The Alternative Investment Funds Law (the "AIF Law") was enacted by the Cyprus House of Representatives on 10/07/2014. The AIF Law repeals the International Collective Investment Schemes Law (the "ICIS Law") the former legislative framework for investment funds in Cyprus, which has been in place since 1999. AIFs are authorized and regulated by the Cyprus Securities and Exchange Commission ("CySEC").
Cyprus is rapidly growing as a centre for private as well as public investment funds and with the recent transposition of the Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive, Cyprus now offers a European passport to the Fund Management Industry. Cyprus has also implemented the Alternative Investment Fund Managers Directive (AIFMD) which enables the ability to offer outstanding possibilities for cross-border and global fund distribution benefiting from an efficient and reliable fund infrastructure.
By combining a good infrastructure with low costs while complying with EU fund regulations and international best practices, Cyprus adequately meets these requirements.
What is an AIF?
An AIF is defined as a collective investment undertaking (including its investment compartments) which:
raises external 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
has not been authorised as a UCITS.
Types and forms of AIFs
AIFs are categorised into the following two types:
Unlimited number of persons, which may be marketed to (i) retail or (ii) well-informed and/or professional investors;
Limited number of persons (being 75), which may be marketed to well-informed and/ or professional investors.
Any investor that is considered and/or may be treated on request as a "professional client" within the meaning of the Markets in Financial Instruments Directive 2004/30/EC (MiFID) is considered to be a professional investor. In general, "professional clients" are defined as clients who may have the experience, knowledge and expertise to make their own investment decisions and who are able to properly assess the risks that they incur in their investment decisions regarding the services products and transactions for which they are suited.
AIFs may be structured in four forms:
The AIF Law introduces new structuring options which were not possible under the previous legal framework, such as:
Umbrella structures with multiple investment compartments, which allow the management of different pools of assets with different investment policies, the assets and liabilities of each such pool of assets being ring-fenced;
Common funds, which are contractual fund structures where investors participate as co-owners of the assets of the AIF. This is a commonly used investment vehicle in other established funds jurisdictions such as Luxembourg and Ireland, particularly for structuring investments of pension funds;
Possibility to make public offerings of shares/units of AIFs (the offering of ICIS shares/units was restricted to private placement only);
Possibility of listing, which increases the AIF’s potential investor base and enhances marketability and transparency;
The Depositary function may now be undertaken, in certain cases, 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, such as private equity and real estate funds.
- Flat corporate tax rate of 12,5% on their taxable profit
- No tax on gain from disposal of shares and other qualifying titles
- Dividend income is tax exempt subject to very easy to meet conditions
- No CFC rules
- No withholding taxes on any payments made from Cyprus to non-Cyprus resident persons (such payments include dividends, interest and royalties)
- Full exemption from tax on gains from trading in securities and a generous participation exemption regime on foreign dividends
- Attractive and extensive network of double tax treaties
- Anti-money laundering regulations in line with EU directives and international standards
- On the white list of the OECD
- Low set-up and operational costs
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