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In order to form a Private Fund a written application must be submitted to the Central Bank accompanied by drafts of the Constitutional documents and the Offering Memorandum.
The key taxation aspects applicable to an ICIS are as follows:
Dividend income received from foreign corporations is exempt from Cypriot taxation provided that the easily met dividend participation exemption rules are satisfied
Gains from the disposal of titles are exempt from all taxes. Titles are described as shares, bonds, debentures and similar titles as well as rights thereon (options, futures etc)
Interest income earned by a CIS is subject only to income tax, less any allowable expenses, at the income tax rate of 12,5%
No withholding tax is imposed on dividend and interest payments made to non-Cypriot tax resident recipients as per the Cypriot local tax legislation
Withholding taxes suffered abroad can be claimed as a credit by Cypriot tax resident companies, including ICISs’, over income recognised in Cyprus subject to the extensive network of double taxation treaties that Cyprus has, the EU Directives and the local legislation
For fund managers who want to take tax residence in Cyprus, the following provisions may be of interest which are applicable for Cypriot tax resident unit holders:
• Redemption or buy-back of units or other interest in closed-ended or open-ended Cypriot ICISs is not subject to special defence contribution, since it does not constitute capital reduction. It is considered as disposal of titles, which is exempt from Cypriot taxation, thus redemption proceeds are tax exempt; and
• The special defence contribution rate for the so-called ‘deemed dividend distribution’ is 3% only instead of the regular 15%