On 14 June 2021, India's Ministry of Finance notified its Cypriot counterparts that Cyprus would now be included as an eligible “Category I” country for the purposes of India’s Securities and Exchange Board of India (SEBI) Foreign Portfolio Investors (FPI) Regulations 2019 (SEBI Regulations). In broad terms such Category I countries comprise (direct) members of the Financial Action Task Force (FATF) and other countries specifically recognised as such by SEBI. We understand that, other than Cyprus, only the UAE and Mauritius have been specifically recognised in this way.
As a result of the recognition Cyprus funds, as eligible FPIs under the SEBI Regulations, may now benefit from a number of streamlined processes and incentives for investment into India, such as:
- The non-application of indirect share transfer pricing provisions meaning that any change in the value of units in an FPI outside India is not exposed to capital gains tax in India.
- FPIs are entitled, according to the SEBI Regulations, to issue and subscribe for "Offshore Derivative Instruments" (ODIs) including participatory notes, total return swaps etc where Indian securities are underlying reference instruments.
- Category I FPIs qualify for higher position limits to transact in derivative transactions.
- Lower KYC requirements: The KYC documentation requirements for Category I FPIs are lower; for instance, Category I FPIs are not required to submit Proof of Identity documents for their Ultimate Beneficial Owners.
According to the SEBI Regulations, appropriately regulated funds and unregulated funds whose investment manager is appropriately regulated and registered as a "Category I Foreign Portfolio Investor" are eligible for inclusion.
Cyprus, is of course a member state of the EU and has consequently implemented directives and regulations in relation to Alternative Investment Funds (AIFs) consistent with the EU Alternative Investment Fund Managers Directive (AIFMD) as well as the EU’s flagship retail funds product in the form of the Undertakings for Collective Investment in Transferable Securities (UCITS). Despite this the costs in setting up and managing funds, as well as other investment structures are uniquely competitive within the EU market.
Cyprus is not presently a direct member of FATF. Membership of FATF is generally reserved for larger countries that are "strategically significant" globally. Of course, we would argue Cyprus’ funds industry nevertheless punches well above its weight.
The Ministry of Finance announcement (in Greek) can be found here.
An unofficial translation of the announcement is here.
CIFA’s press release can be found here.