During the past few years, the funds industry in Cyprus has experienced significant growth (both in terms of value of assets and in terms of number of funds and fund managers), resulting in the island establishing itself as one of the major EU fund jurisdictions.
Cyprus's strategic geographic position, stable political system, attractive tax system, modernised AIF Law, combined with EU and Eurozone memberships, have served to attract global funds and fund managers alike.
From a tax perspective, establishing a fund in Cyprus can have significant benefits for both the fund and its investors. We summarize below some of the tax benefits available for Cyprus funds and their investors:
Cyprus funds are:
- Exempt from tax if established as a tax transparent entity (i.e. partnership or common fund).
- Tax resident if established as an investment company and if managed and controlled in Cyprus.
- Net taxable profits are subject to income tax at 12.5%.
- Effective tax rate could be reduced to 2.5% via the use of Notional Interest Deduction.
- Profits from sale of shares, bonds and other securities are exempt from income tax.
- Dividend income is exempt from income tax.
- Capital gains from the sale of foreign immovable property are exempt from tax.
- No subscription tax on the net assets of the fund.
- VAT exemption for fund management services.
- Wide network of double tax treaties (currently with 65 countries)
- No withholding tax on dividends or on redemption of units for investors who are not tax resident and domiciled in Cyprus.
- No deemed distribution provisions for investors who are not tax resident and domiciled in Cyprus.
- Tax resident and domiciled investors are subject to a withholding tax of 17% on dividends received.
- Non-Cyprus resident investors in a tax transparent fund will not deem the investors to have a permanent establishment in Cyprus and as a result, any income they earn from the fund will not be subject to Cyprus tax. It will only be subject to tax in their country of tax residence.
We at Savva & Associates are among the few providers in Cyprus experienced in the establishment and administration of alternative investment funds and the most cost efficient in delivering high level alternative investment fund services in Cyprus. Our dedicated Investment Funds Division has extensive knowledge of financial services, coupled with local legal and tax expertise, ensuring efficiency in establishment, licensing and ongoing management of AIFs.
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.