AMINEWS FLASH
MAY, 2012
 
 
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Cyprus Regulated Investment Funds: Introducing the Private ICIS
 
CYPRUS: An Emerging Financial Services Center within the European Union
 
Over the last twenty years, Cyprus has gradually enacted legislation and established institutions favorable to regulated investment funds and investment companies. Today, Cyprus is an attractive alternative to the traditionally established and mature fund centers of the European Union.

The country’s legal and financial system supports Cyprus investment firms (CIFs), UCITS (undertakings for collective investment in transferable securities) types of funds, and mutual funds, all of which are regulated by the Cyprus Securities and Exchange Commission (CySEC). But by far, the most attractive feature Cyprus offers is the private ICIS (international collective investment scheme) fund.

The appeal of Cyprus has not passed unnoticed and a growing number of industry household names particularly from the UK, the CEE and Russia, choose to structure their operations through Cyprus established CIFs and funds.
 
International Collective Investment Scheme (ICIS)
 
The Cyprus ICIS is governed by ICIS Law 47 (I) /1999 and is regulated by either the Central Bank of Cyprus (CBC) or by CySec, depending on the category of investors in the fund. The purpose of an ICIS is the collective investment of funds injected in such schemes by the investors, otherwise known as unit holders.

The private ICIS, which will be examined below in detail, is not constrained by any minimum capital requirements or by any investment policy restrictions, and is currently regulated and supervised by the CBC. Whilst regulatory supervision renders credibility and safeguards investor interests in the fund, such supervision is appropriately, for a private arrangement, pragmatic, flexible and light.

The above, along with Cyprus’s beneficial taxation system as well as its highly developed and competitive banking, financial and professional services industry, significantly reduces the complexity of managing the funds as well as the financial burden of fund maintenance and compliance.
 
Specific Situations Where a Private ICIS Can Be Used
 


The private ICIS is particularly suitable for investments in:
  • Treaty countries and high-growth markets such as Russia, Ukraine, other CIS, and India;
  • High tax/mature market EU member states, and
  • Poland, the Czech Republic, Slovakia, Slovenia, and other CEE and Balkan region countries
Private ICIS Funds – Legal Considerations
 
For a fund to be classified as “private” its constitutional documentation must include all of the following:
  • A restriction to the right to transfer shares/units;
  • A limit on the number of investors to 100;
  • A prohibition to invite the public to subscribe for units in the scheme, and
  • A prohibition to issue bearer shares.
A private ICIS can be established with limited or unlimited duration and may take the legal form of an international investment limited partnership (IILP), an international unit trust scheme (IUTS), an international fixed capital (IFC) company or an international variable capital (IVC) company, the latter being the most commonly used legal form for a private ICIS.
 
The international variable capital company:
  • is formed under the Companies Law and recognized to operate as such in accordance with the ICIS Law, and
  • its share capital may vary according to the investors participating and may be divided into a specified number of shares with or without assigning any nominal par value thereto.
A private ICIS taking the form of an international variable capital company is in effect an open-ended type of fund in which the issue and redemption price of the share capital of the company shall at any given point in time equal the fund’s net asset value, directly reflecting therefore, fund performance.
 
Private ICIS Funds – Taxation Considerations
 
ICIS funds in general, as well as private ICISs structured as an IFC or as an IVC in particular, are treated from a taxation perspective as any other Cyprus tax resident entity. IILPs and IUTSs, on the other hand, are tax transparent entities, the tax liabilities resting on the partners and trustees, respectively. All can make use of the regime’s attractive provisions, summarized below:
  • Lowest corporation tax in the EU, at a flat rate of 10%;
  • No taxation on value appreciation gains or on realized gains on disposal of titles and securities;
  • Participation exemption for dividend income from investee companies;
  • Interest income earned from an ICIS is classified as active income and thus can make use of allowable tax deductions;
  • No inheritance, estate or wealth taxes to investors during the life of, or on exit from, the investment;
  • No withholding tax on any type of payment or distribution by the fund to its investors;
  • No substance, CFC or debt-to-equity/thin capitalization rules;
  • Access to the wide and ever-expanding network of double taxation avoidance agreements in force between Cyprus and more than 45 countries worldwide.
Why a Private ICIS
 
Ownership flexibility:
No restrictions whatsoever are imposed on ownership, whether relating to nationality, tax residency, legal status or size of individual holding of the unit holders, apart from the number, which is restricted to 100 investors. Also, no minimum capitalization requirements are imposed, nor any restrictions on the usage of leverage.

