resources of the proposed entity.
The types of Cyprus Investment Firm licenses and the respective share capital required can be classified as follows:
(1) A CIF that provides or more of the following investment services and holds clients' money or/and client's financial instruments, must have an initial capital of at least two hundred thousand euro (€200.000):
(a) The reception and transmission of orders in relation to financial instruments;
(b) the execution of orders on behalf of clients;
(c) portfolio management;
(d) provision of investment advice.
(2) A CIF that provides the investment services stated above does not hold clients' money or/and clients' financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of:
(a) At least eighty thousand euro (€80.000); or
(b) at least forty thousand euro (€40.000) and professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year for all claims.
(3) A CIF that provides one or more of the following investment services or/and performs the following investment activities shall have an initial capital of at least one million euro (€1.000.000):
(a) Dealing on own account;
(b) underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
(c) placing of financial instruments without a firm commitment basis;
(d) operation of Multilateral Trading Facility.
A Cyprus Investment Firm will be able to take advantage of the following tax benefits:
A resident Cyprus Holding Company is fully subject to tax at the rate of 10% on its worldwide income. It is held to be resident in Cyprus if its management and control are in Cyprus. A non-resident company is taxed only on income derived from a permanent establishment in Cyprus and on rental income from property located in Cyprus.
A credit for tax on profits and gains of a Cyprus Holding Company may be offset against tax payable in Cyprus for the same income unilaterally under domestic law, even in the absence of a double taxation treaty.
The taxable income of a Cyprus Holding Company is based on the annual financial statements prepared in accordance with international financial reporting standards. Expenses incurred exclusively for the purposes of the business are deductible while expenses incurred with exempt income are not deductible.
Dividends received by a Cyprus resident company are not subject to tax and are excluded from the net profits but are subject to a special defense contribution tax at a rate of 15% as deemed distributions to Cyprus resident shareholders. This may be avoided if the holding is more than 1%.
Capital Gains Exemption
Profits from the sale of securities (shares, bonds, debentures, etc.) are not subject to tax. No capital gains tax is levied, unless from immovable property in Cyprus or if shares represent immovable property located in Cyprus (in the usual cases).
Interest received by a Cyprus resident company is exempt from income tax, irrespectively of whether it is from a Cypriot or a foreign source. Interest is only taxed at a 10% rate by way of special defense contribution tax.
Income from industrial or intellectual property rights granted for use outside Cyprus are not subject to tax.
Exemption from Withholding Tax on Payment of Dividends, Interest and Royalties
Dividends and interest paid by a Cyprus Holding Company are exempt from withholding tax. Royalties paid to non-residents derived from sources outside Cyprus are also not subject to withholding tax. Dividends paid by a Cyprus Holding Company to non-residents are not subject to withholding tax. To avoid submission to a special 15% defence contribution tax, at least 70% of the profits must be distributed within 2 years after the end of the income year.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.