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Investing in Immovable property via a Cyprus Fund
Cyprus Alternative Investment Fund (AIFs) planning on immovable property
Doing Immovable property investments in Bulgaria, Czech Republic, Greece, India, Poland, Romania, Ukraine and United Kingdom through Cyprus Alternative Investment Funds (AIFs)
The plan
Foreign investors wishing to set up a Fund in Cyprus to invest in immovable property in Bulgaria, CzechRepublic, Greece, India, Poland, Romania, Ukraine and United Kingdom.
Steps
Tax considerations
1) Establishment/ funding
Negligible capital duty on authorised and issued share capital.
2) Dividend income i.e. rental income
Taxability in Cyprus
Income tax
Dividends received by a Cypriot tax resident company from a non-Cypriot tax resident company are exempt from Income Tax in Cyprus.
Special defence contribution
In accordance with the provisions of the Special contribution of defence law, dividend income received by a Cypriot tax resident company from a non-Cypriot tax resident company is also exempt from defence contribution.
Note that the exemption from defence contribution will not be available if:
– The dividend-paying company engages, directly or indirectly, more than 50% on activities which give rise to investment income; and
– The foreign tax burden on the dividend-paying company’s income is significantly lower than the tax burden on the Cypriot company. Significantly lower is taken to mean less than 6,5%.
No minimum holding period is required.
Conclusion:
Under the assumption that the activities of the foreign entities will be of a trading nature or be subject to at least 6,25% tax, the dividends to be received by Cyprus Company from these entities will be exempt from both income tax and special defence contribution in Cyprus.
Taxability in foreign countries – Withholding taxes
Taxability in foreign countries will be subject to the provisions of each country’s double tax treaty concluded with Cyprus.
3) Disposal of shares
Cyprus
According to the Cyprus domestic law, the disposal of the shares of a company will not result in any taxes in Cyprus irrespective of the provisions of a double tax treaty.
Taxability in foreign countries – Disposal of shares
Taxability in foreign countries will be subject to the provisions of each country’s double tax treaty concluded with Cyprus.
4) Fund and Cyprus Companies Outflows
Dividend payments to the Fund and Cyprus Company
Therefore the dividend payments from Cyprus Company to the Fund and from Fund to non-Cypriot resident recipients will not suffer any withholding tax in Cyprus.
5) Capital reduction and liquidation proceeds of the Fund
Due to the fact that the shareholders of the Fund are not a Cypriot tax resident, the income that the shareholder will receive in terms of capital reduction or liquidation proceeds will not be subject tax in Cyprus.
Other aspects of Cyprus Investment Funds (Alternative Investment Funds – AIFs)
– Alternative Investment Funds are regulated by the Cyprus Stock Exchange.
– Not necessary to appoint a manager if fit and proper directors
– If no physical presence, appoint a local administrator company to carry out the administration work
– Special taxation regime for fund managers
– Cyprus VAT: a) Trading in shares is exempt from VAT when the shares are sold to EU resident clients and, b) Outside the scope of the Cyprus VAT legislation when the shares are sold to non-EU resident clients.
– Low-cost base
– Widespread use of the English language
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