Cyprus: Alternative Investment Funds

The enactment of the Alternative Investment Funds (AIFs) law in July 2014 has aligned the Cyprus legal and regulatory framework with the latest European Union (EU) directives on asset management, transparency and investor protection. 

Following on-going efforts to modernize its fund framework, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorization, on-going operations, transparency requirements and supervision of Cyprus AIFs and regulation on the role and responsibilities of their directors, custodians and external managers. 

The new AIF law replaces the International Collective Investment Schemes (ICIS) Law of 1999 and has brought all investment products, asset managers and investment firms under the regulation and supervision of the Cyprus Securities and Exchange Commission (CySEC). This development is a welcome evolution, presenting expanded structuring possibilities for fund promoters which will undoubtedly boost Cyprus’ status as one of the fastest growing fund centers in Europe. 

AIFs that are established under domestic Cyprus fund legislation can be sold on a private placement basis or marketed to professional investors across the EU under the Alternative Investment Fund manager Directive (AIFMD) passport. 

Types of AIFs 

Alternative Investment Fund with Unlimited Number of Persons 

• may be marketed to retail, or well-informed and/or professional investors 

• freely transferable investor shares 

• must appoint a global custodian 

• can be listed on a recognized stock exchange, and AIFs marketed to retail investors can be traded 

• subject to minimum capital requirements of €125,000 or €300,000 if a self-managed fund 

• may be subject to certain investment restrictions depending on the investor type and the overall investment policy

Alternative Investment Fund with Limited Number of Persons

• may be marketed only to well-informed and/or professional investors 

• cannot exceed total number of 75 investors / unit holders 

• freely transferable investor shares, with the condition that their transfer does not result in the AIF having more than 75 investors 

• in certain cases may not be required to appoint a licensed manager or a custodian 

• assets under management do not exceed the AIFMD thresholds of €100 million (including leverage) or €500 million (5-year lock-up period without leverage)

Taxation of AIFs 

Cyprus tax laws have been amended to provide further tax incentives for the set up and operation of funds. Some of the related provisions are:

• 12.5% cap on corporate tax 

• Corporate tax can be reduced to 0% since gains from trading in securities and titles (e.g. shares) are tax exempt 

• Dividend income is tax exempt and there is no minimum participation to qualify for the exemption

• No capital gains tax for gains made on immovable property situated outside Cyprus 

• No withholding tax on outbound dividends for non-Cypriot investors 

• Wide and beneficial Double Tax Treaties network 

Preferred destination 

The recent alignment with EU laws and directives, the tax incentives provided and the fact that operating costs are substantially lower than comparable fund centers makes Cyprus increasingly becoming the destination of choice in EU for Fund registrations, Fund Managers and Management Companies.

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