Following the introduction of various laws and regulations relating to Alternative Investment Funds and Fund Managers in Cyprus, during the past few years, the industry has continued its steady growth.
Furthermore, the upcoming changes to the laws (as analysed in our November newsletter) will ensure the legislative framework will be one of the most attractive in the EU.
Currently there are 12 Alternative Investment Fund Managers ("AIFM") licensed by the Cyprus Securities & Exchange Commission ("CySEC") managing assets in excess of EUR 2.6bn (as per data published by the Central Bank of Cyprus for Q4 2016), and there are 58 Alternative Investment Funds ("AIF") licensed by CySEC of various forms.
There are a few options available when setting up an AIF in Cyprus. An AIF may be setup as:
a) A fixed or variable capital company
b) A Limited Partnership
c) A Common Fund
Furthermore, an AIF may be marketed to retail investors or solely to well-informed and/or professional investors. Depending on the nature of the investors which the AIF is marketed to and on the activities of the AIF, the AIF may be subject to some investment restrictions and investment diversification rules.
An AIF's investor shares are freely transferable and can also be listed on a recognized stock exchange to enhance transparency and marketability.
The AIF Law allows also for the creation of an AIF with Limited Number of Persons (“AIF-LNP”). The AIF-LNP offers the most flexible form of a regulated investment fund as it is not subject to any investment restrictions, investment diversification rules and there is no minimum initial capital requirement.
An AIF-LNP can only be setup as a fixed or variable capital company or as a limited partnership and can only be marketed to well-informed and/or professional investors. Furthermore, an AIF-LNP cannot have more than 75 investors and its assets cannot exceed the AIFMD thresholds (i.e. EUR 100m or EUR 500m if unleveraged and locked in for 5 years).
Both the AIF and the AIF-LNP can be setup as “umbrella structures” or funds of funds, where each sub-fund is segregated from the other sub-funds and can have different investment policies, asset types and different investors.
Finally, from a tax perspective, a Cyprus tax resident AIF will be able to benefit from the attractive tax regime Cyprus has to offer with full access to all EU directives and to a network of more than 60 double tax treaties. In brief, an AIF in Cyprus will have no subscription taxes on the assets of the fund, its profits from the sale of securities will be exempt from tax and there will be no withholding taxes on dividends paid to investors (apart from Cyprus tax resident and domiciled investors).