Financial Instruments Fund
Financial Instruments Funds are monetary contracts between parties. Financial instruments are assets that can be traded. They can also be seen as packages of capital that may be traded. Most types of financial instruments provide an efficient flow and transfer of capital all throughout the world’s investors. These assets can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one’s ownership of an entity.
Initially, considering the profits arising from the trading in financial instruments, there is an exemption from the tax on the profits that arising from trading in qualifying titles. For instance, this can happen through shares, debentures, bonds or swaps the underlying asset of which falls within the definition of titles. In addition, such tax implications gain from trading in currencies and commodities, which are subject to corporation tax at the rate of 12,5%.
Moreover, the interest income of financial instruments minus tax deductible expenses, is subject to corporation tax with the charge of 12.5%. Concerning division income, there are also some exemptions of tax implications. Initially, the exemption from corporation tax unless if treated as an allowable deduction for the paying entity. Furthermore, the exemption from SDC tax is a significant exclusion, as unless the company’s payments on divided engages directly or indirectly in activities, which leads more than 50% to investment income and the foreign tax burden on the income of the company paying the divided is lower than 6,25%.
Significantly, there is no withholding tax for distributing profits to non-Cypriot tax resident investors. For distributing profits to Cyprus tax resident investors, there is only 17% withholding tax for those that live in Cyprus. There is also no withholding tax for the distribution of profits to non-Cypriot tax resident investors who do not live in Cyprus or are those who are corporate investors.
If the fund does not make actual dividend distribution in two years from the time they gained profits, it will be deemed to have distributed at least 70% of its profits as dividends. Indeed, a 3% tax will be charged for the deemed distribution if the UBOs of the Fund are Cyprus tax resident and domiciled individual investors. It is noted that in such a case, the 3% tax will be the final tax on divided distribution instead of 17%.
There are also other benefits for financial instrument fund regarding the ‘Notional Interest Deduction’ (NID). NID may be granted in Cyprus on any new qualifying equity in a form of share capital and share premium invested in the Fund so for the purpose to continue its performance. The NID the Fund can get on new equity, therefore will be impossible to exceed more than 80% of the taxable profit the Fund gained from the specific activity.
For more information and guidance please email Michalaki, Pitsillidou & Co LLC – iMPK Global Business Law Firm – Cyprus Lawyers, at firstname.lastname@example.org or visit our website at www.impklawyers.com.Tel. +357 25660092 – Fax +357 25 660097.