The new Cyprus Law regulating Alternative Investment Funds, approved by the parliament on 10 July 2018, provides for so-called Registered Alternative Investment Funds (RAIF), which will not be regulated by the Cyprus Security and Exchange Commission (CySEC) and do not need to be licensed by CySEC, thus not regulated.
A RAIF is exclusively aimed at well-informed investors and/or professional investors, it is not possible to be marketed to retail investors. Furthermore, a RAIF must invest a minimum of EUR500.000, which must be realized within the first year of its establishment
A RAIF can take the following legal forms:
- Variable Capital Investment Company (VCIC)
- Fixed Capital Investment Company (FCIC)
- Limited Partnership
- Common fund
A RAIF may also operate as an Umbrella Fund structure, with more than one investment compartments (sub-funds).
RAIFs can only be externally managed thus the supervision is performed indirectly through its Fund Manager.
An externally managed RAIF 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) – provided that the RAIF invests at least 70% of its assets in liquid assets and takes the form of a close-ended fund
The eligible depositaries for a RAIF 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.
Appointment of a Depository for the safekeeping of the RAIF's assets is mandatory for all types of RAIFs.
Fund Tax Facts
- A RAIF 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 RAIF by up to 80%.
- No withholding tax on dividend distribution to foreign investors and no tax is applied on the redemption of units of a RAIF
- In case of a RAIF with multiple compartments, each compartment is taxed separately, despite the fact that each compartment is not considered a separate legal entity.
Even though a RAIF is not subject to authorisation, it must still submit a notification to CySEC in order to be registered to the RAIF Register. The Register is maintained by CySEC.
The notification should be submitted by the AIFM within one month from the set-up of the RAIF and must be accompanied by supporting documents.
CySEC, must review the notification package submitted and proceed with the registration of the RAIF in the RAIF Register within one month from the receipt of the completed notification package.
The marketing of the units of the RAIF may start once the RAIF is successfully registered in the RAIF Register.
- Cost-Effective Vehicle
- May be used until converted to AIF
- No minimum capital requirement, but minimum investment is required
- May be open-ended or close-ended
- RAIFs can be set-up as umbrella funds with multiple compartments, allowing the management of different pool of assets
- No Investment Restrictions (except setting up as funds of funds, money market funds or Loan Origination Funds)
- RAIF can have an unlimited Number of Investors
- No limitation for the assets managed
- No taxation of capital gains
- Passporting Rights for fund distribution within the EU
- Supervision at the level of the AIFM managing the RAIF(s)
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.