NEWS Fiscal & legal

Cyprus: the new Alternative Investment Funds Law

It updates the funds regime, aligning it with the latest EU directives on alternative funds, and expand the options available for fund promoters

The Alternative Investment Funds Law of 2014 (the “AIF Law”) was enacted by the Cyprus House of Parliament on 10 July 2014. The AIF Law updates the funds regime in Cyprus and aligns it with the latest EU directives on alternative funds, funds management and investor protection. The AIF Law replaces the International Collective Investment Schemes Law (the “ICIS Law”), which will eventually be depleted.

Main features

The AIF Law provides for two classes of AIF, namely AIFs available to an unlimited number of investors (“unlimited”) which maybe may be marketed to all investors, including retail investors and those available to 75 investors or fewer (“restricted”) marketed only to well-informed or professional investors.

AIFs may be structured as variable or fixed capital companies or as limited partnerships. In addition, unlimited AIFs may be structured as a mutual fund. The unit trust structure provided for by the ICIS Law is no longer available.

The legislation modernizes the regulatory aspects of AIFs in Cyprus while also expanding the options available for fund promoters. It brings Cyprus up to par with other EU investment fund jurisdictions. Specifically, the key new features of the Cyprus’ fund regime:
  • introduces a Single Regulator, the Cyprus Securities and Exchange Commission for the regulation and supervision
  • introduces new structuring options including multiple investment compartments (ie Umbrella Funds)
  • provides the ability to set up an AIF taking the contractual form of a Common Fund, where investors participate as co-owners of the assets of the AIF
  • it allows the cross investment between sub-funds
  • provides the ability to set up an AIF marketed to Professional Investors and/or Well-Informed Investors
  • it allows the public offering of shares of AIFs
Why Set Up Your Private Fund in Cyprus
  • competitive setting-up and on-going costs structures and funds
  • favourable tax regime in the EU, especially for non-residents
  • EU member state and compliant with EU laws and regulations
  • wide and efficient network of legal, accounting and banking services
  • gains from trading in securities are exempt
  • 12.5 percent cap on corporate tax, amongst the lowest in the EU
  • AIFS, ICIS, UCITS can be listed on Cyprus and other recognized EU stock exchanges
  • re-domiciliation in and out is possible
Non-Cypriot investors in Cyprus AIFs will, at the time of a redemption from, or distribution of, a Cyprus AIF, benefit from an extensive double-taxation treaty network in place in Cyprus.

Types of AIFs

The Law pinpoints to two categories:
With unlimited number of persons, having the following features:
  • may be marketed to either “well-informed” or “retail” investors
  • can take the forms of a Variable Capital Company (VCC) or Fixed Capital Company (FCC), Common Fund (CF) or Limited Partnership (LP)
  • maybe be listed/traded on a recognized stock exchange
  • they must appoint a global custodian
  • subject to minimum capital requirements of €125.000 (€300.000, if self-managed)
  • retail schemes are subject to investment restrictions for the purpose of risk spreading and ensuring liquidity
AIFs with limited number of persons, with the following features:
  • limited number of investors to 50 and may only be marketed to “well-informed” investors
  • may take the form of a Variable Capital Company (VCC) or Fixed Capital Company (FCC), or Limited Partnership (LP)
  • not subject to investment restrictions
  • under certain circumstances the scheme is not required to appoint a licensed manager or a custodian
  • Assets Under Management (“AUM”) do not exceed:
    • € 100 mn (including leverage) or
    • € 500 mn (closed-ended without leverage)