Cyprus Investment Firms (CIFs) – Snapshot.
Cyprus Investment Firms (CIFs) – Snapshot.
Regulation.
Cyprus Investment Firms (CIFs) are regulated by the Cyprus Securities and Exchange Commission (CySEC), under the CIFs and Investments Firms Law.
The CIFs that offer the services that are listed in Appendix 1 must obtain a license from CySEC. 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.
Capital Requirements.
The minimum capital requirement for a CIF depends on the type of services offered (main & ancillary investment firms have to be identified) :
| Investment Service | Share Capital (€) | Comments
|
| Reception and Transmission of Orders | 125.000 | Hold clients’ money and/or client’s financial instruments |
| Execution of Orders | 125.000 | Hold clients’ money and/or client’s financial instruments |
| Portfolio Management | 125.000 | Hold clients’ money and/or client’s financial instruments |
| Provision of Investment Advice | 125.000 | Hold clients’ money and/or client’s financial instruments |
| Reception and Transmission
Execution of Orders |
50.000 or has professional liability insurance or combination of both | Does not hold clients’ money and/or clients’ financial instruments |
| Portfolio Management
Provision of Investment Advice |
50.000 or has professional liability insurance or combination of both | 50.000 or has professional liability insurance or combination of both |
| Dealing on own account | 730.000 | i.e Trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments |
| Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis | 730.000 | “Placing” is the service provided by an investment firm to an issuer whereby the firm undertakes to place financial instruments with investors on behalf of the issuer. Placing can be carried out either on a firm commitment basis or not depending on the type of commitment that firms undertake towards the issuer. |
| Placing of financial instruments without a firm commitment basis | 730.000 | |
| Operation of Multilateral Trading Facility | 730.000 | A self – regulated financial trading venue |
Transparent Ownership.
In order to grant a CIFs licence, the ownership of an applying Cyprus Company must be fully disclosed.
In case no shareholder holds at least 10% of the company shares, those shareholders must be fully disclosed that exercise significant influence on the management of the company and its operations.
In case that the shareholder(s) of an applying company are legal persons, the natural persons that manage the shareholding company must be identified and disclosed, as well as the shareholders of the shareholding company. If the shareholders of the shareholding company are legal persons again, the aforementioned procedure repeats until the ultimate beneficial owners (natural persons) are reached. Information regarding beneficial owners is not made public anywhere.
Board of Directors and Management
The Board of Directors of a CIF must consist of at least two executive directors and two independent non-executive directors.
The executive directors that effectively manage the CIF must provide necessary knowledge, experience and integrity, satisfying CySEC prior to the granting of the licence. The directors of the company must dedicate appropriate time for the execution of their duties, be of good reputation and must have the knowledge, experience and capabilities to manage a CIF and to clearly understand its activities and the risks of the CIF.
The management of a CIF must be undertaken by at least two persons – the four-eye principle; they must be of good reputation and experiences and acknowledged enough to ensure professional, safe and prudent management of the company.
Head Office and Organisation
The head office of a CIF must be located in the Republic of Cyprus. It must be fully staffed, and employed persons performing any of the licenced investment services must be holder of a respective certificate issued by the Ministry of Finance and/or CySEC after successful examination.
CIFs are required to comply with a number of organisational provisions. Some of them are:
- A CIF has to establish defined policies and procedures that ensure company’s compliance with all legal obligations.
- The CIF must have an independent compliance unit staffed with eligible persons.
- The organisation and administration of a CIF must be designed in such way that it prevents conflicts of interest.
- A CIF must have a clear risk policy which must be implemented and controlled by a separate risk management unit.
- A CIF must be member of the Investment Compensation Fund for Clients and must comply with its obligations.
- A CIF must always safeguard its clients’ ownership rights and must develop and define adequate procedures accordingly.
Taxation.
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 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.