Introduction
Investment firms in Cyprus are regulated by the Cyprus Securities and Exchange Commission (CySEC) under the CIFs and Investment Firms Law. Firms offering any of the regulated investment services set out under the Law must obtain authorisation from CySEC before commencing operations.
The term "investment firm" is broad. It includes, amongst others, portfolio managers, broker companies, investment advisers, forex trading companies, and other businesses providing regulated investment services — all of which fall within the definition of a Cyprus Investment Firm (CIF) regulated by CySEC.
Capital Requirements
To obtain CIF authorisation, a formal application procedure must be followed and a number of substantive requirements met. The minimum initial capital requirement depends on the type of services the firm intends to provide:
- Reception and transmission of orders, execution of orders, portfolio management, and investment advice — €125,000, where the firm holds clients’ money and/or clients’ financial instruments
- Reception and transmission of orders, execution of orders, portfolio management, and investment advice — €50,000, or professional indemnity insurance, or a combination of both, where the firm does not hold clients’ money and/or financial instruments
- Dealing on own account — €730,000
- Underwriting and/or placing of financial instruments on a firm commitment basis — €730,000
- Placing of financial instruments without a firm commitment basis — €730,000
- Operation of a Multilateral Trading Facility — €730,000
Other Licensing Requirements
Beyond capital, CySEC expects a robust operational and governance framework. When applying for authorisation, a firm must submit, amongst other documents, a business plan, an operations manual (including anti-money laundering procedures), and completed questionnaires from members of the board, managers, and shareholders.
- The board of directors must consist of at least two executive members and two independent non-executive members
- The majority of board members must be Cyprus residents
- A comprehensive compliance, risk management, and internal audit framework must be in place
Timeframe
The authorisation process runs in stages. We assist with the preparation of the special memorandum and articles of association, apply to the Registrar of Companies first for approval of the company name and then for incorporation, and thereafter prepare the CySEC application once all necessary information has been collected from the shareholders.
Following examination and the resolution of any outstanding issues, CySEC authorises the CIF and grants the licence. From commencement to final approval, the procedure can typically be completed in approximately five to six months.
Taxation in Cyprus
A CIF benefits from Cyprus’s competitive tax framework:
- Corporation tax on net profit is 12.5%; gains from the sale of titles and, in most cases, dividends received are exempt from tax
- There is no withholding tax on dividends, interest, and royalties paid to non-residents
- Capital gains are not taxable in Cyprus, save for a 20% tax on gains from immovable property situated in Cyprus and on the disposal of shares in companies owning such property
- VAT treatment can be complex, as some services offered by a CIF may be taxable while others are exempt; tailored advice is recommended
Fees, Charges, and Ongoing Costs
Our fee for obtaining a CIF licence depends on the number of licensed services the firm will offer. Additional out-of-pocket expenses relate to the incorporation and set-up of the Cyprus limited liability company, together with CySEC fees which can range from €5,000 to €10,000.
We are also able to provide the full suite of services a CIF and its shareholders require — administration, tax, VAT, anti-money laundering compliance, accounting, and internal and statutory audit. These fees depend on the type, size, and activity level of the CIF and are quoted on a case-by-case basis.
A CIF must maintain a minimal physical presence in Cyprus in order to retain its licence. While outsourcing is permitted to a degree, certain personnel must remain based in Cyprus. A reasonable annual budget for operational expenses — including staff salaries (excluding the chief executive and financial officers), IT, telephony, utilities, office rent, external and internal auditors, compliance, and other professional fees — is in the region of €150,000 to €200,000 per annum.
Regulated Investment and Ancillary Services
A CIF may be authorised to provide a range of investment services and, in addition, ancillary services that complement its core activities. The principal categories are set out below.
- 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 and/or placing of financial instruments on a firm commitment basis
- Placing of financial instruments without a firm commitment basis
- Operation of a Multilateral Trading Facility
- Ancillary services such as safekeeping and administration of financial instruments, granting of credit or loans to investors, advice on capital structure and mergers, foreign exchange services, and investment research
How ASC Can Help
ASC has extensive experience establishing Cyprus Investment Firms — from company incorporation and drafting of the memorandum and articles through to the preparation and submission of the CySEC application. We also provide ongoing administration, compliance officer services, internal and statutory audit, tax and VAT filings, and the provision of executive and non-executive directors. Contact us to discuss your licensing requirements.