articles | 28 March 2022

Cyprus as an ideal jurisdiction for Israeli funds

Cyprus and Israel have long-standing political, economic, and social relations. Over the past decade, commercial and tourism ties have also become more substantial, with many Israeli companies investing in Cyprus. At the same time, many Israelis choose Cyprus for residency, acquiring houses or apartments, taking advantage of the safety the country offers and the proximity to their motherland.

In recent years, the investment fund industry in Cyprus has been rapidly growing, and Cyprus is now considered an established fund and asset management jurisdiction. Assets under Management (AuM) of Cypriot investment funds amounted to €11.6 billion at the end of the third quarter of 2021, presenting an annual increase of 48.7%. Dozens of fund managers from various geographical areas have chosen Cyprus, recognizing its remarkable advantages as a destination. According to the Cyprus Securities and Exchange Commission (CySEC), the total number of licensed Management Companies and Undertakings of Collective Investments amounted to 298 at the end of the third quarter of 2021, which implies an annual increase of 9.1%.

The asset management industry in Israel is also growing considerably, with particular emphasis placed on Technology and Innovation. The technology ecosystem in Israel is one of the most sophisticated in the world, and it has attracted considerable capital from international investors, traditionally from the US. Cyprus is ideally situated to offer access to EU investors. At the same time, Cyprus offers the investors the comfort that even though they invest outside the EU, all the relevant EU Regulations protect them. It is no wonder we have seen Fund and Asset managers from Israel creating management structures in Cyprus and, at the same, international investors setting up investment vehicles in Cyprus to invest in Israel.

Today, many Funds set up in Cyprus have Israeli underlying investments; most are venture capital funds. On the contrary, Israeli managers choose Cypriot Fund and Fund Manager structures for the abovementioned reasons. The recent challenges faced by some Fund and Asset Management jurisdictions outside the EU, which were favoured in the past by Israeli managers, are changing the traditional structures and regimes adopted in the Israeli Asset Management scene. We constantly work towards strengthening the cooperation between the sector's professionals in the two countries. It is widely recognized that Cyprus' regulatory and legal framework is one of the most flexible in the EU. At the same time, the Cyprus Securities and Exchange Commission guarantees prudent supervision, compliance with all EU Directives and Regulations, and overall investor protection.

Regarding the setup and management of Alternative Investment Funds in Cyprus, local professionals offer the necessary expertise and assistance so that their associates can enjoy the full spectrum of their "EU passporting rights." What is more, AIFs having the form of an investment company can take advantage of the comprehensive double tax treaties in Cyprus and the attractive 12,5% corporation tax, constituting one of the lowest percentages in Europe. Additionally, there is no stamp duty imposed on the issue of units of AIFs while fund management and administration services provided to investment funds are not subject to VAT. Finally, Cyprus offers a competitive tax regime for fund managers, taxation of carried interest, or performance fee for AIF and UCITS fund managers. This means that key personnel of investment fund management companies or internally managed AIFs may opt for a new mode of personal taxation.

CIFA regularly participates in physical and digital roadshows organized by Invest Cyprus to present what the country can offer Israeli Fund and Asset Managers. As the global economy is gradually recovering from the pandemic consequences, Cyprus is well-positioned to cater to the needs of an Israeli investment fund or a fund-related company interested in doing business in Cyprus.

Author: Maria Panayiotou, Board Secretary of the Cyprus Investment Funds Association (CIFA)

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