Particularly suitable in cases of a small number of investors (which the sponsor can attract to subscribe without needing to actively market to the public, thus avoiding heavy regulatory burden and associated costs), as well as in cases where the investors (for instance, close family members or high net worth individuals) come together, without the assistance of a promoter, in a private arrangement in which the services of an investment manager will nevertheless be employed and thus regulatory supervision is required to instill confidence in fund operations.

Structuring flexibility:
It can be used effectively within various fund-structuring solutions including single strategy, umbrella, master feeder, fund of funds, closed and open-end, multi-class, investment companies, partnerships and unit trusts.

Investment flexibility:
No investment restrictions apply and therefore a variety of traditional or alternative investment strategies can be employed by the funds, which can be set up to operate as derivative, equity, bond, arbitrage, emerging market, index, guaranteed, structured, currency, global macro, single country or regional, venture capital, long/short managed futures, private equity, real estate, CDOs, CMOs, CFDs and event-driven funds, or a combination thereof.

Exit strategy flexibility:
No restrictions or obligations on dividend policies are imposed. The flexibility on ownership and the advantages presented by the applicable taxation system allow for fully tax efficient profit extraction and exit strategies that satisfy individual investor requirements.
 
How Amicorp Can Assist
 
Amicorp Cyprus, in cooperation with Amicorp Funds Services, Amicorp Group’s dedicated funds division and an active fund administrator since 1995, assists with identifying the appropriate fund structure and vehicle to suit specific circumstances applicable, such as fund economic drivers, investment strategies, securities regulations, target investor preferences and taxation concerns.

Once all parameters have been identified and considered, Amicorp assumes, in cooperation with globally recognized professional intermediaries, fund structure implementation and ongoing maintenance on a fully integrated turnkey basis, ensuring peace of mind for investors and managers alike. Our comprehensive service includes the following:
 
Fund Setup
  • Advice on and incorporation of the fund vehicle;
  • Obtaining the required licenses;
  • Drafting the offering document according to the investment manager’s objectives and strategy;
  • Drafting the investment management agreement;
  • Opening the fund’s broker account(s) and, where applicable, overseas bank accounts;
  • Acting as liaison with legal counsel and auditors, where applicable.
Fund Administration
  • Fund Accounting Services, including net asset value, management and performance fee calculations, full bookkeeping and financial report preparation, interim and annual financial statement preparation and audit function coordination.
  • Investor, Registrar and Transfer Agency Services, including full AML and KYC compliance review in conformity with applicable legislation and requirements, processing subscriptions, redemptions, transfers and switches, maintaining share register and partnership accounts on an investor-by-investor and investment-by-investment basis, disseminating holding and NAV reports and distributing general fund or investor-related information, and responding to queries from investors, investment managers, auditors, and other third parties. Amicorp is an approved transfer agent for Euroclear / FundSettle.
  • Legal and Corporate Management Services, including provision of corporate and personal directors, registered office address and domiciliation, maintaining principal corporate records and appropriate registers, preparing and executing board resolutions, organizing shareholders meetings as required by the investment manager or local legislation, and reporting to local authorities and regulators.
 
For further information and assistance with Cyprus ICIS funds, contact your nearest Amicorp office or Amicorp Cyprus directly.
 
 
For more information contact:
manager   Apollon Athanasiades
Amicorp Cyprus
Email
 
  Stephanie Jeronymides
Amicorp Cyprus
Email
 
 
 
 
 
 
 
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