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 RAIF, which is a new type of Fund introduced in 2018 with the objective to provide speed and flexibility in setting up a Fund in Cyprus. 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.

In accordance with the AIF legal framework, there are no authorisation requirements for a Cyprus RAIF since in effect a RAIF is indirectly subject to regulatory supervision through its Alternative Investment Fund Manager (AIFM).

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 including but not limited to:

  • Information regarding investment strategies, the policies of the external manager for the use of leverage, the risk profile and characteristics of the RAIF it manages
  • The regulation or the memorandum of the RAIF the manager intends to manage.
  • Information in relation to the appointment of a Depository.
  • The RAIF's Information Memorandum
  • The authorisation of the AIFM

The Regulator, 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 only after the RAIF is registered in the RAIF Register.

2. Legal Forms

A RAIF 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
  • Common Fund

A RAIF 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

Due to the fact that RAIFs are not subject to authorization from CySEC, the supervision is performed indirectly through its Fund Manager. Therefore, it is required that a RAIF is Externally Managed by a Cyprus or EU Alternative Investment Fund Manager (AIFM) or a third country AIFM under the passporting system, with Cyprus as the member state of reference.

If the RAIF is established as a Limited Partnership, it can also be managed by an EU UCITS Management Company, an EU Investment Firm and a Sub-threshold AIFM provided that the RAIF invests at least 70% of its assets in illiquid assets and takes the form of a close-ended fund.

4. Depositary Requirements

The appointment of a Depository for the safekeeping of the RAIF's assets is mandatory for all types of RAIFs.

For Cyprus RAIFs that are managed by an AIFM the eligible Depositaries include, Credit Institutions, Investment Firms or an institution under prudential regulation and ongoing supervision which have their registered office or a branch in Cyprus.

For RAIFs that are not managed by an AIFM (please refer to condition in section 3 above), the eligible Depositaries include also Credit Institutions and Investment firms from EU or third countries.

5. Investment Strategy

A RAIF's permitted investment strategy is generally wide in order to meet its main objectives of a fast, efficient and flexible fund structure. However, a RAIF cannot pursue a Money Market policy, act as a Loan Origination Fund or a Fund of Funds. All other investment strategies are permissible.

6. Eligible Investors

One of the preconditions for the registration of a Cyprus RAIF is that it must be addressed exclusively to professional and well-informed Investors and it is not possible to be marketed to retail investors.

7. Limitation on Number of Investors

A Cyprus RAIF has no restriction as to the number of investors. It can have an unlimited number of investors.

8. Initial Capital Requirements

There are no initial capital requirements for the RAIF registered in Cyprus.

9. Value of Assets under Management

RAIFs must hold assets of at least €500.000 for each investment compartment within 12 months from the date of registration, 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 are not taken into account for the calculation of the RAIF's assets under management.

For RAIFs in the form of limited partnership that are not managed by an AIFM as explained in point 3 above, the assets under management should be below the AIFMD thresholds.

10. Fund Taxation

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

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 a RAIF 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 a RAIF.

In case of a RAIF 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.