Cyprus: Alternative Investment Funds Under Cyprus Law

Alternative Investment Funds are defined by the Alternative Investments Law 2014 as "any collective investment undertaking, including investment compartments thereof, which, collectively:

  1. 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
  2. does not require authorisation pursuant to section 9 of the Open-ended Undertakings for Collective Investments Law of 2012 or pursuant to the legislation of another Member State which harmonises the article 5 of the Directive 2009/65/EC"

The law governing AIFs is the Alternative Investment Funds Law (AIF Law) that repeals the International Collective Investment Schemes Law of 1999 (ICIS Law 47(I)/1999). The Cyprus House of Representatives voted for that on 10th of July 2014. The Cyprus Securities and Exchange Commission (CySEC) is the body responsible for the establishment and regulation of AIFs. Also, the operations of an AIF have to be approved by the CySec. CySec will not grant authorisation if the conditions in s13(3) are met. They have to make sure that they fulfil all the conditions.

Legal Forms & Management

AIF can take the legal form of a mutual fund, of a limited liability company with shares and it is hereof called 'fixed capital Investment Company 'or 'variable capital Investment Company' and lastly it can be formed as a limited liability partnership. If an AIF does fall within the law, it is prohibited to be altered in a way that does not fall within the law. An AIF could be altered from an investment company to a limited liability partnership or a common fund. Investors should ensure that the legal form fall under the AIF Law and the alternation is voted by the board. The management includes the administration of the AIF, the marketing, and the management of the investment and the risks of the activities. Management of operations should be made by at least 2 persons. The manager must satisfy the "fit and proper person test" which means he must have the appropriate education, experience, reputation and capital resources.

It can be managed externally by a third party appointed as the portfolio manager, who is approved either in Cyprus or in another jurisdiction, but authorized, by the national law and the EU Directives. The fund should be managed according to the Alternative Investment Fund Managers Law of 2013; otherwise they will be subject to registration. The external manager shall apply appropriate risk management systems.

Also, management can be made internally where the Board appoints an executive Director if it is a fixed or variable capital company or a general partner if it is limited liability partnership. In that situation, the manager has to be approved by CySec.

Regarding the administration, if a fund does not have a physical presence in Cyprus, then administration work must be carried by another company. Administrator should be based in Cyprus and approved by CySec. Whether a fund should be managed internally or externally depends on the category that falls in, which are explained below.

Redemption – Repurchase Rights

An AIF can be established either as an open-ended fund or a close-ended fund.

  1. Open-ended fund: The right to redeem or repurchase by unit holders its by request, (i) at any time, or (ii) at regular intervals which do not exceed one year and are defined in the fund rules or the instruments of incorporation of the AIF;
  2. Close-ended funds: the right to redeem or repurchase by unit holders is by a request (i) at regular intervals that exceed one year, but shall not extend for more than five years and are defined in the rules or instruments of incorporation of the AIF; or (ii) at a specific time that is defined in the fund rules or the instruments of incorporation of the AIF.

If an AIF is established as a venture capital fund in line with the Regulation (EU) No. 345/2013, the initial period of redemptions may extend up to ten years from the date of its incorporation.

Categories of AIFs

An AIF can be divided into two categories. The AIF with:

  1. Unlimited Number of Investors (AIF-UNP): where it can take the form of a common fund, an investment company or as limited. They can be marketed to retail investors, well-informed investors or professional investors. It can be either a close-ended or an open-ended fund. The management of it can be made as mentioned above, either internally or externally. Also, it does have a minimum capital requirement of at least 125,000 or 300,000 euros where it is self-managed and;
  2. Limited Number of Investors (AIF-LNP): it can take the form of an investment company with shares or a limited liability partnership. The establishment of an AIF-LNP should not fall within the AIFM Law, thus it is not managed by an alternative investment fund manager. Also, its documents should state that it is addressed to professional or well informed investors. The number of investors should not exceed 75 and it does not allow the issuance of bearer shares. An AIF-LNP could be self-managed or externally managed.

The initial capital of both shall be consisted by cash or assets and itis going to be determined by the external manager or the fund itself. The non-cash contributions should be valued by an independent valuer.

According to the AIF Law 2014:

"professional investor" means an investor which is considered to be a professional client or may, on request, be treated as a professional client within the meaning of Annex II of the Investment Services and Activities and Regulated Markets Law as amended;

"well informed investor" means an investor which is not a professional investor and fulfils the following conditions:

  1. confirms in writing that he is well-informed and that he is aware of the risks related with the proposed investment; and
  2. either his investment in the AIF amounts, at least, to €125 000, or he is assessed as a well-informed investor, either by a credit institution that falls within the scope of the Banking Laws as amended, or by an Investment Firm, or by a UCITS management company and the above mentioned assessment shows that he has the necessary experience and knowledge to be able to evaluate the appropriateness of the investment in the AIF;

New Structuring Options

According to the previous legal framework the following structuring options were not possible. However, under the new law, those four structuring options are now available:

  1. Umbrella structures: is where there are multiple investment compartments. There could be management of different pools of assets even with different investment policies. Each pool of asset will be according to the AIF Law provisions. It is possible that an investment compartment will invest in an investment compartment within the same AIF. The investors rights will derive from the assets. The liabilities and assets are being ring fenced.
  2. Common funds: are contractual fund structures where investors participate as co-owners of the assets of the AIF. Investors are liable to the amount of their contribution.
  3. Public Offerings and listing: it is possible to make public offerings of shares/units of AIFs as well as listing them on the stock market, which increases the AIF's potential investor base and enhances marketability and transparency;
  4. Depositary: AIFs can be undertaken by different investment policies. Now is possible to be undertaken by a depositary which means by an entity other than a credit/ banking institution, subject to certain conditions. This may aid in the structuring and operations of AIFs; not directly investing in financial and money market instruments. Its role is to safe keep the AIF's assets. It must be based in Cyprus or in an EU Member State or in a Third Country which CySec has signed a cooperation agreement. However, where a depositary is not used this may be because of derogation. Also, where there is an AIF-LNP a depositary will not be possible if the assets under management are less than five million euros, if investors are less than 5 or if investments are not subject to custody.

Why set up a Fund in Cyprus?

Cyprus is very attractive for that kind of investments. This is because Cypriot jurisdiction is preferable to others, due to its corporate tax rate which is 12.5% on the taxable profit. There is no capital gain tax on disposal or wealth tax. AIF-LN is not subject to diversifications rules.

Also, Cyprus is a member of the EU and Eurozone, thus Cyprus could be investors' opportunity to enter EU. Cypriot jurisdiction is in line with the anti-money laundering regulations of the EU. Its legal system is based on common law which makes it rigorous and transparent. The country is a member of the MONEYVAL. Moreover, there are lower set-up and operational costs than other countries. Therefore, Cyprus has an advantage and it would be benefited by developing AIFs area.

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

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

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”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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