By Shavasb Bohdjalian
Cyprus has taken the lead in attracting Polish investment funds that are eager to take advantage of the recent change in Polish tax law, which allows EU Funds the same privileges as those enjoyed by Polish domestic investment funds.
Under the Polish domestic rules, Polish investment funds are subject to a special Capital Income Tax (CIT) allowing them full exemption from income tax. As a consequence, the funds covered by the Polish domestic regulations are subject to, but fully exempt from income tax in Poland.
As of January 2011, the CIT exemption has been extended to funds from the EU, with Cyprus taking the lead in attracting most of Polish interest because of the flexibility that Cyprus offers in addition to the tax advantages.
Being an OECD signatory, Cyprus is not considered a tax haven since all funds are subject to 10% tax on net profits. The fact that there exists a legal basis for exchange of tax information between relevant tax authorities, arising from a double taxation agreement to which Poland is a party also helps make Cyprus a more appealing place compared to Malta, which is now initiating a DTT with Poland.
The most popular form of Cyprus Funds is the variable capital International Collective Investment Schemes (ICIS), which have the unique advantage of providing an EU framework combined with all the tax advantages.
The original shareholders have the added advantage of subscribing to voting shares, while offering non-voting shares to new investors. The only limitation of an ICIS is that it can only raise money from up to 100 investors. Once it passes the 100 mark, then it is treated like a public fund and has to go through a different registration and management process.
At the moment, the supervision and regulation of ICIS is done by the Central Bank of Cyprus, while in other EU countries, the task is undertaken by the equivalent of the Cyprus Securities & Exchange Commission in member states.
An ICIS is extremely advantageous since there is no restriction on how much money can be raised or in what type or types of assets the money will be invested, provided that the objectives of the funds are clearly stated in the Offering Memorandum (OM), submitted to the Central Bank of Cyprus through which the ICIS raises money from investors.
The OM will also clearly state how an ICIS accepts money (on monthly, quarterly, semi-annually and so on) and under what terms and conditions investors may exit out of the fund, offering a lot of flexibility for the company.
An ICIS however offers a lot of protection to investors. All the assets are placed under a reputable Custodian Bank, based in Cyprus or abroad, which holds the assets on behalf of all investors. This means the promoter cannot run away with the assets or do as he pleases. All ICIS should also have an independent Administrator, based in Cyprus, which will calculate the Net Asset Value of the ICIS on which shares/units will be purchased and sold and it will also issue/redeem the units.
A regulated firm, with portfolio management license (such as Eurivex) also acts as the overall fund manager to make sure that the actual investments are made according to Board of Directors decisions and defined in OM, that the ICIS operates in full compliance with MiFID rules and make sure that the promoters accept money from investors by following the EU Know-Your-Customer (KYC) and Anti-Money Laundering (AML) rules. This means the only risk undertaken by investors is the actual risk of investment whereas in all other respects they are fully protected.
Eurivex has teamed up with professional firms and custodian banks to offer the most competitive package deals for the setting up and management of Cyprus Investment Funds.
(Shavasb Bohdjalian is an approved Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by Cyprus Securities & Exchange Commission (CySEC) license #114/10. The views expressed above are personal and do not bind the company and are subject to change without notice.)
