Fund

Alternative Investment Funds (“AIFs”)

Definition


An AIF is a collective investment undertaking raising 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 that has not been authorised as an Undertaking for Collective Investments in Transferable Securities (UCITS).

Legal background


The enactment of the Alternative Investment Funds law in July 2014 has aligned the Cyprus legal and regulatory framework with the latest EU directives on asset management, transparency and investor protection. Following on-going efforts to modernise its fund framework, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorisation, 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). 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 AIFMD passport.

AIF Legal Forms


An AIF can take the following legal forms and may be established with limited or unlimited duration:

  • Fixed Capital Company 
  • Variable Capital Company
  • Limited Partnership
  • Common Fund


Types of AIFs



1. 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 recognised 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

2.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)


Investor Classification



Professional Investor:
An investor considered a professional client, who has the experience and expertise to make his/her own investment decisions and assess the risks involved. To be considered a professional client, the investor must comply with the criteria prescribed in the Markets in Financial Instruments Directive (MiFID) 2004/39/EC.


Well-informed Investor:
Not considered a professional investor and (i) must confirm in writing that he/she is a qualified investor aware of the risks involved with an investment in the relevant AIF and (ii) makes an investment of a minimum €125,000 or has been evaluated by a licensed bank/credit institution, an authorised investment firm or an authorised Management Company that he/she has the expertise, experience and knowledge in evaluating the suitability of an investment opportunity.


Retail Investor:
An investor who does not meet the requirements listed above.


Key Benefits of the Cyprus AIF


  • Cost-efficient and simple to set-up, manage and operate
  • Modern regulatory framework fully in line with relevant EU directives and no burdensome reporting requirements
  • Significant tax incentives offered by the country’s advantageous tax framework (see below)
  • Full transparency through annual audited and half yearly reports to CySEC and investors, which include financial statements, borrowing information, portfolio information and Net Asset Value
  • Supervised by a competent and accessible regulatory authority
  • Reduced reporting requirements
  • No restrictions imposed by the Regulator on type of investments
  • May be self-managed (subject to the approval of the Regulator)
  • May be set-up as umbrella funds with multiple compartments
  • May be listed on Cyprus Stock Exchange and other recognised EU stock exchanges, provided number of investors is not limited


Tax Benefits


  • Most income of a Cyprus tax resident Fund is tax free (e.g. most dividend income, capital gains)

  • Interest income is taxable, but effective tax can be significantly reduced (taking into account the NID on new equity)

  • Tax resident funds are eligible to all benefits under a double tax treaty or the EU Directives

  • Services provided by the Investment Manager of the fund are not subject to VAT

  • No withholding tax on any type of payments to non-residents
  • No subscription tax on net assets of a fund
  • No capital gains tax on disposal of shares/units by the holders
  • No tax on capital gains from the sale of immovable property located outside Cyprus
  • Extensive network of Double Tax Treaties in place with more than 60 countries
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