Corporate Taxation: Cyprus offers a favorable tax regime for investment funds and fund managers. The standard corporate tax rate is 12.5%, one of the lowest in the EU, applying to income derived from fund activities such as investment returns and fees. Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS), which are popular fund structures in Cyprus, benefit from even more advantageous tax treatment. For example, AIFs and UCITS are generally exempt from capital gains tax on the sale of securities and from tax on dividend income under specific conditions. Private funds and Special Purpose Vehicles (SPVs) also enjoy similar exemptions.
Tax Treaties: Cyprus has an extensive network of double tax treaties (DTTs), which can reduce withholding tax rates on dividends, interest, and royalties received by funds from treaty countries. This makes Cyprus an attractive location for international fund structuring, as it facilitates efficient tax planning and reduces the overall tax burden on cross-border transactions.
Exemptions and Incentives: Certain types of income, such as dividends and capital gains from the sale of securities, can be exempt from taxation in Cyprus. This applies particularly to fund structures like AIFs, UCITS, and SPVs. Additionally, there are incentives for fund managers, including a notional interest deduction (NID) on new equity invested in Cyprus-based funds, enhancing the appeal of Cyprus as a fund domicile.
VAT Considerations: VAT on fund management and administration services provided to investment funds is generally not subject to VAT in Cyprus. VAT may apply to certain fund services depending on the nature of the services provided and the residency of the clients. However, management and all types of advisory services provided to non-EU funds are generally VAT exempt, making Cyprus an efficient jurisdiction for servicing global investment funds.
Transfer Pricing: Transfer pricing rules apply to transactions between funds and related parties to ensure that transactions are conducted at arm’s length and to prevent tax avoidance. This ensures that Cyprus maintains its reputation as a compliant and attractive jurisdiction for fund managers and international investors.
