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Cyprus: Law of Offshore

Taxation of Collective Investment Schemes

In 2009, the The Cyprus Income Tax Law N.118(I)/2002 was amended to clarify that interest income earned by a collective investment scheme (CIS) is subject only to income tax (less any allowable expenses) and exempt from the Special Defence Contribution. This amendment was made in a bid to attract more investment schemes to set up and operate from Cyprus and to improve taxation for companies holding interests in Cypriot and non-Cypriot CISs.

In addition, the changes mean that the redemption of a unitholding in a collective investment scheme will not be considered as a reduction in capital under the Special Defence Law, therefore there will be no tax obligations on the distribution arising from the redemption.

Furthermore, the Special Contribution for Defence Law was amended in order to abolish the minimum participation requirement of 1% when it relates to dividends received from abroad by a Cyprus tax resident company. This makes it easier for portfolio investors to benefit from the dividend participation exemption.

The result of the amendment is that interest earned by a Cypriot company is now reduced to a maximum rate of 10% in all cases, whereas prior to the change, interest income could be taxed at 15%. The amendment was approved by parliament on October 22, 2009 and came into immediate force.



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