Cyprus, an EU member country, has set its sights on becoming a fund and asset management centre of excellence, and with the requisite legislation and increasing inflows of foreign investments, the country is well on its way. Developing the fund investment sector and achieving this goal is a long journey for the industry, but the vision is set to become a reality.
Cyprus combines tax efficient features of a modern financial centre with the appropriate infrastructure for the fund's Industry. It offers the full spectrum of legislative framework to all fund products (UCITS and non UCITS) and provides fund managers to structure as Alternative Investment Fund Managers (AIFM) in line with the relevant EU Directive or a MiFID compliant Investment Firm, both EU passported. At the end of 2018, the Cyprus funds industry boasted a total of approximately €6.3bn assets under management displaying significant growth over the past few years. Approximately 48 percent of these relate to private equity Alternative Investment Funds (AIFs) and 16 percent to real estate with the
Remaining 36 percent spread evenly in other AIFs.
- EU member country compliant with EU laws and regulations
- Eurozone member
- Cost effective setting up and on-going operational services
- Favourable EU and OECD compliant tax regime
- Extensive network of double tax treaties allowing tax efficient structuring of investments
- Strategic position between Europe, Middle East and Africa
- Business centre with quality professionals and sophisticated infrastructure
- Extensive range of high quality legal and accounting services
- Efficient regulation, fully harmonized with EU Directives
- Collective investments can be listed on the Cyprus Stock Exchange and other recognized EU stock exchanges
- Cyprus based funds and asset managers' benefit from low tax rates
- Incentives and tax benefits for high earning managers and high net worth individuals
Alternative Investment Fund (AIF) The enactment of the Alternative Investment Funds (AIF) Law in July 2014 aligned the Cyprus legal and regulatory framework with EU Directives on asset management, with the aim to enhance transparency and investor protection.
Following continuous efforts to modernize the fund framework, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorization, ongoing operations, transparency and supervision of Cyprus AIFs, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers.
AIFs that are established under Cyprus fund legislation can be sold on a private placement basis or marketed to professional investors across the EU under the Alternative Investment Fund Managers Directive (AIFMD) passport.
With the enactment of the Alternative Investment Funds Law 124(I)/2018 or the "AIF Law 2018" in July 2018, Cyprus has modernized and significantly enhanced the offering of AIFs, or "on-UCITS", which can be registered and domiciled in Cyprus.
The AIF Law 2018, which replaced the AIF Law of 2014, has introduced the possibility to set up Registered AIFs (RAIFs). It also fine-tuned the other types of AIFs (i.e. AIFs with Unlimited and AIFs with Limited Number of Persons).
In brief, the AIF Law 2018 allows for the creation of AIFs with Unlimited Number of Persons (AIF-UNP), AIFs with Limited Number of Persons (AIF-LNP) and Registered AIFs (RAIF).
The main provisions of the AIF Law 2018 can be summarized as follows:
- Ability to create AIFs with unlimited investment compartments (i.e. umbrella funds), each with a separate investment strategy and asset pools
- The units of AIFs can be listed on stock exchanges
- There are various options available in relation to the appointment of an investment manager and depositary, providing maximum flexibility
- Investor units are freely transferable
- The AIF-LNP is limited to a maximum of 50 investors
- Possibility to create RAIFs, which do not require licensing, consequently, time to market is significantly shortened
Key Benefits of Cyprus AIF
- Cost efficient and simple to set up, manage and operate
- Modern regulatory framework in line with EU Directives
- Increased flexibility as a number of asset classes can be included in an AIF investment strategy
- Significant tax incentives offered by its attractive tax framework
- Full transparency through annual reports to the Cyprus Securities and Exchange Commission (CySEC) and investors, which include audited financial statements, borrowing information, portfolio information and Net Asset Value calculation
- Supervised by a competent and accessible regulatory authority
Registered Alternative Investment Fund (RAIF) RAIFs are a new and innovative fund vehicle launched in July 2018. They are geared to professional and well informed investors only and offer a quick and cost efficient fund launch of only one month from the date of filling a notification pack to the regulator, CySEC, which will include the AIF in the list of Registered AIFs.
The Cyprus Registered AIF is able to market to investors across the EU and will be managed by a full scope Cyprus or EU Alternative Investment Fund Manager (AIFM). Although the RAIF is not"authorized", it is indirectly subject to regulatory oversight through its AIFM. In addition to the full scope AIFM, a sub-threshold AIFM which is subject to prudential regulation, a MiFID Investment Firm in Cyprus or any EU member country may also manage a RAIF, provided it is a closed ended limited partnership and invests more than 70 percent in illiquid assets.
The new vehicle also provides structuring flexibility as it may be organized in any legal form available under Cyprus law (investment company with fixed or variable capital, limited partnership or common fund), it can be open or closed ended and it can follow any strategy and invest in any type of assets, with the exception that it cannot be established as a money market, loan origination fund and fund of funds.
The RAIF regime, whereby the fund does not require authorization from CySEC or subsequent monitoring, while being stamped as an AIF by virtue of the law, offers new opportunities for a quick and cost effective fund launch. This new type of fund needs to fulfil the following conditions: the fund manager must qualify as a full scope Cyprus or EU Alternative Investment Fund Manager (AIFM), and the fund must be targeted to professional investors and/or well informed investors. Third country AIFMs will be able to submit a request for registration of an AIF, once the country where these have been established has granted passporting rights pursuant to the AIFMD. CySEC will rely on the regulated status of the AIFM, to ensure compliance and indirect supervision of applicable laws and appropriate standards by the fund. Another key benefit of this fund is the use of the EU marketing passport via its AIFM.
Key features of Cyprus RAIF
- No licensing required
- No minimum capital requirements
- No investment restrictions
- Multiple compartments possible
- Can operate as open or closed ended
- Units of RAIFs may be listed
- Requirement to appoint local depository
- Can be converted into an AIF
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.