International collective investment scheme

foreign_currency_loans1. Introduction

The long history of Cyprus indicates that its strategic geographic location had a central role in rendering it an important commercial centre. More recently, Cyprus’ European Union membership, as well as its favourable tax and legal regime, its surprisingly wide network of double taxation treaties and the high level of professional services have made Cyprus one of the most attractive financial destinations in Europe and Worldwide. Among many other economic sectors which benefit from its business friendly jurisdiction, Cyprus achieved to attract International Collective Investment Schemes (ICIS). The main objective of the ICIS is to promote ‘merging’ of different unit holders’ assets and the collective investment of these assets, within Europe or abroad, with the purpose to achieve considerably high returns on the one and risk-spreading on the other.


Establishing a stable legal framework, which provides investors certainty and flexibility, in May 1999 Cyprus adopted a codified Law governing ICIS.  The International Collective Investment Schemes Law 47(1)/1999 intended to regulate the functioning on the schemes and to ensure the highest possible protection for the investors.


An ICIS can take one of the following legal forms:

  • International Fixed Capital Company
  • International Variable Capital Company
  • International Unit Trust Scheme
  • International Investment Limited Partnership


Moreover, all of the above legal forms enjoy the option to be established with either limited or unlimited duration and can vary in respect of the target group they attract. Depending on the promoter’s determination, an ICIS may be established as private. On the other hand, it may be addressed to the general public or exclusively to experienced investors. The flexibility in designing the type of ICIS guarantees that the Scheme is established solely for the best interest of the unit holders and exactly as desirable from the promoters.

2. Types of ICIS

2.1. International Investment Companies (Fixed or Variable Capital)

The first two legal forms of ICIS regard International Investment Companies. In both options the company’s assets and unit holders are not residents of Cyprus. While in the first option the share capital of the company cannot increase or decrease, the second option provides the flexibility of having variable capital which increase and decrease according to the entries and exits of investors into the company. Thus, an ICIS which consist of International Investment Company with variable capital benefits from not been subject to a minimum capital requirement. In contrast, an International Investment Company with fixed capital must fulfil the minimum capital criterion established by the Central Bank. The above criterion applies identically to ICIS marketed to the public or to experienced investors but it does not apply to privates ICIS which enjoy no minimum capital requirement. As a result of the above exemption, and since ‘private’ cannot be interpreted objectively, the law places a restriction akin to which only schemes with 100 investors or less to be approved as private. A Private ICIS is the most common type of scheme currently used by most promoters in Cyprus, the reason being that it can benefit from a number of exemptions in regards to administrative and compliance requirements.

2.2. International Unit Trusts

The Trusts’ central idea lies on the fact that the legal owner of the trust assets holds the assets’ legal title for the benefit of the beneficial owners, in accordance to the instructions of the settlor, as indicated in the trust agreement, and for the best interest of the unit holders. The main advantage of establishing a Trust Scheme is that Cyprus provides a legal framework which ensures the protection of the assets and guarantees the desirable confidentiality. Confidentiality is achieved through the duty of the Central Bank of Cyprus and other involved parties not to disclose any detail of the Trusts to anyone except in case a Cypriot Court order so. Assets protection is achieved because the trustee can be found liable to the unit holders for any losses suffered as a result of the improper performance of his duties and renders it very difficult for a third party to invalidate the trust.


Trusts established in Cyprus for the purposes of ICIS are defined as International Trusts and they are governed by the International Trust Law. According to s.2 of the Law, the settlor and the beneficiaries of the Trust must not be permanent residents of Cyprus while at least one of the trustees must be permanent resident. In addition, immovable properties in the territory of the Republic of Cyprus cannot be included in the Trust fund.


In the situation of establishing an International Unit Trust Scheme for Collective Investments the Trustee can be a bank or any person, other than a bank, which provide trustee services, or even a subsidiary of any of the above. In any of the above options the trustee must be considered by the Competent Authority as fulfilling the requirements set by the Law and mainly needs to be found to exercise sufficient banking supervision in its jurisdiction. Cyprus is in position to offer exceptional quality Trustee Services provided by experienced law firms, banks’ departments, trustee services companies and accountants.

2.3. International Investment Limited Partnerships

Limited Partnerships registered under the Partnership and Business Names Law of the Republic of Cyprus can suffice as International Investment Limited Partnerships. Similarly to ordinary Limited Liability Partnerships, the partners enjoy limited liability which is equal to the amount they contributed to the capital of the Scheme. A general partner is appointed, either a natural person or a legal entity, which is the only person empowered to represent the partnership and responsible for the Schemes obligations and debts. The code of conduct and the obligations of the general partner are indicated by the law and they are similar to those of the Trustee in the Trust Scheme.

3. Taxation

Beyond any doubt, the most attractive factor for establishing International Collective Investment Schemes in Cyprus consist of the tax incentives which, during the last years, became even more advantageous for the prospective investors.

3.1. Fund Taxation

Generally the net income of the fund is subject to 10% flat corporate taxation. Dividend income, profits from sale of shares and other financial instruments and fair value gains are exempt from taxation. There is no withholding tax in Cyprus on any payments of dividends or interest abroad, irrespective of whether there is a double tax treaty or not with the country involved.

3.2. Investor Taxation

Dividend distributions in respect of registered ICISs are taxed at 3% only applicable to Cyprus tax resident unit holders. Thus dividends paid to non Cyprus residents are totally exempt. Additionally, the redemption of units in ICIS is considered as disposal of securities, subject to the provisions of the latest Law amendments are exempt.

3.3. Double Taxation Treaties (DTT)

The double taxation treaties signed between Cyprus and other countries encourage the establishment of Cyprus registered ICIS. Since such treaties ensure the transfer of funds between the contracting countries with very low or even no further taxation, cheap or tax free repatriation of funds is ensured. Moreover, the fact that Cyprus retains double taxation treaties with non-European Union countries gives the opportunity to the citizens of these countries to invest in Europe through Cyprus ICIS and be treated as they were Europeans.


4. Conclusions

Concluding the present brief presentation of Cyprus registered ICIS, it will be useful to summarise the key factors which render Cyprus an attractive ICIS hosting state and constitute a safe environment for prospective investors.


Firstly, the promoters are able to select the legal form that better feeds to their needs, choosing from a wide choice of vehicles that can be used to establish the Scheme. In addition, the establishment and the operation of the Scheme is supervised and regulated from the Central Bank of Cyprus or from the Cyprus Securities and Exchange Commission (depending on the type of the scheme), which aims to ensure that all the involved parties meet the requirements set in the Law and that unit holders’ assets are dealt with reasonable care, transparency as for the incomes and confidence as for the promoters, unit holders and beneficiaries.


The common law based legal System of Cyprus in combination with the exceptional piece of Legislation governing Cyprus registered ICIS and compatibility with EU ICIS law provide certain, stable, safe and predictable legal environment for the unit holders. The high level of professional services offered from Cyprus firms in reasonably low costs is another reason for preferring Cyprus instead of any other EU jurisdiction.


The above findings along with the low corporate tax, the exemption of ICIS from the majority of taxation, the tax benefits of investors in an ICIS and the wide network of double taxation treaties undoubtedly render Cyprus an ideal financial centre for the establishment of International Collective Investment Schemes.