Cyprus is dynamically positioning itself as one of the top emerging investment fund centres in Europe. The fully upgraded and modernised legislative and regulatory framework, which is in full compliance with the European legislation, has enhanced competiveness and has placed the country in the league of important jurisdictions for the Alternative Investment Funds industry.

The Government, the Regulator and the Professionals have firmly committed in providing their full support in developing further the Funds industry in Cyprus and there is strong belief that this joint effort will create even more positive results.


Conducting business through a fund, a vehicle which operates under more strict and transparent rules than normal limited liability companies, gives the ability to raise capital from private and institutional investors who are not really interested in being involved in the day to day management of their investment but seek a good return on their investment in accordance with the risk they chose to undertake.

Funds are traditionally being used as an alternative method to bank financing and are used to finance real estate, shipping and other large scale investments. It is also one of the most widely used vehicle from Venture Capitalists whose investments may need extra funding.

The way investment funds operate provide a clear separation between ownership and the management and control of the underlying investments. This is due to the fact that the management is not performed by the owners (unitholders) but by fund managers who are subject to specific rules and supervision. This makes it appropriate for High Net Worth Individuals seeking to achieve asset protection and tax optimisation by replacing their traditional holding companies with a more sophisticated and professionally managed and regulated vehicle, as well as Family Offices who want to manage the family wealth in a more flexible and transparent way with specific risk and investment characteristics.


Cyprus being an EU Member State has a lot to offer in the financial services sector and the Funds industry in particular. With its efficient and up-to date regulation, which is fully harmonised with the related EU Directives, provides a framework in which Fund Managers and Funds can operate efficiently.

Further, Cyprus is an already established International Business Center with years of experience in servicing international clients. The skills and knowhow obtained from the experienced lawyers and accountants is now put at work in servicing the Funds industry in a cost effective manner, keeping the set-up and ongoing operational costs well below other established EU Fund jurisdictions, without compromising the quality of the services offered.

The island's strategic geographic location allows Cyprus to act as a footbridge between Europe and the emerging Middle East and African markets as well as the attractive Asian economies.

Finally, Cyprus enjoys one of the most attractive taxation systems which is fully compliant with EU and OECD requirements. Funds set up in Cyprus will have access to a wide network of double taxation treaties and will be benefited from low tax burdens levied on Cyprus based entities. In addition, specific incentives exist for fund managers and high-earning employees making the relocation of such persons very attractive from a taxation perspective.


There are three types of Alternative Investment Funds that can be set up in Cyprus. It is the Alternative Investment Fund of unlimited number of investors (AIF), the Alternative Investment Fund of Limited Number of Investors (AIFLNP) and finally the Registered Alternative Investment Fund (RAIF). In this publication we provide an overview of the AIFLNP, which is a type of fund that may be suitable for family offices and HWNI using the fund as an alternative to a group holding company. We will identify below its main characteristics and requirements. For more information on the other types of Alternative Investment Funds you may refer to our separate publications on each specific fund type.


1. Authorisation Process

The Cyprus Securities and Exchange Commission (CySEC) is the regulatory authority, responsible under the AIF Law for the licensing and supervision of Alternative Investment Funds in Cyprus.

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

  • The relevant application;
  • The AIFLNP's instruments of incorporation;
  • The choice of external manager, or in case of internally managed AIFLNP, the persons who effectively shall conduct the business of the AIFLNP; and
  • The choice of the depositary, if appointed.

The application for the granting of authorisation for an AIFLNP must be accompanied by the following data:

  • the name of the AIFLNP, its registered address and address of its headquarters,
  • sufficient information and data, including a resume for the people who effectively direct the business of the internally managed AIFLNP,
  • the name and data identifying and certifying the appropriateness of the external manager, as well as the identity of the person or persons responsible for the risk management and portfolio management functions,
  • a statement by the external manager confirming agreement to perform the investment management functions of the AIFLNP,
  • a statement by the depositary confirming agreement to perform the depositary functions for the assets of the AIFLNP,
  • the identity of the person or persons appointed by the depositary as responsible for monitoring the activity of the AIFLNP,
  • a draft of the AIFLNP's instruments of incorporation in case of an investment company or partnership agreement in case of an AIFLNP set up as limited partnership,
  • a draft of the AIFLNP's offering document,
  • a draft of the AIFLNP's key investor information document

CySEC shall inform the external manager of the AIFLNP or the AIFLNP directly, if internally managed, within 6 months of the submission of a complete application file as described above.

