Which companies shall be registered as CIFs?
Investment firms are regulated by the Cyprus Securities and Exchange Commission (CySEC), under the CIFs and Investments Firms Law. The Law states that investment firm means “any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis, and includes a CIF”.
The investment firms that wishes to offer certain services must obtain a license from CySEC.
It is noted that no CySEC licenses are required in cases where persons dealing on own account in financial instruments other than commodity derivatives or emission allowances or derivatives thereof and not providing any other investment services or performing any other investment activities in financial instruments other than commodity derivatives or emission allowances or derivatives thereof unless such persons, among others, apply a high-frequency algorithmic trading technique.
License Requirements
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:
Capital Requirements
The minimum capital requirement for a CIF depends on the type of services offered:
- Full Scope CIFs: Firms which shall hold client's funds and/or financial instruments and will be licensed for any of the below (1-8) services, the minimum initial capital requirement is €730,000.
- Limited Activity CIFs: Firms that shall not hold client's funds and/or financial instruments and will be licensed for service 5 (as below), the minimum initial capital requirement is €730,000.
- Limited License CIFs: Firms which may or may not hold client's funds and/or financial instruments and will be licensed for any services except the services 5 – 6 (as below), the minimum initial capital requirement is €125,000.
- Out of Scope CIFs: Firms that shall not hold client's funds and/or financial instruments and will be licensed for the services 1 – 4 (as below), the minimum initial capital requirement is €50,000.
- Reception and transmission of orders in relation to financial instruments
- Execution of orders on behalf of clients
- Portfolio management
- Provision of investment advice
- 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
- Operating a Multilateral Trading Facility
- Operation of an Organized Trading Facility
Other Requirements
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), organisational and group structure, 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.
Time Frame
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 – approx. 2 months.
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 3-4 months.
Taxes In Cyprus
For the CIF
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.
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.
VAT – 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.
For the CIF's Expatriate Employees
Expatriate employees enjoy considerable tax advantages, and social insurance contributions are only 7,8% on gross salary.
Fees and Charges
Costs of setup and obtaining CIF authorisation:
Our fee for obtaining a CIF licence depends on the number of licenced services the CIF will offer. Additional costs to be invoiced as out of pocket expenses relate to the incorporation and set up of a Cyprus limited liability company and CySEC fees.
Cost of Administration and other services
We are able to provide all of the services a CIF and/or its shareholders require. We provide a full administration, tax, VAT, anti-money laundering compliance, accounting, and internal and statutory audit service. The cost will depend mainly on the type and size of the CIF and the level of activity. Our fee is quoted on a case-by-case basis.
CIF costs to be included in the financial planning
A CIF will need to maintain a minimal physical presence in Cyprus, in order to maintain its license. Outsourcing is allowed to a degree, but some personnel are still required to be located in Cyprus. Therefore, a reasonable annual budget for the CIF's operational expenses, including the salaries of employees as well as other operational expenses, (e.g. information technology, telephony, electricity, office rent, external and internal auditors, compliance, other professional fees, consumables, etc.,) but not including the salaries of their chief executive and financial officers, will be around €150.000 – €200.000 per annum.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
