Collective investment offshore funds

Collective investment funds or mutual funds have been around for a long time. They offer the opportunity to investors, large and small, who may or may not be acquainted with investment techniques, to pool their funds with the primary aim of spreading their investment risk and obtaining stronger purchasing power. A collective investment fund can either be a close-ended or open-ended fund.

A close-ended fund accepts subscriptions for issue of equity only at the beginning of the scheme, has a limited life and the investors should wait until the liquidation of the collective investment fund before they receive any return on their funds. Close-ended funds are suitable in cases where the underlying investments tend to be illiquid or hard to value, or where the funds are set up for a specific task which, once accomplished, renders the fund purposeless. Such cases include venture capital projects, real estate projects, and unlisted securities in the initial years.

On the other hand, investors may subscribe to or exit an open-ended fund at various set intervals, ranging from a single day to a whole year. To achieve their transactions, the investments of the fund must be easy to value and to liquidate.

Cyprus is putting great efforts into attracting offshore collective investment funds. The corporation tax rate for offshore companies of 4.25%, and the increasing number of double tax agreements with other countries, are two strong reasons for establishing a collective investment fund in Cyprus. Current legislation creates no problems for close-ended funds. A study has been commissioned by the government for drafting the appropriate legislation for open-ended funds.

Cyprus double tax treaty with Russia

Talks are under way between Russia and Cyprus concerning a possible revision of the double tax agreement between the two countries. The existing agreement exempts withholding tax on dividends, interest and royalties between the two countries.

Cyprus is clearly benefiting from the present arrangement which allows it to become a base through which foreign companies can do business in Russia. However, Russian officials have expressed their intention to amend the treaty. This is the third round of talks between the two parties and negotiations are expected to continue.

Costas N Petrides