The International Collective Investment Schemes Law, 1999 provide the required legal framework for the registration, regulation of operations and supervision of ICIS.
Object of an ICIS
The sole object of an ICIS must be the collective investment of funds of unitholders. The units issued by an ICIS must be, at the option of unitholders redeemed or repurchased directly out of the assets of the ICIS.
Unitholder
Under the Law, a unitholder is the owner of units (share, participation or interest in a scheme).
A unitholder may be:
(a) an ICIS or
(b) an international business company (“offshore enterprise”) or
(c) a person not being a permanent resident of Cyprus for the purposes of the Exchange Control Law.
Duration of ICIS
All four types of ICIS may be established with unlimited or limited duration and may be structured in such a way as the promoters may determine provided, however, that adequate protection is afforded to the unitholders.
Regulatory and supervisory authority
The Central Bank of Cyprus has been designated as the competent authority with the responsibility for the recognition, regulation and supervision of ICISs. The Bank is also the supervisory authority for the managers and trustees of ICISs.
Legal forms and types of ICISs
An ICIS can take the following legal forms:
- International fixed capital company
- International variable capital company
- International unit trust scheme, and
- International investment limited partnership
Upon application to the Central Bank of Cyprus and having regard to the investment policy and the particular investment objectives of the applicant, an ICIS may be designated as:
- an ICIS marketed to the general public or
- an ICIS marketed solely to experienced investors or
- a private ICIS
Minimum subscription
The minimum subscription by investors in ICISs which are marketed solely to experienced investors has been set by the Bank to US$50.000 or its equivalent in any other currency.
ICISs marketed to the general public and private international collective investment schemes do not need to have a minimum subscription.
Private ICISs
A private ICIS is a scheme which by its constitutional documentation, restricts the right to transfer its units and limits the number of its unitholders to one hundred. A private ICIS is prohibited from making any invitation in any part of the world to the public to purchase units in the scheme.
The Central Bank of Cyprus regards a private ICIS as a private arrangement, and therefore because it needs less regulation it is not obliged to appoint a manager or a trustee.
ICIS - fixed and variable capital companies
The Central Bank of Cyprus accepts written applications of companies which have been incorporated in the Republic, wishing to be recognised as either international fixed capital companies or as international variable capital companies (both known as international investment companies).
The share capital of an international fixed capital company cannot increase or decrease whereas the share capital of an international variable capital company may vary according to the investors participating in or exiting the company.
Directors and promoters
In order to recognise a company as an international investment company, the Central Bank of Cyprus must be satisfied that the competence and probity of its directors and promoters in respect of matters concerning international investment companies is such as to render them suitable to act as directors and promoters of the applicant company.
No appointment can be made to the office of the director of an international investment company without the prior approval of the Central Bank of Cyprus.
Appointment of manager and trustee
International investment companies are required by Law to appoint a manager and a trustee. The provisions of section 4 and 10 of the Law, include a requirement that the manager and the trustee of the ICIS, must act independently of each other and must be approved by the Bank.
However, under certain conditions, the Central Bank of Cyprus may exempt an international investment company from the requirement to appoint a manager or a trustee.
Minimum capital requirement
The minimum capital requirement (issued and fully paid-up) for an international fixed capital company is as follows:
- if designated as marketed to the public at large or to experienced investors, the minimum requirement has been set at US$100.000 or the equivalent in any other currency
- If designated as private international collective investment schemes, the latter are exempt from the requirement of having a minimum capital.
International Unit Trust Schemes
An application for the recognition of an international unit trust scheme must be submitted to the Central Bank of Cyprus by the trustee of an international trust created under the International Trust Law of Cyprus.
An International unit trust scheme must always have a manager and a trustee, which must act independently of each other and be approved by the Bank.
International Investment Limited Partnerships
An application for recognition as an international investment limited partnership must be submitted to the Central Bank of Cyprus by the general partner of a limited partnership registered in Cyprus in accordance with the Partnership and Business Names Law.
An international limited partnership, must always have a general partner, which is the manager of the ICIS.
An international investment limited partnership must appoint a trustee. However, under certain conditions, the Central Bank of Cyprus may exempt an international investment limited partnership from the requirement to appoint a trustee.
Annual and half-yearly reports
Every ICIS must prepare an annual and a half yearly report, which must be sent to the Central Bank of Cyprus and the unitholders within three months of the end of the financial year (in the case of the annual report) and within two months of the end of the half year (in the case of the half-yearly report).
Taxation of ICISs
ICISs are subject to tax like any other Cyprus entity. This translates to the following basic tax highlights:
- Taxable profits of all Cypriot companies are taxed at the rate of 10%, the lowest in the EU
- Extensive double tax treaty network leading to the avoidance of double taxation
- Cyprus’ current tax system is in full compliance with the EU and OECD
- Profits from the disposal of securities are tax exempt
- Profits earned from a permanent establishment abroad are fully exempt from corporation tax (under certain conditions)
- Dividend income received in Cyprus from a foreign corporation is wholly exempt from taxes in Cyprus (under certain conditions)
- Interest income earned from trading activities, including interest which is closely related with trading activities, is subject to income tax at 10%
- No withholding tax on dividends and interest paid to non-residents of Cyprus Also no withholding tax on royalties arising from sources outside Cyprus
- Group relief provisions for companies tax resident in Cyprus
- Capital gains are not subject to tax, except on sale of immovable property situated in Cyprus
In a nutshell, what is significant for ICIS is the:
- exemption from tax on foreign dividends received
- exemption from tax on profit from sale of securities as defined
- no withholding tax on income repatriation by the ICISs