UCITS & ICIS

Cyprus has been a member of the European Union since 2004 and the Euro zone since 2008. It is established as a reputable international financial centre with the lowest corporation tax rate in the European Union and an extensive Double Tax Treaties network 

There are currently two laws governing the formation of Cyprus Collective Investment Schemes (‘Funds’).

  1. The Open-Ended Undertakings for Collective Investment in Transferable Securities (UCITS) and related Issues Law 2008. This legislation concerns funds that can be offered to the public at large. Any funds formed under this legislation can be easily sold to any country in the European Union (passporting). The supervisory authority for these funds is the Cyprus Securities and Exchange Commission.
  2. The International Collective Investment Schemes Law (ICIS) 47(I)/1999, regulates funds that are not open for the wide public. Currently only private funds (i.e. those having less than hundred investors) can be formed under this Law. The supervisory authority for these funds is the Central Bank of Cyprus.

When originally formed the ICIS legislation regulated funds that could be sold to the:

  1. Public
  2. Experienced Investors.
  3. Private funds (up to 100 investors).

Following Cyprus entry into the EU the Central Bank of Cyprus accepts applications only for private funds.

An ICIS can take one of the following legal forms:

  1. International fixed capital company:

International fixed capital companies have fixed capital (i.e. are closed ended investment companies). For private ICIS the number of investors is up to 100.

       2. International variable capital company:

International variable capital companies have a variable capital (i.e. are open ended investment companies). Share capital varies according to the investors participating in or exiting the company. The amount of the share capital of the company is equal to the net asset value of the shares of the company at any time in issuance. The share capital of the company may be divided into a specific number of shares without assigning any nominal value (par value).  Currently this is the most commonly used legal form of ICIS in Cyprus.

       3. International unit trust scheme:

International unit trusts are created under the International Trusts Law. A trust is legally defined as a relationship created – inter vivos or on death – by a person (the settler) who places assets under the control of the trustee for the benefit of a third party (the beneficiary).  These assets are like a separate “fund” and are not part of the trustee’s own estate.  The title of the trust assets stands in the name of the trustee and the trustee is empowered and duty bound to manage the assets held in trust in accordance with the terms of the trust agreement.

       4. International investment limited partnership

Limited partnerships are registered under the Partnership and Business Names Law and are recognized to operate as an international investment limited partnership by the ICIS law.

Partnerships must have a General Partner who is effectively the Manager of the Fund and the Limited Partners who are the investors but have no voting rights.

Limited Partners do not take part in the conduct of the business of the scheme or have the power to contract on behalf of the international investment limited partnership. All contracts, deeds, instruments, letters and documents whatsoever shall be entered into, signed and executed by the General Partner on behalf of the international investment limited partnership. 

No investment restrictions apply to the operation of Private ICIS. Their investment policy is governed by the Private Placement Memorandum that needs to be filed with the Central Bank of Cyprus. This gives a great flexibility as to the type of funds that can be created.

All four types of ICIS may be established with limited or unlimited duration and may be structured in such a way as the promoters may determine, provided however, that adequate protection is in place for the unit holders.

Even though the use of a custodian is not mandatory under the legislation, it is the current practice to appoint a local bank as custodian. Where a custodian is not appointed the Central Bank of Cyprus needs to be satisfied that assets are adequately safeguarded.

To be considered a resident company, management and control needs to be exercised from Cyprus.

No requirement for minimum initial share capital exists for private ICIS.

There is no minimum subscription for a private ICIS.  However the Central Bank has indicated that the minimum subscription level should be a sizeable amount. An indication of what that amount should be is that the minimum subscription amount for funds that can be sold to experienced investors (currently $50.000).

In order to establish an ICIS, the prior approval of the Central Bank of Cyprus (the “Central Bank”), as the regulatory and supervisory authority for ICIS, their managers and trustees, has to be obtained.

Prior to granting such approval, the Central Bank must be provided with such information so as to be satisfied as to the competence of the directors, promoters, managers and trustees, as the case may be, and their ability as such to act in their respective capacities.

 In order to get the approval the following needs to be submitted to the Central Bank:

  • A draft Memorandum and Articles of Association.
  • Questionnaires for all parties involved in the management of the Fund.
  • Standard application form completed along with the references.
  • An Offering Memorandum describing the scope of the fund, its legal form and the conditions for redemptions / subscriptions (it should be approved by the Central Bank prior to its circulation to prospective investors)

In order for the Central Bank to approve the Fund it needs to be satisfied that:

  • The directors and people involved in the management of the fund are technically competent and of a good standing
  • In case the manager of the Fund is not an approved investment services provider the proposed manager (usually the Directors) must  have the experience and knowledge needed to manage the assets of the fund as per the investment objective contained in the Offering Memorandum
  • The assets of the Fund are adequately safeguarded (especially in case no custodian is employed)

The approval of a fund is easier, if an approved investment manager is used (based in Cyprus or abroad). However, it is possible for the Fund’s Directors to manage a fund provided they satisfy the Central Bank that they have adequate knowledge and experience to do so.

According to the applicable laws, the following reporting obligations must be observed:

  1. Annual Reports.
  2. Half-yearlyReports.

Additionally the administrator needs to file certain information with the Central Bank.

UCITS and ICIS are subject to tax like any other Cyprus entity.

This implies that:

  • No capital gains on disposal of securities.
  • Interest received is taxed at the corporate tax rate of 10%.
  • No tax on dividends received (with one minor exception).
  • No withholding taxes on dividend payments from Cyprus
  • No thin capitalisation rules
  • Favorable network of tax treaties.
  • Lowest corporate tax rate in the EU (10%)

A large number of ICIS has already been set up in Cyprus and there is a large number of pending applications. Cyprus private ICIS are commonly used for:

  • Accumulation of funds and collective investments in real estate funds in Eastern European countries (or in any countries having a double tax treaty with Cyprus).
  • Fund of Funds structures (Fund that will invest in other Funds).
  • Absolute return strategies.(as the Investment Policy of Private ICIS is very flexible and does not have any restrictions).
  • Private equity funds.
  • Real Estate Funds.
  • Investment in securities (as defined in Cyprus Legislation), bonds and other financial instruments, capitalizing tax free gains.
  • Flexible investment policy in that there is no restriction as where a fund can invest other than what is contained in its Offering Memorandum.
  • Flexible regulator
  • Minimum regulation and statutory requirements
  • Domicile in an EU member state and compliance with EU laws and regulations
  • Recognition as a mature international business centre with developed infrastructure, a resilient economy and highly qualified professionals
  • Increased transparency and legitimacy with regard to shareholders, authorities and others

Our services include:

  • Preparation and advice on the content of the application to the Central Bank of Cyprus, including monitoring thereafter until recognition.
  • Provision of administrative services including nominees and office facilities.
  • Provision of administrative services to the scheme (net asset valuation, preparation of annual accounts and periodical financial reports in accordance with the laws and regulations, maintenance of registry)
  • Arrangement of the the provision of external parties services i.e. custodian, audit service.