Forming a Cyprus Investment Firm (CIF)
Overview
Being part of the European Union (EU), Cyprus can offer significant advantages for professionals wishing to offer investment services from Cyprus or form EU domiciled funds that can be offered across the European Union without excessive procedures. To set-up a CIF you have to apply to Cyprus Securities and Exchange Commission (“CySEC”) and a formal application procedure needs to be followed and certain requirements must be met, as explained further below.
Legislation
The provision of investment services, the exercise of investment activities, the operation of regulated markets and other related matters are governed by Law Law 87(I)/2017 which is the national transposition of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II).
Under the provisions of the Law, only the following entities may provide investment services on a professional basis:
- CIFs authorised under the Law;
- Member state Investment Firms;
- Third country Investment Firms through a branch provided that an authorization has been granted by the Securities and Exchange Commission;
- Banks;
- Co operative credit institutions.
As per the legislation the following are considered as core investment services:
- Reception and transmission of orders in relation to one or more financial instruments.
- Execution of orders on behalf of clients.
- Dealing on own account.
- Portfolio management.
- Investment advice.
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.
- Placing of financial instruments without a firm commitment basis.
- Operation of Multilateral Trading Facility.
Additionally the following are considered as non-core services (ie you do not need to be a CIF to provide them):
- Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management.
- Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction.
- Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings.
- Foreign exchange services where these are connected to the provision of.
- Investment research and financial analysis or other forms of general.
- Services related to underwriting.
- Investment services and activities as well as ancillary services of the type included under above related to the underlying of the derivatives.
The minimum initial share capital depends on the services provided. The table below describes the initial capital needed based on the services to be provided:
| SERVICES PROVIDED | OTHER CONDITIONS | INITIAL CAPITAL NEEDED |
|---|---|---|
|
Any of the below: (a) Reception and transmission of orders in relation to financial instruments; (b) Execution of orders on behalf of clients; (c) Portfolio management; (d) Provision of investment advice. |
Hold clients' money or/and clients’ financial instruments | €125.000 |
| Does not hold clients' money or/and clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients |
(a) At least fifty thousand euro (€50.000); and (b) Have a professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year for all claims; or (c) Have a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage as described above in (a) and (b) |
|
| Does not hold clients' money or/and clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients and is also registered under the Insurance Services and other Related Issues Law to provide insurance intermediary services in the insurance sector |
(a) At least twenty-five thousand euro (€25.000); and (b) Have a professional indemnity insurance covering all member states or some other comparable guarantee against liability arising from professional negligence, that it enters into with an insurance undertaking, representing an amount of at least five hundred thousand euro (€500.000), per claim, and in aggregate at least seven hundred and fifty thousand euro (€750.000) per year for all claims; or (c) Have a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage as described above in (a) and (b) |
|
|
Any of the below: (a) Dealing on own account; (b) underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; (c) placing of financial instruments without a firm commitment basis; (d) operation of Multilateral Trading Facility. |
€730.000 |
CIFs are subject to the same tax treatment as any other Cyprus company. The main provisions are the following:
- Corporation tax rate of 12.5%;
- No capital gains tax on disposal of securities;
- No tax on dividend income in most cases;
- No withholding tax on payments of dividend, interest and royalties to non-residents.
- No capital gains on sale of immovable property held outside Cyprus (or on shares in companies owning such property).
In order to obtain a license the interested party should submit an application to the Securities and Exchange Commission (Commission). The main documents to accompany the application are:
- A business plan with description of the operations and forecasts for the first three years.
- Draft Constitution and Articles of Association.
- A draft organizational structure of the company including the names of two experienced persons so that the four eyes principle is fulfilled.
- An operations manual which contains internal procedures for the services to be provided, anti money laundering procedures, description of the IT system and infrastructure of the company etc.
- Excerpt of the criminal record, certificates of non-bankruptcy, CVs for all the members of the Board of Directors, executives and shareholders with holdings of 10% or more.
- Completed questionnaires for the above.
- A confirmation that the applicant possess or will possess the capital required as its initial capital and that it will undertake to block it in a bank account held by a credit institution or institutions of a member state, when and if the Commission so requests.
It can take a few months to obtain and prepare all the necessary documentation, and once all the documents have been submitted to CySEC per the law, the deadline for the CySEC decision concerning the decision prepared accordingly should not exceed six months since the date of its submission, in addition CySEC offers a “Fast Track” examination scheme which is a way to accelerate the application process. As for the cost, the CySEC license application fee starting from 5,000.00 EUR and complimented by the fee for each of the investment services chosen. These costs do not include the advisory costs for the preparatory work of the application.
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