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Cyprus Alternative Investment Funds  

 

 

Cyprus Alternative Investment Funds (AIFs) raise capital collectively from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of investors.

 

Legal Framework

 

AIFs are governed by the Alternative Investment Funds Law of 2014 (the "AIF Law") and are authorized and regulated by the Cyprus Securities and Exchange Commission (CyCEC).

 

The AIF Law applies to AIFs established in Cyprus and regulates the role and responsibilities of persons engaged in the activity of AIFs such as custodians, directors and investment managers.

 

Types of AIFs

 

1. AIF with unlimited number of investors ("AIF-UNP") marketed to:

 

  (i) retail, or

  (ii) well-informed and/or professional investors

 

2. AIF with limited number of investors ("AIF-LNP") of max 75, marketed to:

 

   (i) well-informed and/or professional investors only

 

AIF-LNP

 

The most common category is the AIF-LNP, which is more lightly regulated with respect to:

 

  • Not subject to investment restrictions

  • Not subject to minimum capital requirements

  • Subject to lesser investor desclosure and other reporting obligations

  • Subject to less stringent requirements as to the contents of their prospectus

  • Subject to lighter marketing rules

 

An AIF-LNP can be formed as:

 

  1. ​An Investment Company or

  2. A Limited Liability Partnership 

 

Whereas if it formed as an Investment Company, it can be:

 

  1. Self-managed by the board of directors, or

  2. Managed by an eligible external manager

 

A Limited Liability Partnership can only be managed by an eligible external manager

 

Open Vs Close Ended

 

An AIF can be established as an:

 

  1. Open-ended fund; where investors have the right to redeem/repurchase their units upon request at, 

 

    (i) any time, or

    (ii) at regular intervals not exceeding one year

 

 2.  Closed-ended fund; where investors have the right to redeem/repurchase their units upon request at, 

 

   (i) regular intervals exceeding one year but less than five years, or 

   (ii) at a specific point in time which is defined in the fund rules or its instruments of incorporation

 

Favorable Tax Implications

 

AIFs formed as investment companies are subject to favorable tax provisions:

 

  • Corporate income tax rate of 12,5%

  • No tax on profit from disposal of shares and other qualifying titles 

  • No dividend income tax (subject to certain criteria)

  • No withholding taxes on any payments made from Cyprus to non-Cyprus resident persons (such payments include dividends, interest and royalties)

  • No tax on capital gains

  • No stamp duty on the issue of units

  • No CFC rules

  • Dividends distributed or deemed to be distributed by an AIF to Cyprus tax residents are subject to only 3% SDC (compared to 17% that applies to dividents from other limited liability companies)

  • Access to benefits of the Cyprus double tax treatly network and relevant EU Directives helping to eliminate or significantly reduce foreign withholing tax or payments made to a Cyprus resident company

 

How we Can Help

 

  • Advise on the requirements, the setup and appropriate structure of a new AIF

  • Drafting the application documents including constitutional documents, the offering memorandum, business plan, operational manuals and policies

  • Submission and monitoring of the application for licensing

  • Act as a liaison with CySEC during the licensing process

  • Provide essential services such as Management, Administration, Depositary, Compliance, Risk Management, Book Keeping, Secretarial, Legal Advisory, Internal Audit, External Audit and Tax Advisory throughout the life of the AIF

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