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India Opens the Door to Cyprus-based Investment Funds

posted 3 years ago

India’s Ministry of Finance issued an order on 14 June, specifying that the Cyprus has now been classified as a ‘Category I’ country for the purposes of Regulation 5 (a)(aiv) of the Securities & Exchange Board of India (SEBI) (Foreign Portfolio Investors) Regulation 2019.

The Category I FPI includes entities from Financial Action Task Force (FATF) member countries or from any country specified by the Indian government by an order or by way of an agreement or treaty that are:

  • Appropriately regulated funds.
  • Unregulated funds whose investment manager is appropriately regulated and registered as a Category I FPI.
  • University-related endowments of such universities that have been in existence for more than five years.

Cyprus is not directly an FATF member country but following this order from the Indian government, Cyprus-based funds are now able to be registered as Foreign Portfolio Investors (FPIs), which provides an investment route for non-residents in Indian securities including shares, government bonds, corporate bonds, non-convertible debentures and units of business trusts.

Category I FPIs also benefit from several other advantages, which include:

  • Exemption from the applicability of ‘Indirect Transfer’ provisions under the Indian Income-tax Act, which are otherwise applicable to an overseas investor upon transfer of shares / interest in an overseas entity with assets in India.
  • Subject to lighter ‘Know Your Customer’ (KYC) requirements and enhanced trading limits.
  • Eligible to invest in offshore derivative instruments (ODIs), such as participatory notes or total return swaps.

President of the Cyprus Investment Funds Association (CIFA) Andreas Yiasemides said: “The Indian market offers huge prospects, and the acceptance of Cyprus funds allows us to step up our efforts to attract investors from India.”

Cyprus is the ideal investment gateway to the EU and platform for investments outside the EU and has emerged as one of the fastest growing fund centres worldwide. As an EU member state, Cyprus has implemented all EU standards, directives and regulations in respect of Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS), while fund registration and operational costs in Cyprus are among the lowest in the EU.

Whether a high net worth individual seeking to achieve asset protection and/or interested in setting up a Family office under a fund structure to manage the assets within the family and/or a venture capitalist whose investments require extra funds to be raised for his/her strategic goal to be implemented – Cyprus offers one of the most attractive tax regimes in Europe. For foreign investors there are no withholding taxes on repatriation of dividends, interest and royalties to non-residents, no tax on redemptions by holders and no capital gains tax on disposals by holders.

At the fund level, there is a uniform 12.5% corporation tax on profits (with a possibility to reduce to as low as 2.5% due to Notional Interest Deduction), while fund management and administration services are not subject to VAT. Cyprus also has access to an extensive network of over 60 double tax treaties, allowing for tax efficient structuring of investments. No Subscription tax on the net assets of the AIF. Exemption from tax on capital gains from sale of corporate titles and other financial instruments, as well as tax exemption on capital gains from the sale of immovable property situated outside Cyprus.

Sovereign Trust (Cyprus) has extensive experience of working with local and international investment funds and offers a wide range of services, including fund licensing or registration as well as administration to maintain the fund in full compliance with all legal and regulatory requirements.

“India’s decision to reclassify Cyprus as a Category I FPI is fully justified and will further enhance the already strong business relations between our two countries. Please contact us for further information or assistance,” said Managing Director George Ayiomamitis.

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