Cyprus: Cyprus Alternative Investment Funds - Your Gateway To Europe And Beyond

Last Updated: 8 June 2016
Article by Charles Savva

With the July 2014 enactment of the Alternative Investment Funds Law (the "AIF Law" or "Law"), Cyprus modernised and significantly enhanced the offering of alternative investment funds, or "non-UCITS", which can be registered and domiciled in Cyprus.

The AIF Law replaced the previous International Collective Investment Scheme Law of 1999, and has resulted in the regulation of all investment products, asset managers and investment firms being under the auspices of the Cyprus Securities and Exchange Commission ("CySec").

With the enactment of the AIF Law, Cyprus now offers the full spectrum of legislative framework to all fund products, both UCITS and non-UCITS, and provides fund managers the opportunity to structure as a licensed Alternative Investment Fund Manager, in accordance with the relevant EU directive, or a MiFID compliant Investment Firm, both offering EU passporting.

The Law allows for the creation of AIFs with Unlimited Number of Persons ("AIF-UNP"), or AIFs with Limited Number of Persons ("AIF-LNP"), the latter being the most flexible and "light-touch" regulated form of investment fund.

An AIF can take various legal forms from Fixed or Variable Capital, Limited Partnership or Common Fund (available only as an AIF-UNP).

The main provisions of the AIF Law can be summarised as follows:

  1. Ability to create AIFs with unlimited investment compartments (i.e. umbrella funds), each with a separate investment strategy and asset pools.
  2. Can list the units of AIFs on various stock exchanges.
  3. Various options available in relation to the appointment of an Investment Manager and Depositary, providing maximum flexibility.
  4. Investor units are transferable.
  5. The AIF-LNP is limited to a maximum of 75 investors.

During the last three years, the funds industry in Cyprus has experienced significant growth, resulting in the Island establishing itself as one of the major EU fund jurisdictions, with many reasons to domicile your AIF in Cyprus.

Its strategic geographic position, stable political system, attractive tax system, modernised AIF Law, combined with EU and Eurozone memberships, have served to attract global funds and fund managers alike.

The recent regulatory changes in the Cyprus funds industry have resulted in the full alignment of local legislation with the relevant EU Directives, including the Alternative Investment Funds Manager Directive.

Overall, Cyprus is the most flexible and cost efficient fund jurisdiction in the EU, a member of the EuropeanSecurities and Markets Authority (ESMA), and additionally boasts a comprehensive funds and related services workforce comprising of some 2,500 qualified lawyers and 4,000 qualified accountants, establishing Cyprus as a prominent player within the EU funds industry.

The Cyprus Law provides two types of AIFs, the AIF with unlimited number of persons (AIF-UNP) and AIF with Limited number of persons (AIF-LNP).

The main features of an AIF-UNP are summarised as follows:

  1. Can be marketed to any type of investor, including retail investors.
  2. Can be created as a limited liability company, a limited partnership or a common fund.
  3. Where an AIF-UNP is formed as a limited liability company, it can be self-managed by its Board of Directors, and in all other cases the appointment of an external investment manager is required.
  4. The investment manager must be:
  • A management company authorised under the AIFM Managers Law of 2013, or the equivalent from another EU member state (in accordance with the AIFM Directive).
  • A management company authorised under the Open Ended Undertakings in Collective Investments Law, or the equivalent from another EU Member state (in accordance with the UCITS IV Directive).
  • A company authorised to carry out portfolio management services under the Investment Services and Regulated Markets Law (i.e. a Cyprus Investment Firm).
  1. Must always appoint a depositary/custodian who can be a credit institution, a MiFiD investment firm or any other company subject to prudential supervision who may be based in Cyprus, the EU or in any third country which CySec has a signed cooperation agreement with (certain restrictions apply if the AIF-UNP is managed by an AIFM).
  2. Must be established with a minimum initial capital of €125,000 (or €300,000 in the case of a self-managed AIF-UNP).
  3. The units of the AIF-UNP can be listed on a recognized stock exchange.
  4. Can be established with unlimited investment compartments (sub-funds / umbrella fund), each with a separate investment strategy and asset pools.
  5. Is subject to investment restrictions / diversification rules which vary depending on the nature of the AIF's investments (i.e. liquid vs illiquid assets) and on the AIF's targeted investors (i.e. retail investors vs experienced investors).

