Key Benefits of a Cypriot Fund
- Any asset can be included in the investment strategy of the AIF
- No investment restrictions for AIFLNP
- Umbrella Structure available
- Different Legal Forms
Transparency and Protection
- 12.5% Corporation Tax
- Notional Interest Deduction
- More than 60 Double Tax Treaties
- Tax incentives for senior officers of Fund Management companies relocating to Cyprus
Low set-up and operations costs
- Easy and cost efficient to set up and maintain Cyprus Funds
Fully harmonized and modern Fund Legislation
- EU Passport offering fund managers cross-border fund distribution, attracting both EU and non-EU firms keen to establish themselves as EU-complaint managers and to access EU investors.
- Access to MiFID services
- Harmonization with EU AML standards
Investment Funds Types
Undertakings for the Collective Investments in Transferable Securities (UCITS)
UCITS are established and authorised under a harmonised EU legal framework, and are internationally regarded as one of the most effective asset management tools available, thanks to their strong regulation resulting in high levels of investor protection.
- European branded fund product
- May operate throughout the EU on the basis of a single authorisation from one member stated, provided that it follows certain notification procedures
- May be listed on a regulated market
- Possibility to set up umbrella funds, allowing different sub-funds with each one constituting a separate pool of segregated assets not subject to “cross-class liability”
The UCITS Fund constitutes a single legal entity and each sub-fund has its own separate Net Asset Value (NAV) calculation.
Each investment compartment may be dissolved or liquidated separately without affecting the operations of the others.
Alternative Investment Funds (AIFs) and Managers (AIFMs)
The enactment of the Alternative Investment Funds (AIF) law in July 2014 aligned the Cyprus legal and regulatory framework with EU directives on asset management, with the aim to enhance transparency and investor protection. Following on-going efforts to modernise its fund framework, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers. AIFs that are established under domestic Cyprus fund legislation can be sold on a private placement basis or marketed to professional investors across the EU under the Alternative Investment Fund Managers Directive (AIFMD) passport.
AIF Definition and Characteristics
AIFs are collective investment undertakings which:
- Raise capital from a number of investors with a view to investing it in accordance with a defined investment policy
- In principle, a collective investment vehicle that does not qualify as a UCITS is designated as an AIF
- Hedge Funds, private equity Funds, real estate Funds, venture capital Funds and others all fall within the scope of the definition of an AIF
Alternative Investment Fund with Unlimited Number of Persons:
- may be marketed to retail, or well-informed and/or professional investors
- freely transferable investor shares
- must appoint a Depositary
- can be listed on a recognised stock exchange, and AIFs marketed to retail investors can be traded
- irrespective of the category of AIF, minimum share capital requirements are valid only for self-managed funds, which are subject to €125,000 and €50,000 when respectively authorised as AIF or AIF-LNP.
- may be subject to certain investment restrictions depending on the investor type and the overall investment policy. AIFs addressed to WIPIs shall not be subject to investment restrictions, except Loan Origination Funds, Money Market Funds, Venture Capital Funds and Funds of Funds.
Alternative Investment Fund with Limited Number of Persons:
- may be marketed only to well-informed and/or professional investors (WIPIs)
- maximum number of investors limit has been reduced to 50, from the previous 75
- freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 50 investors
- may not be required to appoint a licensed manager or a Depositary in certain circumstances such as when its total assets do not exceed €5 million (or currency equivalent) including any investment compartments thereof, or its instruments of incorporation limit the number of its unitholders (including any investment compartments thereof) to 5 persons for the duration of the life of the AIF, or 90% of the assets are not subject to custody and the number of investors are limited to 25 and provided each investor subscribes a minimum of €500,000
- assets under management do not exceed the AIFMD thresholds of €100 million (including leverage) or €500 million (without leverage, 5-year lock-up period for investors)
Registered AIFs (RAIFs)
Registered AIFs (RAIFs) are a new and innovative fund vehicle launched in July 2018. They are geared to Professional and Well-Informed Investors only and offer a quick and cost-efficient fund launch of only one month from the date of filling a duly completed ‘notification pack’ to regulator CySEC, which will include the AIF in the list of Registered AIFs.
- RAIFs do not require authorisation by the Cyprus Securities and Exchange Commission (CySEC), being the competent authority supervising AIFs, in order to commence operations as long as they are externally managed by an Alternative Investment Fund Manager (AIFM) established in Cyprus or within another EU Member State
- Instead, the establishment of a RAIF will need to be notified to the CySEC and be included in a special register that shall be maintained to this end.
- This revolutionary development results to a drastically time efficient and more affordable way for establishing AIFs in Cyprus.
- Key benefit for RAIFs is the use of the EU marketing passport via its AIFM.
- Option for umbrella structure with multiple investment compartment
- In deviation of the above, RAIFs structured as limited partnerships may also be externally managed by managers other than AIFMs (i.e. Investment Firms, UCITS Management Companies) in such event, the RAIF must necessarily be closedended and invest in illiquid assets.
- Another significant reform is the option for structuring an AIF as a limited partnership with inherent legal personality, resulting to the AIF having separate legal personality compared to the AIFs structured as traditional limited partnerships.
Cyprus can offer specific advantages to non-EU fund managers wishing to raise capital in Europe, as well as to develop a presence in the European market to benefit from the right to easily distribute their funds to investors in all EU countries. Through our affiliated licensed Fund Managers we can provide you with Fund Hosting solutions.
Parties that can benefit from the creation of a Fund
- High net worth individuals seeking to achieve asset protection
- Set up of a Family office under a fund structure to manage the assets within the family
- Venture Capitalists whose investments require extra funds to be raised for their strategic goal to be implemented
- Funds can act as a substitute to bank financing, as funds through capital raised from private and institutional investors, can contribute to long-term projects in development of infrastructure, healthcare and education.