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Investing in Immovable property via a Cyprus Fund

Cyprus Alternative Investment Fund (AIFs) planning on immovable property

Doing Immovable property investments in Bulgaria, Czech Republic, Greece, India, Poland, Romania, Ukraine and United Kingdom through Cyprus Alternative Investment Funds (AIFs)

The plan

Foreign investors wishing to set up a Fund in Cyprus to invest in immovable property in Bulgaria, CzechRepublic, Greece, India, Poland, Romania, Ukraine and United Kingdom.

Steps

1. A Fund is established in Cyprus
2. The Fund establishes a Cypriot company/companies through which to invest in Bulgaria, CzechRepublic, Greece, India, Poland, Romania, Ukraine and the United Kingdom
3. The funding of the Cyprus company/companies can take place by equity
4. Cyprus Company owned by the Cyprus Fund can invest in the share capital of a foreign company i.e. where the property is situated or
5. Cyprus Company owned by the Cyprus Fund can finance foreign company (i.e. where the property is situated) by a combination of debt and equity.
6. Foreign company (i.e. where the property is situated) invests in immovable property

Tax considerations

1) Establishment/ funding

Negligible capital duty on authorised and issued share capital.

2) Dividend income i.e. rental income

Taxability in Cyprus

Income tax

Dividends received by a Cypriot tax resident company from a non-Cypriot tax resident company are exempt from Income Tax in Cyprus.

Special defence contribution

In accordance with the provisions of the Special contribution of defence law, dividend income received by a Cypriot tax resident company from a non-Cypriot tax resident company is also exempt from defence contribution.

Note that the exemption from defence contribution will not be available if:

–       The dividend-paying company engages, directly or indirectly, more than 50% on activities which give rise to investment income; and

–       The foreign tax burden on the dividend-paying company’s income is significantly lower than the tax burden on the Cypriot company. Significantly lower is taken to mean less than 6,5%.

No minimum holding period is required.

Conclusion:

Under the assumption that the activities of the foreign entities will be of a trading nature or be subject to at least 6,25% tax, the dividends to be received by Cyprus Company from these entities will be exempt from both income tax and special defence contribution in Cyprus.

Taxability in foreign countries – Withholding taxes

Taxability in foreign countries will be subject to the provisions of each country’s double tax treaty concluded with Cyprus.

3) Disposal of shares

Cyprus

According to the Cyprus domestic law, the disposal of the shares of a company will not result in any taxes in Cyprus irrespective of the provisions of a double tax treaty.

Taxability in foreign countries – Disposal of shares

Taxability in foreign countries will be subject to the provisions of each country’s double tax treaty concluded with Cyprus.

4) Fund and Cyprus Companies Outflows

Dividend payments to the Fund and Cyprus Company

Cyprus does not impose any withholding tax on dividend payments made to non-Cypriot resident recipients.

Therefore the dividend payments from Cyprus Company to the Fund and from Fund to non-Cypriot resident recipients will not suffer any withholding tax in Cyprus.

5) Capital reduction and liquidation proceeds of the Fund

Due to the fact that the shareholders of the Fund are not a Cypriot tax resident, the income that the shareholder will receive in terms of capital reduction or liquidation proceeds will not be subject tax in Cyprus.

Other aspects of Cyprus Investment Funds (Alternative Investment Funds – AIFs)

– Alternative Investment Funds are regulated by the Cyprus Stock Exchange.

– Not necessary to appoint a manager if fit and proper directors

– If no physical presence, appoint a local administrator company to carry out the administration work

– Special taxation regime for fund managers

– Cyprus VAT: a) Trading in shares is exempt from VAT when the shares are sold to EU resident clients and, b) Outside the scope of the Cyprus VAT legislation when the shares are sold to non-EU resident clients.

– Low-cost base

– Widespread use of the English language

For more consultation please contact us on:

Email: info@pkf-nic.com

 

The authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this website.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.

PKF Cyprus firms are member firms of the PKF International Limited network of legally independent firms and do not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.”