Collective Investment Schemes in Cyprus

Collective Investment Schemes in Cyprus

What are the Collective Investment Schemes A Collective Investment Scheme or a Fund as more commonly known can be defined as a pool of assets that invests collectively to give access to professional and experienced management to investors using economies of scale. 2

Cyprus Legislation Undertaking for Collective Investment Schemes in Transferable Securities (UCITS) Legislation International Collective Investment Schemes (ICIS) legislation-n 47(1)/1999

ICIS Legislation Introduced in 1999 Its original purpose was the creation of international collective investment schemes in Cyprus whether: Retail investors Experienced investors Private investors (maximum number of 100) The Central Bank of Cyprus has been designated as the competent authority with the responsibility for the recognition, regulation and supervision of such schemes. After the introduction of the UCITS Legislation which addresses Retail funds the Central Bank decided that it will accept only applications for private investors funds thus reducing the scope of this legislation.

ICIS Legislation Objects The Objects of an ICIS must be the collective investments of funds of unit holders. Unitholders / Investors A unit holder is the owner of units in a fund and may be : An ICIS A Corporate Entity A Physical Person

Legal Forms of a Private Fund Variable Capital Company (open end investment fund) Company incorporated under the Cyprus Companies Law Cap. 113 which is recognized to operate as an international variable capital company under the ICIS Law. Investors can redeem or subscribe at any time Units can be traded at their Net Asset Values Fixed Capital Company (closed end investment fund) Company incorporated under the Cyprus Companies Law Cap. 113 which is recognized to operate as an international fixed capital company under the ICIS Law Investors can not redeem or subscribe at any time issue of specific number of units Unit Trust Scheme (created under the Cyprus International trust law) Investment Partnership

Private Funds Main Characteristics Restrict the right to transfer its units.(subject to M&AA) Limits the number of unit holders to 100; not allowed to make invitation to the public to purchase units. Prohibited from issuing bearer units Not obliged to appoint manager or a trustee provided the Central bank is satisfied that the directors have the knowledge and experience Central Bank policy to request for custodian Subscription requirements By law there are no minimum subscription requirements. Nevertheless, the Central Bank has adopted a policy for minimum subscription for private funds of EUR 50.000.

Private Funds Directors Two executive directors qualifying to the Fit and proper test In determining whether a person is fit and proper, the Central bank takes into account relevant education and professional qualifications, experience, reputation and capital resources available to it. No appointment to the office of Director of a private fund without the prior approval of the Central Bank. Nominee Directors NOT accepted. 8

Private Funds Managers The Managers of the private funds are responsible for managing the investments as per the constitutional documents and applicable legislation The Central Bank may exempt a private fund from the appointment of a Manager provided the Directors satisfy the Bank on a continuous basis that they have sufficient management resources at their disposal to effectively conduct the business of the fund with due and proper regards for the protection of the interests of the investors. A Manager can be a physical person, in which case the Central Bank in practice requests that such person is also a director of the fund. A Manager can also be a company, in which case it must be a licensed investment company. 9

Private Funds Custodian A Private fund must appoint a licensed and well recognised bank acting as a custodian undertaking the following: Safe keeping of the assets and titles of the fund Responsible for checking compliance with investment objects of the fund Opening of bank accounts and undertaking the transfers of the money by the investors to the fund 10

Private Funds Administrator A private fund must appoint an administrator responsible for the following: Maintaining bookkeeping of the fund Preparation of the Net Asset Value calculations Communication with the Manager for information A Bank, an Investment Firm or a company with expertise and qualified staff can act as an Administrator 11

ICIS Legislation Procedure for registration

Application and Registration of an ICIS private fund in Cyprus Preliminary Application Form Completion and Filing of a Standard Application Form signed by two Directors or two duly authorized persons Documents accompanying the Application Form: Personal Questionnaire for natural persons that are Directors, promoters and controlling shareholders (also required for any persons involved in the asset management of the Fund) Personal Questionnaire for legal persons that are Directors, promoters and controlling shareholders Copy of the Memorandum and Articles of Association The Draft Offering Memorandum of the Fund Questionnaires signed by the Manager Copies of any material contracts Application fee of $500

Application and Registration of an ICIS private fund in Cyprus With final approval of Central Bank company becomes an ICIS Usually raises money through an initial subscription period The fund is recorded in the Register of funds kept by the Central bank and issues a relevant certificate of recognition.

Tax treatment of Funds in Cyprus Private funds in the form of a company are taxed likewise. No taxation on dividends received from abroad by the fund. Interest income received by the funds is now taxed only under corporation tax (i.e. 10%) which means that with proper tax planning the effective taxation can be considerably lower Units of funds are now considered as titles and therefore any profit made from their sale is exempt from any taxation.

Why Funds in Cyprus Our key competitive advantage Favourable tax regime Not included in any grey lists Lower costs of setting up a fund when comparing to other jurisdictions like Luxembourg and Ireland Lower fund administration and custodian service fees Trained personnel Developed legal and accountancy system Reliable and developed banking system Competent authority open to meetings and discussions with potential investors

Our Services: Kinanis LLC can assist in the registration and establishment of: Cyprus Collective Investment schemes Cyprus Financial Services companies For further information kindly contact our office corporate@kinanis.com 17

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