The main features of an AIF-LNP, considered a "light-touch" investment fund, are summarised as follows:

  1. Must be marketed only to professional or well-informed investors.
    • A professional investor, as defined within the MiFiD Directive, is an investor who possesses the experience, knowledge and expertise to make his or her own investment decisions and properly assess the risks that he or she incurs.
    • A well-informed investor, as defined within the AIF Law, is an investor who does not qualify as a professional investor and:
      • Invests a minimum of €125,000 in the AIF, or
      • Is successfully assessed as a well-informed investor by a bank, an investment firm or by a UCITS management company in Cyprus.
  2. The maximum number of investors permitted, at any time, is capped at 75.
  3. Can be created as a limited liability company or a limited partnership.
  4. Where an AIF-LNP is formed as a limited liability company, it can be self-managed by its Board of Directors. If the AIF-LNP is formed as a limited partnership, it must appoint an external investment manager.
  1. The investment manager must be:
    • A management company authorised under the Open Ended Undertakings in Collective Investments Law, or the equivalent from another EU Member state (in accordance with the UCITS IV Directive).
    • A company authorised to carry out portfolio management services under the Investment Services and Regulated Markets Law (i.e. a Cyprus Investment Firm).
    • A company created with the sole purpose of managing the specific AIF-LNP.
  2. An AIF-LNP is not required to appoint a depositary/custodian if:
    • Its assets are less than €5,000,000, or
    • If it sets the maximum number of investors to 5, or
    • Its assets are not subject to custody.
  3. If the AIF-LNP  appoints a depositary/custodian, this can be a credit institution, a MiFiD investment firm or any other company subject to prudential supervision based in Cyprus, the EU or in any third country with which CySec has a signed cooperation agreement with (certain restrictions apply if the AIF-UNP is managed by an AIFM).
  4. There are no minimum initial capital requirements.
  5. There are no investment restrictions.
  6. There are no investment diversification rules.
  7. The units of the AIF-UNP can be listed on a recognized stock exchange.
  8. Can be established with unlimited investment compartments, each with a separate investment strategy and asset pools, however the number of investors must be limited to 75 (over the entire AIF).

The key taxation benefits which an AIF and its stakeholders can enjoy are the following:

  1. Exemption from tax on profits from the disposal of securities (it should be noted the Cyprus Tax Authorities have provided a wide definition of what constitutes eligible securities/titles).
  2. Exemption from tax on dividend income (subject to certain conditions).
  3. No withholding taxes on repatriation of dividends, interest and royalties to non residents.
  4. 12.5% corporate tax rate, being among the lowest in the EU.
  5. An extensive and continuously growing network of double tax treaties.
  6. No stamp duty on the issue of units in AIFs.

Savva & Associates: Cyprus' premier funds services provider

Savva & Associates is a premier funds services provider  in Cyprus with a team of qualified accountants, lawyers and fund experts assisting international clients worldwide.

We are a Cyprus Securities and Exchange Commission licensed fiduciary and corporate services providers. We are one of the few providers experienced in the licensing and administration of AIF's, and the most cost efficient in delivering high level alternative investment fund services in Cyprus.

Our dedicated Investment Funds Division has extensive knowledge of financial services, coupled with local legal and tax expertise, ensuring efficiency in the establishment, licencing and ongoing management of AIFs.

To discuss your specific AIF needs and to find out more about Cyprus fund formation and the complete AIF submission process contact Mr Charles Savva, (Managing Director and Head of Tax) at c.savva@savvacyprus.com or Mr Panayiotis Vassiliades, (Chartered Accountant and Director of S&V Audit Services Ltd) at p.vassiliades@svauditservices.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions