Monday, 14 February 2011 11:22

Tax treatment of Collective Investment Schemes in Cyprus - 14/2/2011

Cyprus has become one of the most important jurisdictions for the creation of Collective Investment Schemes (e.g. Mutual funds, UCITS and ICIS),preferred by both institutional and private investors because of its attractive legal and tax framework governing their operations.

The legal framework is harmonized with all European Union Directives concerning the operations of Collective Investment Schemes and we will revisit it in more detail in a later article.

 Taxation of Schemes’ unit/share holders

Units in Collective Investment Schemes registered in Cyprus are considered to be securities (‘titles’) and therefore there is no tax imposed in trading,distributing or disposing them. Furthermore, there is no withholding tax on the Schemes’ distribution of profits to non
-resident unit holders.

Taxation of Schemes as legal entities

Profit from trading, distribution and sale of the Scheme’s investments in securities are tax exempt (common and preferred shares, bonds, securities,options on securities, short positions in securities futures on bonds, swaps onsecurities, receipts custodian of securities, rights claims on bonds and securities, investments in securities indices only if it results in securities,agreements repurchase of securities, shares in other collective investment schemes on open or closed types and others).

Dividend income from other resident Schemes and companies is also tax exempt. Dividends from non-resident entities is tax free, provided that some minimum conditions are met.

Interest income of a Scheme is subject to tax 10% (after deduction of expenses and credit for taxes paid on this income abroad).

To conclude, it may be possible with the right tax planning that the total profits from investments made by a Cyprus College Investment Plan to be completely tax free.

Advance rulings

Upon request, Cyprus tax authorities issue advance rulings about any tax issue. So far a range of rulings have been issued in relation to tax matters of Collective Investment Schemes, which can be utilized to assist in the tax planning of such a project.

For questions, comments and selection of topics that might interest youplease contact the author of the column:

Charilaos Hadjiioannou, BSc, ACA