Valsen Fiduciaries Funds

Cyprus UCITS Fund

Undertakings for Collective Investment in Transferable Securities (“UCITS”) are collective investment schemes, principally designed for retail investors, established and authorised under the harmonised European Union (“EU”) framework. The main objective of the European UCITS framework has been to create a single European market for retail investment funds and to facilitate cross-border investment fund offers for retail investors.

UCITS funds in Cyprus are governed by Law No. 78(I)/2012 (the “UCI Law”), transposing the UCITS IV Directive into national law, and are regulated by the Cyprus Securities and Exchange Commission (“CySEC”).

About Cyprus UCITS Fund

A UCITS is an undertaking:

  • The sole object of which is the collective investment of capital raised from the public in transferable securities and/or other liquid financial instruments, as such are referred to in the UCI Law;
  • Which operates on the principle of risk spreading; and
  • The units/shares of which are, at the request of the investor, redeemed or repurchased, directly or indirectly, out of this undertaking’s assets

A UCITS may act either as a Mutual Fund or as a Variable Capital Investment Company.

Mutual Funds are one of the most popular types of collective investment vehicles. The investors, instead of acting separately, combine their capital and create a common asset to invest in securities (such as equities, bonds and other market instruments) within the concept of the UCITS. The manager of the fund and the custodian of this type of the UCITS shall satisfy the criteria required by the CySEC.

A Variable Capital Investment Company is typically a public liability company with a variable capital depending on subscriptions and redemptions performed in conjunction with the valuation of the assets. Custody of the assets is normally assigned to an approved custodian. The management of the assets is carried out by the fund manager assigned by the CySEC.
UCITS are in summary permitted to invest in:

  • Transferable securities (“TS”) and money market instruments (“MMI”) which are either admitted to official listing on a stock exchange in an EU or non-EU Member State or which are dealt in on another regulated market which operates regularly and is recognised and open to the public;
  • recently issued TS which will be admitted to official listing on a stock exchange or on another regulated market (as described above) within one year of issue;
  • MMI, other than those dealt in on a regulated market provided that the issue or the issuer is itself regulated for the purpose of protecting investors and savings;
  • Units/shares of other UCITS or undertakings for collective investment (“UCI”) which are subject to prudential regulation and supervision (subject to certain conditions);
  • Deposits with eligible credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months; and
  • Financial derivative instruments (“FDIs”) dealt in on a regulated market or over the counter (“OTC”) which meet certain criteria, among which that the underlying of the derivative consists of financial indices, interest rates, foreign exchange rates, or currencies.

Cyprus UCITS Fund Legal Requirements

Requirements Description
  1. Applicable legislation
UCITS law 220 (I) 2004
  1. Supervising Authority
Cyprus Securities and Exchange Commission
  1. Corporate vehicle permitted

Cyprus Company

Trust

PCC (Protected Cell Company)

LP (Limited Partnership)

  1. Capital Requirement

CF – EUR 200.000

VCIC- 200.000. If self-managed EUR 300.000

  1. Directors / Partners / Trustees
    • Minimum number
2
    • Corporate Directors / Partners / Trustees allowed
Yes
    • Local Directors / Partners / Trustees required
No
  1. Fund functionaries required
    • Custodian
      • Custodian required
Yes
      • Local custodian required
No
    • Fund manager / Investment manager
      • Fund manager required
Yes
      • Local fund manager required
No
      • Fund manager requires to be licensed
Yes
      • Eligible fund manager
Any licensed fund manager worldwide
    • Fund administrator
      • Fund administrator required
Yes
      • Local fund administrator required
Yes
      • Eligible fund administrator
Approved Foreign Administrator
    • External auditor
      • External auditor required
No
      • Local external auditor required
Yes
      • Eligible external auditor
Qualified local auditor
  1. Asset Requirements
 
    • Restriction on type of asset class invested
None
    • Asset diversification requirements
None
    • Limitation on size of the fund or total assets under management
None
  1. Local physical office required
No
  1. Prospectus / Offering Memorandum required to be filed
Yes
  1. Eligible for listing
Yes
  1. License fees
    • License application fee
USD 1,800
    • Annual license fee
USD 1,800
  1. Estimated license processing duration
2 months

Ongoing Obligations

Requirements Description
Monthly obligations
Yes
Quarterly obligations
Yes
Annual obligations
Submit annual audited accounts to CySec within 4 months of the financial year end.
Other obligations

Notify CySec within 14 days of any of the following changes:

Change in the registered office address

Change of its agent in Cyprus

Change in name or address of-

  • each director of the fund, if the fund is a company
  • each trustee of the fund, if the fund is a trust
  • each general partner of the fund, if the fund is a limited partnership.

Appointment, resignation or removal of a Director or officer

Tax Obligations and Other Exemptions
Requirements Description
Business Tax
0% of Net Profit
Withholding Tax
No withholding tax is payable on dividends and/or interest payable.
Value Added Tax (VAT)
VAT is not applicable to mutual funds in its entirety.
Stamp duty Act
None
Trades Tax Act
None
Immovable Property Transfer Restriction Act
None
Immigration Decree
None
Exchange Control Act
None
Foreign Earnings Act
None

Taxation of local UCITS in Cyprus

UCITS are subject to tax like any other entity. This translates to the following basic highlights:

  • Unified corporate rate of 10% for both international and local business enterprises.
  • Adoption of the residency basis rather than source basis as the criteria of taxation.
  • Exemption of profits from the disposal of securities
  • Dividend income is exempt in most cases
  • No withholding tax on payments of dividend, interest and royalties to non-residents
  • Capital gains realized on immovable property held outside Cyprus are outside the scope of capital gains tax

In a nutshell, what is significant for UCITS is:

  1. Exemption from tax on foreign dividends
  2. Exemption from tax on profit from sale of securities
  3. No withholding tax on income repatriation by UCITS

UCITS has Tax exemption on:

  • Dividends received
  • Profits from the disposal of securities
  • Capital gains from the disposal of property outside Cyprus
  • Capital gains from the disposal of shares of foreign property companies
  • Tax not withheld for non-tax resident investor distributions
  • No subscription tax on the Net Assets of the Fund

Benefits of a Cyprus UCITS Fund:

  • Cost effective fee structure, high calibre service providers, and efficient tax framework
  • An extensive network of double tax treaties, giving significant possibilities for international tax planning through the island
  • Rigorous anti-money laundering regulations complying with EU Directives