Cyprus Funds - Applicable Taxes (Company and Investors) Share Written By Standard Admin Tags AIFMcifscost set upCyprusCyprus Fundscyseccysec icaraEU fundsfund management#fund taxationfund taxation europefundsfxsicara cysec requirementsinternalinternal auditllimassolluxembourgpayment institutionsRAIFregulatedregulated entitiesset up fund in cyprustaxation 2023-04-06 Cyprus being a very attractive jurisdiction for funds and regulated entities (CIFs, RAIFs, AIFs, AIFMs, FX) not only due to its great geographical location and EU membership since 2008 but also due to it the low cost of servicing and supporting these regulated entities. Coupled with a plethora of strong tax advantages (we summarise them below) Cyprus is now on the international regulated entity formation map and captures a significant piece of the pie. Want to know more about Cyprus Funds and Investment firms? Read our articles here Fund structure charecteristics We summarise below the most important aspects of taxation affecting Cyprus Funds, Investment Firms, and where applicable Managers. Fund Taxation – the Fund and its compartments (if applicable) No capital gains on disposal of securities / titles or fund units No capital gains tax on the disposal of Cyprus or overseas properties sold No thin capitalisation rules. Notional Interest Deduction (NID) reducing effective interest tax – this applies to new equity introduced by the shareholder. Dividends Received are Tax Free (subject to anti-avoidance provisions*) No withholding taxes from Cyprus (dividends paid out) Company / fund Cyprus Corporation Tax 12.5%. Other types of income Royalty Income – subject to 2.25% Royalty Income Tax if the Fund applies for such treatment. Alternatively, it is subject to Cyprus Corporation Tax of 12,5%. Rental Income – subject to Corporation Tax 12.5% and Special Defense Tax 17% Interest received – usually taxed at Corporation Tax level 12.5%. Foreign exchange gains / losses – tax neutral Profits from permanent establishment abroad – tax free subject to anti-avoidance rules *2 Other matters More than 65 double tax treaties. No VAT applies. Compartments - Each compartment is taxed as a separate legal vehicle. Stump duty – does not apply on the acquisition (called subscription) or sale (called redemption) of units. Permanent Establishment Creation – investment in a regulated, transparent fund does not constitute a permanent establishment in Cyprus. Anti- Avoidance Provisions: *1 – Dividends Received Tax Deductible on Paid Dividends If dividends received by a Cyprus entity are deductible for tax purposes from the paying company then these dividends will be subject to Cyprus Corporation Tax (but not special defence tax). In other words, the tax benefit can not be claimed twice; initially by the paying company and then by the recipient company. Special Defence Tax May apply on Dividend Income if: more than 50% of the foreign paying company’s activities directly or indirectly result in investment income, and the foreign tax is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25%). *2 Permanent Establishment Profits received by the fund’s permanents establishment will be tax free only if the below anti avoidance rules apply: more than 50% of the foreign PE’s activities directly or indirectly result in investment income, and the foreign tax on the income of the foreign PE is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25%). Investors Tax Internationals & Non-Domiciled persons When an investor redeems (cashes out) its units (funds have no shares): Actual redemption of the units is tax free. Fund dividends paid out to investors are tax free. Payments other than the above to the investors – no withholding tax applies. Local Cypriot Investors Local Cypriot investors who are Cyprus tax resident will be taxed as follows: When a Cypriot investor redeems (cashes out) its units (funds have no shares): Actual redemption of the units is tax free. Fund dividends paid out to investors are subject to Special Defence Tax and NHS. Payments other than the above to the investors – no withholding tax applies.