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enhances the suite of type of funds that can be established in Cyprus. Furthermore, the new AIF law regulates the minimum share capital requirement that is now only required for self-managed vehicles, irrespective of the category of the AIF. There are also revised requirements imposed on AIFs with limited number of persons to avail of the depositary exception, as well as a requirement for an internal regulatory compliance function for AIFs with unlimited number of persons. Also, for AIFs with limited number of persons, the maximum number of investors is reduced to 50 from 75 and lookthrough provisions are introduced. A number of tax changes have also been introduced. For example, no permanent establishment is created by investors for their investments in common funds and partnerships established in Cyprus. As a result, the income of investors acquired from such investments is taxable only in their tax residence country.
Under new provisions introduced in the Special Contribution for the Defence Law, Cypriot tax resident and domiciled individual investors will be subject to deemed dividend distribution at the rate of 17% instead of 3% previously applicable. This amendment has no effect on investors (individuals or companies) that are neither Cypriot tax residents nor domiciled in Cyprus, as such investors are completely exempt from this provision. This applies for funds that are set up in a legal entity form and does not apply for common funds or partnerships. A key incentive is also introduced through a special method of taxation of the variable remuneration of the executives of a Fund Manager (when remuneration varies in accordance with the profitability of the fund), providing for a flat tax rate at 8% and a minimum payable tax amount of â‚Ź10,000 per year. As expected, anti-avoidance provisions are in place. In order for the favorable rate to be applied on such variable remuneration, the net asset value of the fund should exceed
the amount of the initial investment by the unitholders. The purpose of this additional incentive is to attract and host experienced and prominent fund managers in Cyprus. Future perspective in the Funds sector The enactment of these new and revised laws creates a new momentum for the fund management sector in Cyprus. Undoubtedly, these laws serve in further establishing Cyprus as a reliable, efficient and attractive funds jurisdiction. At the same time, the competitiveness of the Cypriot economy increases, with numerous benefits from this industry. For example, new employment opportunities are created for staffing the newly set up funds and fund management entities created and increased taxation contributes to public finances. Generally, the establishment in Cyprus of international firms which are active in this industry increases the confidence in the country and this specific sector.
