Alternative Investment Funds (AIF)

Alternative Investment Funds (AIF) in Cyprus

The Alternative Investment Funds (AIF) Law in Cyprus provides for three types of Alternative investment Funds:

  1. AIF-LNP: with limited number of persons / investors (up to 75)
  2. AIF-UNP: with an unlimited number of persons.
  3. Registered Alternative investment Fund (RAIF) – new – 2018

For internally-managed AIFs that fall below the AIFMD thresholds, the minimum capital requirements are set to €125.000, which must be available at any time in the form of cash which is deposited in the name of the AIFLNP in an approved credit institution in an EU member state or in the form of assets readily convertible to cash.

For internally-managed AIFs that fall within the conditions of the AIFMD the minimum capital requirement is set at €300.000.

An AIF can take the following legal forms:

  • Variable Capital Investment Company (VCIC)
  • Fixed Capital Investment Company (FCIC)
  • Limited Partnership
  • Common fund

AIFs may be either internally or externally managed.

An AIF which is internally managed, may take the form of an Investment Company or a Limited Partnership with separate legal personality.

An externally managed AIF may take any legal form and can be managed by:

  • An AIFM (established in Cyprus or the EU or third country)
  • a UCITS Management Company (established in Cyprus or the EU)
  • an Investment Firm (established in Cyprus or the EU)
  • a Sub-threshold AIF/mini manager (authorised in Cyprus or the EU)

The eligible depositaries for an AIF include Credit Institutions, Investment Firms or an institution under prudential regulation and supervision, and recognised by the Member State as eligible to be appointed as depositaries.

The depositary of an AIF is responsible for:

  • the safekeeping of AIF’s assets by maintaining the register of its assets
  • the oversight of the AIF regarding any subscriptions and redemptions, valuation of shares/units, timely settlement of transactions, profit distribution and the carrying out of the External Manager’s instructions
  • the effective and proper monitoring of the AIF cashflows.
  • An AIF will be subject to Corporation Tax at 12.5% on the resulting net profits without any imposition of taxes on the net assets of the Fund.
  • Dividend Income and any profit generated from the trading of titles (i.e. shares, units of funds, bonds, options etc, are exempt from taxation in Cyprus
  • Interest Income received is considered for tax purposes as “active” income and is exempt for the Special Defence Contribution tax. Thus interest income is taxed as normal business income at 12.5% corporate tax on resulting net profits
  • Capital raised from investors (unitholders) may be eligible to receive a Notional Interest Deduction (NID) as per the provisions of the Cyprus Tax Legislation which can potentially reduce the taxable base of a company-type AIF by up to 80%.
  • No withholding tax on dividend distribution to foreign investors and no tax is applied on the redemption of units of an AIF
  • In case of an AIF with multiple compartments, each compartment is taxed separately, despite the fact that each compartment is not considered a separate legal entity.

The operation of an AIF is subject to the prior granting of authorisation and notification of authorisation by CySEC, only if CySEC approves:

  • The relevant application;
  • The AIF’s fund rules or instruments of incorporation;
  • The choice of external manager, or in case of internally managed AIF, the persons who effectively shall conduct the business of the AIF; and
  • The choice of the depositary.

ADVANTAGES

  • No Restrictions as to the type of Investments
  • Low set-up and maintenance costs compared to other EU Jurisdictions
  • Simple and fast-track application process for licensing
  • AIFs can be self-managed, subject to the approval of CySec
  • AIFs can be set-up as umbrella funds with multiple compartments, allowing the management of different pool of assets
  • The company of the funds can exploit the 50+ double Tax Treaties Cyprus has entered into.
  • AIF-UNP can be listed on the Cyprus Stock Exchange and other EU stock exchanges
  • No withholding tax on dividend distributions
  • No taxation of capital gains

How Can we ASsist?

  • Incorporation and licensing services for the fund (Preparation of application for regulatory approval and monitoring)
  • Tax Advisory Services
  • Drafting of the fund prospectus and necessary agreements between relevant parties (fund manager, investment manager, custodians, investment advisers, bankers, registrars and company secretaries)
  • Fund Administration Services
  • Maintenance of Investor Registries
  • Arranging for the issue, transfer, allotment, conversion, redemption and/or purchase of shares
  • Accounting, management and investor reporting
  • Appointment of Non-Executive Directors