A Cyprus Alternative Investment Fund (AIF) is a collective investment which raises external capital from a number of investors with a view to investing it for the benefit of those investors. It does not need to be licensed as an Undertaking for Collective Investment in Transferable Securities (UCITS).
Alternative investments include hedge funds, managed futures, real estate, commodities and derivative contracts.
Main Characteristics and Categories
The main characteristics of Cyprus AIFs are detailed below:
- Provide multiple investment compartments which allow the management of different pools of assets.
- Common funds where investors may participate as co-owners of the assets of the AIF, and are only liable for the amount that they have contributed.
- Funds with different investment policies (investing, for example, in assets other than financial instruments, such as real estate) are available due to the introduction of provisions which allow the depositary function to be undertaken by legal entities, other than credit institutions.
- AIFs may be publicly listed on stock markets.
Why Consider Cyprus for the Establishment of an AIF?
- Cyprus has the legislation, appropriate structures and experienced professionals to establish and provide the structuring, legal, audit and custody services to meet the needs of AIF investors.
- Cyprus has one of the lowest corporate tax rates in the EU at 12.5%.
- A complete tax exemption exists on the gains from the disposal of shares in Cyprus.
- Strong Anti-Money Laundering regulations are in place in Cyprus, in line with EU and international standards.
- An application to establish an AIF in Cyprus, should take approximately 5-6 months from the date of submission to the Cyprus Securities and Exchange Commission (CySEC).
- No requirement for assets to be invested in Cyprus. In addition there is no requirement to have a bank account in Cyprus.
What are the Advantages of Cyprus AIFs?
The key advantages of Cyprus AIFs are:
- No restriction on the types of investment.
- No withholding tax on dividend distributions and no taxation on capital gains.
- Low establishment and maintenance costs.
- The corporate form of an AIF can take advantage of Cyprus double tax treaties.
- AIFs can be set up as umbrella funds with multiple compartments.
The Alternative Investment Funds Law of 2014 (the “AIF Law”) was enacted by the Cyprus House of Representatives and came into force in July 2014. This legislative framework adopts a modern approach and provides the option to set up Alternative Investment Funds with multiple compartments.
Types of AIF:
- An unlimited number of individuals, who must be (a) retail or (b) well-informed and/or professional investors;
- A limited number of individuals, up to a maximum of 75, who must be well-informed and/or professional investors.
A well-informed investor is an investor that has appropriate expertise, experience and knowledge to adequately understand the investment made in the fund. A professional investor is an investor that is considered to be a professional client as defined in the Markets in Financial Instruments Directive.
The Principal Legal Structures Provided by AIF Law Are:
(a) Common funds – AIFs are structured as pools of assets in which investors participate on the basis of a single document known as the “Common Fund Rules”.
(b) Investment companies – an investment company is a limited liability company with shares incorporated under the Companies Law cap.113 (as amended) and can have either fixed or variable capital. An investment company can either be self-managed or can appoint an external investment manager. There is a minimum capital requirement of €125,000 or €300,000 where the investment company is self-managed.
(c) Limited liability partnerships (“LLPs”) – an LLP may have one or more general partners and one or more limited partners. A partnership agreement must be in place. The management of the LLP will be conducted by the general partner who assumes all of the responsibilities of an external manager for the purposes of AIF law.
How Can Dixcart Assist?
The Dixcart office in Cyprus can provide the following services in relation to an AIF:
- Preparing the application and liaising with CySEC and the Registrar of Companies.
- Providing legal support throughout the registration process and in relation to the provision of administrative services.
- The provision of administrative services.
- Fulfilling compliance obligations and reporting to the Regulator.
Please speak to your regular Dixcart contact or to the professional staff at the Dixcart office in Cyprus for additional information regarding Cyprus AIFs and the advantages that they offer: email@example.com.