Cyprus being a very attractive jurisdiction for funds and regulated entities (CIFs, RAIFs, AIFs, AIFMs, FX) not only due to its great geographical location and EU membership since 2008 but also due to it the low cost of servicing and supporting these regulated entities.
Coupled with a plethora of strong tax advantages (we summarise them below) Cyprus is now on the international regulated entity formation map and captures a significant piece of the pie.
Want to know more about Cyprus Funds and Investment firms?
Fund structure charecteristics
We summarise below the most important aspects of taxation affecting Cyprus Funds, Investment Firms, and where applicable Managers.
Fund Taxation – the Fund and its compartments (if applicable)
- No capital gains on disposal of securities / titles or fund units
- No capital gains tax on the disposal of Cyprus or overseas properties sold
- No thin capitalisation rules.
- Notional Interest Deduction (NID) reducing effective interest tax – this applies to new equity introduced by the shareholder.
- Dividends Received are Tax Free (subject to anti-avoidance provisions*)
- No withholding taxes from Cyprus (dividends paid out)
- Company / fund Cyprus Corporation Tax 12.5%.
Other types of income
Royalty Income – subject to 2.25% Royalty Income Tax if the Fund applies for such treatment. Alternatively, it is subject to Cyprus Corporation Tax of 12,5%.
Rental Income – subject to Corporation Tax 12.5% and Special Defense Tax 17%
Interest received – usually taxed at Corporation Tax level 12.5%.
Foreign exchange gains / losses – tax neutral
Profits from permanent establishment abroad – tax free subject to anti-avoidance rules *2
Other matters
- More than 65 double tax treaties.
- No VAT applies.
- Compartments - Each compartment is taxed as a separate legal vehicle.
- Stump duty – does not apply on the acquisition (called subscription) or sale (called redemption) of units.
- Permanent Establishment Creation – investment in a regulated, transparent fund does not constitute a permanent establishment in Cyprus.
Anti- Avoidance Provisions:
*1 – Dividends Received
- Tax Deductible on Paid Dividends
If dividends received by a Cyprus entity are deductible for tax purposes from the paying company then these dividends will be subject to Cyprus Corporation Tax (but not special defence tax).
In other words, the tax benefit can not be claimed twice; initially by the paying company and then by the recipient company.
- Special Defence Tax May apply on Dividend Income if:
- more than 50% of the foreign paying company's activities directly or indirectly result in investment income, and
- the foreign tax is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25%).
*2 Permanent Establishment
Profits received by the fund's permanents establishment will be tax free only if the below anti avoidance rules apply:
- more than 50% of the foreign PE's activities directly or indirectly result in investment income, and
- the foreign tax on the income of the foreign PE is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25%).
Investors Tax
Internationals & Non-Domiciled persons
When an investor redeems (cashes out) its units (funds have no shares):
- Actual redemption of the units is tax free.
- Fund dividends paid out to investors are tax free.
- Payments other than the above to the investors – no withholding tax applies.
Local Cypriot Investors
Local Cypriot investors who are Cyprus tax resident will be taxed as follows:
When a Cypriot investor redeems (cashes out) its units (funds have no shares):
- Actual redemption of the units is tax free.
- Fund dividends paid out to investors are subject to Special Defence Tax and NHS.
- Payments other than the above to the investors – no withholding tax applies.
About Us
CYAUSE Audit Services has extensive experience in the insurance industry has helped tens of insurance brokers and agents register and get licensed by the local Cyprus regulator granting them passporting access to the rest of the European Union.
CYAUSE Audit Services is an Audit & Assurance firm with offices in Cyprus and the UAE. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office's Procedures.
Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally through its membership with BKR International amongst the largest American associations in the world, Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience. Our network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally.
CYAUSE Audit Services Ltd is also a member of BKR International one of the biggest US Accounting Associations of the word and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world.
Learn More about Cyprus Corporate Environment
Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.
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.
