With the entrance into the European Union, Cyprus has become one of the most interesting countries from where to set up and operate Investment and Financial Services activities.
The main reasons are that Cyprus Investment Firms (brokerage & trading), Mutual Fund Management Companies and Collective Investment Schemes can benefit from the “European Passport” (i.e. the license to render similar services in all the other 27 EU countries), and the fact that Cyprus offers the lowest corporate income tax burden in the entire European Union.
The advantageous features of the tax regime for Cyprus Investment Firms include:
- Standard corporate income tax rate of only 10%;
- Complete corporate income tax exemption for capital gains, with the only exception for gains derived from the sale of Cyprus real estate or the sale of shares in certain companies owning such real estate;
- Corporate income tax exemption for dividends;
- European Passport;
- Low Set Up Cost;
- Low operational cost.
The Cyprus Investment firms Act of 2007 (the “Act”) provides the legal framework for the provision of investment services as well as for the registration, regulation of operations and supervision of Cyprus Investment Firms (CIFs)
Investment services which can be offered by a Cyprus Investment Firm include any of the following services:
- Reception and transmission, on behalf of investors, of orders in relation to one or more financial instruments1 as these are defined in the Act;
- Execution of such orders, other than for own account;
- Dealing in financial instruments for own account;
- Managing of investment portfolios in accordance with mandates given by investors where such portfolios include one or more financial instruments;
- Underwriting in respect of issues of financial instruments as these are defined in the Act.
- Reception and transmission of orders in relation to financial instruments as defined in the Act on behalf of investors;
- Investment Advice;
- Dealing in financial instruments pertaining to its own account.
Financial instruments offered by a Cyprus Investment Firm include:
- Transferable securities and units in collective investment schemes;
- Money-market instruments;
- Financial futures contracts, including equivalent cash-settled instruments;
- Forward rate agreements (FRAs);
- Interest-rate, currency and equity swaps;
- Options to acquire or dispose in the future of any financial instrument, including equivalent cash-settled instruments and, in particular, currency and interest-rate options;
Set-up and Licence Application
- Structuring of the licensee;
- Assistance with the preparation and review of application pack;
- Liaison with service providers and regulatory authorities regarding licensing;
- Filing the application pack at CYSEC; liaison and follow ups.
- Middle and back office operations;
- Advice on corporate governance;
- Coordination of KYC and AML processes
- Maintenance of registers and other statutory records of the company;
- Coordination of response to client requests;
- Corporate secretarial work;
- Assistance with opening a bank account.
Accounts and Reporting
- Preparation and maintenance of financial statements
- Liaising with the company’s auditors during audits of the company’s financial records
- Preparing periodic management accounts and budgets for management purposes
- Business address including correspondence mailing address, mail handling and forwarding;
- Registered office service including provision and maintenance of company name plate;
- Telephone Services including telephone answering services and call forwarding services.
Criteria for a Successful Application
The main criteria that need to be satisfied by the Commission in order to grand an authorisation are:
- Existence of the minimum capital required by law.
- A minimum of two experienced and reliable executives so that the four eyes principle is satisfied. One of these two executives should be employed by the company on a full time basis and live in Cyprus. They both should be accessible and available and appear before the Commission with reasonable notice.
- “Experienced and reliable persons” to be appointed as Directors of the CIF are not defined in the law.
- Possession of the relevant professional competence certificates from the Ministry of Finance of the Republic of Cyprus by departmental heads.
- Adequate technical and financial resources
- Adequate IT systems and internal control mechanisms
- Adequate structures and mechanisms in order to guarantee the protection of investors assets and eliminate any conflict of interest that may arise between the company or the staff and clients’ interests
Procedure for granting of a CIF Authorisation
In order to obtain a license, the interested party should submit an application to the CYSEC.
The main documents to accompany the application are:
- A business plan with description of the operations and forecasts for the first two years.
- Draft Constitution and Articles of Association
- A Draft organizational structure of the company including the names of two experienced persons so that the four eyes principle is fulfilled.
- An operations manual which contains internal procedures for the services to be provided, money laundering procedures, description of the IT system and infrastructure of the company etc.
- Excerpt of the criminal record, certificates of non-bankruptcy, CVs for all the members of the Board of Directors, executives and shareholders with holding of 10% or more.
- Completed questionnaires for the above.
- A confirmation that the applicant possess or will possess the capital required as its initial capital and that it will undertake to block it in a bank account held by a credit institution or institutions of a member state, when and if the Commission so requests.
The Commission must, within six months from the submission of a duly completed application for the granting of a CIF authorisation, reach a decision and inform the applicant for the granting of authorisation or rejection of the application.
During this six month period the Commission may request additional information or clarifications regarding the application submitted.