2. Legal Forms

An AIFLNP may be established and operate as open-ended or close ended fund and take the following legal forms:

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

An AIFLNP may operate as an Umbrella Fund structure, with more than one investment compartments (sub-funds).

According to the AIF Legislation, the Umbrella Fund and the Sub-Funds constitute a SINGLE legal entity but each Sub-Fund is:

  • Ring fenced and fully segregated from the Umbrella Fund and the other Sub-Funds.
  • Each Compartment's investors' rights are restricted to the assets of the compartment.
  • Each Compartment can be dissolved separately.
  • Each Compartment can have its own investment strategy.
  • The set-up and running costs of each compartment is lower than separate funds.

3. Fund Manager

AIFLNP's may be either internally or externally managed.

An AIFLNP which is internally managed, may take the form of an Investment Company or a Limited Partnership with separate legal personality. The persons who will be responsible for the internal management and the core functions of the AIFLNP must meet specific conditions and characteristics in order to be approved by CySEC.

An externally managed AIFLNP may take the legal form of Investment Company or Limited Partnership without separate legal personality and can be managed by:

  • a UCITS Management Company (established in Cyprus or the EU)
  • an Investment Firm (established in Cyprus or the EU)
  • a Sub-threshold manager (in Cyprus or the EU)
  • a third country company authorized to provide the portfolio management service
  • an EU or a non-EU company which has the sole purpose of providing the portfolio management service to the specific AIFLNP

4. Depositary Requirements

The assets of the AIFLNP shall be entrusted to a depositary which has its registered office in Cyprus, an EU member state or a third country.

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

There are certain exemptions to the obligation of an AIFLNP to appoint a depositary if:

  • The Total assets under management of all investment compartments is less than €5.000.000, or
  • The total number of investors for all investment compartments is restricted to 5 persons, or
  • The assets eligible to custody do not exceed the limit of 10% of the total value of the AIFLNP's portfolio, and
    1. the total number of investors for all investment compartments is restricted to 25 persons and
    2. each of the investors invests at least 500.000 in the AIFLNP

5. Investment Strategy

An AIFLNP is not subject to any investment restrictions. It may invest in any asset class without any conditions on the combination of assets invested or any strict ratio requirements.

6. Eligible Investors

A Cyprus registered AIFLNP can only be addressed to professional and well-informed investors and is not possible to be marketed to retail investors.

7. Limitation on Number of Investors

An AIFLNP can accept a maximum total of 50 investors. Investors are regarded only the natural persons, therefore, in case of legal entities investing in an AIFLNP, the number of shareholders of that entity is taken into account. The limitation of a maximum total of 50 investors applies to all investment compartments in aggregate.

8. Initial Capital Requirements

In the case of an externally managed AIFLNP there are no initial capital requirements, as such requirements are imposed on the manager.

For self-managed AIFLNP the minimum capital requirements are set to €50.000, 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.

9. Value of Assets under Management

AIFLNPs must hold assets of at least €250.000 for each investment compartment within 12 months from the date of authorisation, through the means of capital raising from investors

CySEC may extend the 12 month period for up to additional 12 months, if this is considered as necessary.

Any capital commitments for the acquisition of units as well as the amount of minimum initial capital as identified in section 9 above, are not taken into account for the calculation of the AIFLNP's assets under management.

It must be noted also that the assets under management of an AIFLNP, cumulatively for all compartments, must always be below the AIFM thresholds.

10. Fund Taxation

Cyprus based funds and their investors can benefit from a favourable tax environment. An AIFLNP 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.

It must be noted however that dividend income as well as any profit generated from the trading of titles – such as shares, units of funds, bonds, options etc, are exempt from taxation in Cyprus.

Any interest income received from an AIFLNP is considered as "active" income and is exempt from Special Defence Contribution Tax. This means that interest income is taxed as normal business income at 12.5% on any resulting net profits.

Further, the amount of 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%.

There are no withholding taxes on dividend payment to foreign investors irrespective of the percentage of the participation in the Fund and no taxation applied on the redemption of units of an AIFLNP.

In case of an AIFLNP with multiple compartments, each compartment is taxed separately (i.e. as a separate taxpayer) despite the fact that each compartment is not a separate legal entity.



The transformation of the investment funds regime in Cyprus in combination with the island's strategic geographic position, attractive tax environment and the experienced professional service sector has made Cyprus the rising star of the EU funds jurisdictions.

As the value of assets under fund management in Europe is increasing with a consistent growth rate, Cyprus with steady and important steps to the right direction, will play a significant role in the future of the global funds industry.

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.