Last month the Cyprus Embassy Trade Center In cooperation with the Cyprus-US Chamber of Commerce Cordially hosted a Private, Round-Table discussion on: Redefining Global Operations Strategy; New Strategies for Multi Jurisdiction Management – Considerations for U.S. Companies Investing Through Cyprus.
It is expected that more US companies will start investing through Cyprus and will leave behind destinations as the Cayman Islands seeking the security that an EU country with friendly business and tax laws offer.
During the event, the audience was addressed by the Trade Commissioner of the Republic of Cyprus in New York, Mr. Aristos Constantine and industry experts Michael Mavrides, Partner, Bingham McCutchen LLP named one of the leading up-and-coming attorneys in the U.S., and Cyprus based attorney Christian Pelaghias of Chr. G Pelaghias & Co.
The private event was an opportunity to meet with leading legal, administrative and corporate structure specialists, defining relevant multi jurisdiction strategies, tax efficiencies, opportunities for minimizing costs and limiting liability by utilizing Cyprus as part of their international operations and structure.
Mr. Constantine discussed how, as the global economy is slowly struggling to get back on its feet, the hedge fund Industry has shown tendencies of shifting from more traditional offshore jurisdictions in the Caribbean to Europe. The shift may, at this stage, be minimal but one of the main reasons why investment managers in the US are beginning to consider European jurisdictions for their structures are that the conventional zero tax jurisdiction is beginning to fall somewhat out of grace in a financial environment increasingly influenced by blacklists, money laundering compliance and trembling currencies.
Mavrides referenced a recent article published in the New York Financial Times entitled “Exit from Caymans to speed up” which indicated that hedge funds currently located in the Caribbean have started to look for alternative onshore locations in Europe due to the impending Alternative Investment Fund Directive currently being discussed within the European Commission. The EU-directive is set to place restrictions on the marketing of non-EU funds to European investors ultimately shutting them out from the European market unless they satisfy specific issues such as fiscal standards, rules on information exchange between supervisors, and reciprocity as well as anti-money laundering procedures.
As a result, European fund locations have begun to gain increased popularity in what can be seen as a pre-emptive move by US fund managers. However, whilst Dublin and Luxembourg are the more traditional choice of location, EU member states like Cyprus can also be an attractive alternative.
Mr. Constantine described how Cyprus as a member of the EU since 2004, is also fully compliant with the Financial Action Task Force on Money Laundering (FATF), the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Forum.
Mr Pelaghias explained how the Cypriot tax system has recently undergone several amendments in order to facilitate the island’s competitiveness in the hedge fund industry. With lowest corporate tax in the EU of 10% it also offers full tax exemption on profits from trading securities, no withholding tax on dividends and interests paid out of Cyprus, and a zero tax on dividend income (subject to conditions). In addition the cost of legal fees for setting up a fund in Cyprus it is around €15,000 to €20,000 compared to Luxembourg were the price can range between €70,000 to €100,000. The Cypriot regime also permits local representation of a fund to the regulator rather than direct client presence as in Luxembourg.
“Cyprus already holds the position as one of the most popular holding company jurisdictions in Europe and it has acted as an intermediate jurisdiction for hedge funds investing into Russia, Central Europe and the Middle East for decades” says George Pelaghias. “The fact that Cyprus now can be used as a hedge fund location is only natural” he adds.
Whatever the outcome may be in Brussels with regards to the future of third country fund investments in Europe, Cyprus is undoubtedly on the path of becoming a competitive force to be reckoned with within the European financial service industry.