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Tax Implications Regarding ‘Real Estate Fund’ in Cyprus

Michalaki, Pitsillidou Law Firm > English Articles  > Tax Implications Regarding ‘Real Estate Fund’ in Cyprus

Tax Implications Regarding ‘Real Estate Fund’ in Cyprus

Tax Implications Regarding ‘Real Estate Fund’ in Cyprus

Real Estate Fund is a type of mutual fund that emphasizes on investing in securities, offered by public real estate companies. Most of the real estate funds are invested in commercial and corporate properties, although they may also have investments in raw land, apartments complexes and agricultural space. Indeed, there are specific tax implications that apply for real estate funds.

Initially, the rental income minus tax deductible expenses, is charged with 12.5% corporation tax. Additionally, by deducting 25% from the rental income, there is 3% SDC tax applied in the remaining income. In certain cases, though, double tax relief may be possible based on double tax treaty or unilaterally by Cyprus.

Moreover, there are gains for the fund regarding the disposal of immovable property. For instance, the owner may be exempted from corporation and capital gains tax. However, in order to be subject to these exemptions, the real estate fund should not be of trading nature or to be situated in Cyprus. Therefore, if the fund is situated in Cyprus, a 20% capital gains tax will be applied. Additionally, the same tax exemptions are applied for the disposal of shares in companies owning immovable property. However, regarding the disposal of the shares, the owner is denied of the tax exemption if the company that has the disposed shares, owns immovable property in Cyprus and in this case, it is charged with 20% in capital gains tax.

Furthermore, 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.

There are also other benefits for real estate fund regarding the ‘Notional Interest Deduction’ (NID). NID may be given in Cyprus on any new qualifying equity as share capital and share premium invested in the Fund so as to enable it to continue its performance. The NID the Fund can get on new equity, will not be 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 info@impklawyers.com or visit our website at www.impklawyers.com.Tel. +357 25660092 – Fax +357 25 660097.

 

 

 

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