Investment firms are regulated by the Cyprus Securities and Exchange Commission (CySEC), under the CIFs and Investments Firms Law.
Certain activities and services are regulated and can only be provided if a license is obtained. The term “investment firm” includes, amongst others, portfolio managers, broker companies, investment advisers, forex trading companies and binary options trading companies, which all fall under the definition of CIFs are regulated by CySEC.
For CySEC to grant CIF authorisation, a formal application procedure needs to be followed, and certain requirements must be met, the most important of which are stated below.
The minimum capital requirement for a CIF depends on the type of services offered:
- A CIF that holds clients’ money, and/or clients’ financial instruments, and provides one or more of the following investment services:
- The reception and transmission of orders in relation to financial instruments;
- The execution of orders on behalf of clients;
- Portfolio management;
- Provision of investment advice; must have an initial capital of at least €200.000.
- A CIF that provides the investment services stated in subsection (I) and (IV) above, and does not hold clients’ money and/or clients’ financial instruments, and as a result may not at any time place themselves in debt to their clients, may have an initial capital of €80.000, or at least €40.000, and professional indemnity insurance covering all EU member states, or some other comparable guarantee against liability arising from professional negligence, providing at least €1.000.000, for a single claim, and on aggregate, at least €1.500.000 per annum for all claims.
- A CIF that provides one or more of the following investment services and/or performs the following investment activities:
- Dealing on own account;
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
- Placing of financial instruments without a firm commitment basis; shall have an initial capital of at least €1.000.000
- When applying for a license, a firm must provide, amongst other documents, a business plan, an operations manual (which should include the Anti-Money Laundering Procedures,) completed questionnaires from the members of the board, managers and shareholders.
- The Board of Directors of the CIF shall consist of at least two executive members and two independent non-executive members. The majority of the members shall be Cyprus residents.
Our law firm has experience of setting up a Cyprus Investment Firm. We assist our customers with the preparation of the special memorandum and articles of the company. We apply to the Registrar of Companies, firstly for approval of the company’s name, then for registration of the company, and then the CySEC application is prepared after collecting all necessary information from the shareholders. After examination and resolution of any issues, CySEC authorises the CIF and grants it a licence. The above procedure, from commencement to final approval by CySEC can be completed in about 5-6 months.
Taxes in Cyprus
- Profits from CIF’s activities
Corporation tax on net profit is 12,5%. However, gains from the sale of titles, and, in most cases, dividends received are exempt from tax.
There is no withholding tax on dividend, interest and royalties paid to non-residents.
2. Capital Gains
Capital gains are not taxable in Cyprus except for the 20% tax on gains on immoveable property that is located in Cyprus, and on any gain from the sale of shares in companies that own immoveable property in Cyprus. All other gains of a capital nature are not taxable.
Value Added Tax issues can be very complex for a CIF, due to the fact that some of the services offered by the CIF could be taxable, and others exempt. We will be happy to provide advice on all VAT issues.