Following the entry into force of the Alternative Investment Funds Law of 2014 ("the AIF Law") on 27 July the Cyprus Securities and Exchange Commission ("CySEC") has issued guidance on a number of practical implementation issues. The AIF Law regulates the establishment and operation of Alternative Investment Funds (AIFs) in Cyprus and replaces the International Collective Investment Schemes Laws of 1999 and 2000 ("the ICIS Laws"). It designates CySEC as the supervisory authority for AIFs.

Following article 4(1)(a) of the Alternative Investment Fund Managers Directive, the AIF Law defines an AIF as "a collective investment undertaking, including investment compartments thereof, which raises 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 is not authorised as an Undertaking for Collective Investments in Transferable Securities (UCITS) in accordance with section 9 of the Open-Ended Undertakings for Collective Investments Law of 2012." International Collective Investment Schemes (ICIS) established under the ICIS Laws fall within this definition. Article 120(1) of the AIF Law provides that ICIS that have been authorised under the ICIS Laws by the Central Bank of Cyprus ("CBC") may continue to operate on one of the following bases:

  1. As AIFs with a limited number of persons, subject to complying with articles 114 – 118 of the AIF Law and providing CySEC the information and documents specified in article 120(1)(a). Under this option they may continue to operate on the basis of the authorisation issued by the CBC, and need not apply for re-authorisation by CySEC;
  2. As AIFs under Part II of the AIF Law, subject to obtaining authorisation from CySEC in accordance with article 13 of the AIF Law; or
  3. As Alternative Investment Fund Managers, subject to obtaining authorisation from CySEC in accordance with article 8 of the Alternative Investment Fund Managers Law of 2013.

The deadline for submission of the information referred to in (a) and the applications referred to in (b) and (c) above was 27 November 2014. Until that date, or until the information was submitted to CySEC, whichever occurred first, the CBC continued to supervise ICIS that it had authorised. ICIS that have submitted an application may continue to operate until their application has been considered and they have been informed of the outcome. ICIS that do not follow this procedure, or that do not fulfil the conditions of the AIF Law for continuation on the chosen basis, will be automatically dissolved in accordance with the ICIS Laws.

The CBC has already transferred to CySEC its register of the ICIS that it has authorised. Any pending applications at 27 July 2014 from ICIS meeting the requirements of article 114(1) of the AIF Law were transferred from the CBC to CySEC and will be determined by CySEC without any need for a new application to be submitted. CySEC will contact the applicants to resolve any questions.

The enactment of the new AIF Law marks a long-awaited modernisation of Cyprus's investment funds regime. Combined with the island's stable and transparent political legal and commercial infrastructure, its reliable and familiar common-law legal system and the excellent professional and financial services available at a competitive cost, it should transform Cyprus into a major force in the international funds market. Cyprus's tax regime is particularly beneficial, offering a corporate income tax rate of 12½%, among the lowest in the EU, full exemption from tax on gains from trading in securities and a generous participation exemption regime on foreign dividends in conjunction with an extensive network of double tax treaties for international tax planning.

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