By Annette Chrysostomou
CYPRUS plans to introduce a triad of tax incentives to attract high net worth fund managers to the island, including slashing by half the personal income tax of those earning more than €100,000 a year.
However, the new incentives, that are still on the drawing board, are not expected to see major funds and their managers making a beeline for the island, at least not for another five years, a meeting of Cyprus-based investment fund managers heard on Friday.
The government is keen to attract investment in sectors such as telecommunications and port industries, especially as the country has made a shift to positive growth from the beginning of 2015, President Nicos Anastasiades told a meeting of the Cyprus Investment Funds Association (CIFA).
“Cyprus fulfils the requirements to become a regional centre for investment funds”, he said, adding that the country “meets every condition because of its strategic geographical location, its stable and transparent policies and the infrastructure of a modern legal system.”
“In 2014, the government completed a comprehensive legal framework for collective investment schemes in cooperation with the private sector, including alternative investment,” he noted, adding that the government is open to suggestions to further strengthen this framework both in legal and practical terms.
According to Anastasiades, “it is of prime importance to our economy to encourage business in niche markets in the service sector. The government is working hard to promote effective policies that contribute to sustainable growth and employment by exploiting the comparative advantages of the country.”
He said that this effort is not only made to improve the economy but also the everyday life of Cypriot citizens.
Speaking at the meeting attended by more than 380 executives and professionals, CIFA chairman Angelos Gregoriades said that requests for the establishment of investment funds are growing, with the association now counting more than 200 members.
“Tax incentives to attract managers of investment funds are being prepared”, he said.
One of the measures is a tax cut for managers of funds who come to Cyprus for the first time in the next ten years. They will be taxed at half the income tax of other taxpayers, which means when their income exceeds €100,000, they will pay 17.5 per cent, instead of the current 35 per cent.
Another measure is the introduction of a new provision stating that income from dividends and interest is not subject to defence tax.
In addition, the government is preparing a bill specifying that additional income from carried interest is to be taxed at the low rate of 7.5 per cent. “This is a new provision that already exists in other countries and is another incentive for fund managers to come to Cyprus,” Gregoriades explained.
As regards the taxation of the funds themselves, the only taxable income is interest received and a new law has already been approved that allows the reduction of profits from interest on the funds invested. “That there is no tax on profits from equity trading, which is the main activity of these funds, shows that we have a very attractive tax system,” he noted.
The chairman said that these funds invest in stocks, real estate and semi-government organisations, adding that he expects investors to be interested in the island’s privatisation process.
However, he believes that it could take up to five years for professionals in Cyprus to move into this direction and be able to persuade fund managers to use Cyprus. He expects the amount of new managers to double every year.
The conference also heard that a Turkish fund manager sought to set up a Cyprus registered approved investment company and had applied to the Securities and Exchange Commission to secure a KEPEY license, but that the whole matter had been stalled by the Turkish financial regulators who were not cooperating with the CySEC.