Alternative Investment Funds
An Alternative Investment Fund is a collective investment undertaking to raise external capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and that has not been authorised as a UCITS.
The Alternative Investment Funds Law was enacted in July 2014 to replace the International Collective Investment Schemes (ICIS) Law of 1999 and bring all investment products, asset managers and investment firms under the regulation and supervision of the Cyprus Securities and Exchange Commission (CySEC).
How it works?
The new law offers more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs, as well as regulation on the role and responsibilities of their directors, custodians and external managers.
It also aligned the Cyprus legal and regulatory framework with the latest EU directives on asset management, transparency and investor protection. AIFs that are established under domestic Cyprus fund legislation can therefore be sold on a private placement basis or marketed to professional investors across the EU under the AIFMD passport.
An Alternative Investment Fund can be established with limited or unlimited duration and can take the following legal forms:
Fixed Capital Company
Variable Capital Company
Limited Partnership
Common Fund
What investment funds are available in Cyprus?
The types of Cyprus Alternative Investment Funds are:
With Unlimited Number of Persons
These may be marketed to ‘retail’, or ‘well-informed’ and/or ‘professional investors’ and are freely transferable investor shares, which can be listed on a recognised stock exchange. AIFs marketed to retail investors can be traded. They are subject to minimum capital requirements of €125,000 (or €300,000 if a self-managed fund) and may be subject to certain investment restrictions depending on the investor type and the overall investment policy. A global custodian must be appointed.
With Limited Number of Persons
The total number of investors/unit holders cannot exceed 75. These may be marketed only to ‘well-informed’ and/or ‘professional investors’ and are freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 75 investors. Assets under management do not exceed the AIFMD thresholds of €100 million (including leverage) or €500 million (five-year lock-up period without leverage). In certain cases they may not be required to appoint a licensed manager or a custodian.
The Investor Classifications are:
Professional Investor
An investor who is considered to be a professional client, who has the experience and expertise to make his/her own investment decisions and assess the risks involved. To be considered a professional client, the investor must comply with the criteria prescribed in the Markets in Financial Instruments Directive (MiFID) 2004/39/EC.
Well-informed Investor
An investor who is not considered to be a professional investor, he/she must confirm in writing that they are a qualified investor who is aware of the risks involved with an investment in the relevant AIF. They must make a minimum investment of €125,000 or have been evaluated by a licensed bank/credit institution, an authorised investment firm or an authorised management company that he/she has the expertise, experience and knowledge in evaluating the suitability of an investment opportunity.
Retail Investor
An investor who does not meet the requirements listed above
Key Benefits
The Key Benefits of the Cyprus Alternative Investment Funds are:
A Cyprus AIF is cost-efficient and simple to set-up, manage and operate. It offers a modern regulatory framework that is in line with relevant EU directives, is supervised by a competent and accessible regulatory authority and enjoys reduced reporting requirements.
It provides full transparency through annual audited and half yearly reports to CySEC and investors, which include financial statements, borrowing information, portfolio information and Net Asset Value.
There are no restrictions imposed by the regulator on type of investments and, subject to approval, a Cyprus AIF can be self-managed. Cyprus AIFs can be set-up as umbrella funds with multiple compartments and can be listed on CySEC and other recognised EU stock exchanges, provided that the number of investors is not limited.
Tax Benefits
The Tax Benefits of the Cyprus Alternative Investment Funds are:
Most dividend income and capital gains of a Cyprus tax resident fund is tax-free. Interest income is taxable, but effective tax can be significantly reduced taking into account the notional interest deduction (NID) on new equity. Services provided by the investment manager of the fund are not subject to VAT.
Tax resident funds are eligible to all benefits available under a double tax treaty or EU Directives and there is:
No withholding tax on any type of payments to non-residents
No subscription tax on net assets of a fund
No capital gains tax on disposal of shares/units by the holders
