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UCITS

Overview of the Law
 
The law was recently enacted (June 2012) by the Cyprus House of Representatives by transporting UCITS IV into domestic law, Law No.78(I)/2012 (UCI Law of 2012). The main objects of the law are the regulation of Undertakings for Collective Investment in Transferable Securities (UCITS) and of their managers (Management Companies) in compliance with the EU law requirement of transporting the UCITS IV Directive into Cyprus law.
 
UCITS are investment funds provided for under the EU legislation as public retail funds with intensive regulation. They can perform Cross Border fundraising throughout the EU and UCITS Management companies are used to perform cross-border UCITS management.
 
 
Regulations For UCITS
 
Legal Forms
 
The Law provides for two legal forms:
 
  1. Common Fund (CF-UCITS)  
 
This type of fund must appoint a Management Company for the management of the assets that will be held by the fund.
 
  1. Variable Capital Investment Company (VCIC-UCITS)
 
It is mainly a public liability company incorporated under the Cyprus Company Law with a variable capital depending on the subscriptions and redemptions performed in conjunction with the valuation of the assets. This type of fund may opt to be managed through its board of directors instead of  appointing a Management Company.
 
The legal form of a Trust, a limited partnership or a limited liability company are not eligible legal forms for Cyprus UCITS. Furthermore, both forms can issue several classes of shares and set up multiple investment compartments. Each compartment will be legally distinct from each one of the other compartments.
 
UCITS and its Investors
 
The investors may have their participation in the UCITS redeemed or repurchased at their option. In accordance with the Law, redemption funds have to be remitted within 4 days from the redemption date.
 
Redemptions cannot be suspended by the Management Company or the Board of Directors of the UCITS but only following an approval of the Cyprus Securities and Exchange Commission (CySec) and for a maximum period of 3 months. For this reason UCITS try to deter investors from redeeming their shares at their option but at given moments by offering a series of incentives.
 
Service providers and their duties
 
Main providers are the Management Company and its Depositary.
 
Both main service providers need to have the necessary licenses and both are subject to approval by Cysec. Both have to be based within the EU with the management Company being based anywhere in the EU and the Depositary to have a registered office in Cyprus or a Cyprus Branch of a bank established in the EU.
 
Depositary has enhanced monitoring tasks apart from safe keeping. For Common Funds the monitoring tasks reach up to the point of not following instructions given by the Management company if they collide with the legislation or the constitutional framework of the Common Fund.
 
The Administrator will be in charge of the accounting, maintenance of the unit holder register of the UCITS, valuations and the processing of units issue and redemptions. The Administrator should be based in Cyprus in order to provide evidence that the central administration of the fund is operated in Cyprus and to facilitate the supervision of the fund by CySec.  
 
Eligible Assets and Investment limits
 
UCITS are eligible to invest in money market instruments, derivatives, both traded and over the counter, financial indices, including Hedge Fund indices subject to certain conditions, and also participations in other UCITS or no UCITS.
 
UCITS are also subject to strict risk diversification limits applied both at the UCITS and at the target investment level.
 
Valuation and Net Asset Value (NAV) calculation
 
This is the price at which investor may subscribe to a UCITS or to determine where an investor has its participation in the UCITS redeemed. NAV in broad terms is the aggregate of assets minus the aggregate of its liabilities.
 
The UCI Law of 2012 and draft Cysec Directive regulating valuation issues provides for daily NAV calculation. The Management company is required to calculate the global exposure of the UCITS on at least a daily basis and as a result its NAV. This is a measure to protect the UCITS investor.
 
Please find below a summarized table with the most significant points for UCITS:
 
Legal Form Contractual type
-Common Fund-CF
Statutory type
-Variable Capital Investment Company -VCIC
 
Legal system Common Law/EU legislation is applicable
Regulator in Cyprus CySec
Framework for set up -Up to two months from the filing of the application
-Up to six months for self managed VCIC
Documentation required -Full prospectus
-KIID
-Constitutional Documentation (i.e Articles of VCIC and Management Regulations of a CF)
-Investment management agreement
-Service provider agreements
a. Depositary
b. Administration
c. Other
-Questionnaires of the proposed directors
-Questionnaires of the directors of the Depositary
Capital Requirements CF – EUR 200.000
VCIC- 200.000. If self managed EUR 300.000
Taxation Tax exemption on:
-Dividends received
-Profits from the disposal of securities
-Capital gains from the disposal of property outside Cyprus
-Capital gains from the disposal of shares of foreign property companies
-Tax not withheld for non-tax resident investor distributions
-No subscription tax on the Net Assets of the Fund
NAV calculations Daily
Service Providers requirements Depositary- Cyprus based Bank or a Cyprus branch of a bank established within EU
Administrator-Cyprus based
Auditor-Cyprus based
Reporting -Audited Annual report
-Unaudited semi-annual report
-Quarterly summarized statements of assets and expenses
Listing Possible for VCIC and Exchange Traded CF only
Umbrella Structures with cross investment possibilities Available, subject to certain conditions
Regulatory fees Application fee EUR 1.800
For self managed EUR 2.500
Plus EUR 400 per sub fund  (between 2-15)
And EUR 250 per sub fund(between 15-over)
 
Annual regulatory fee – EUR 1.800
For self managed EUR 2.500
Plus EUR 400 per sub fund  (between 2-15)
And EUR 250 per sub fund(between 15-over)
Listing Fees Application fees: EUR 1.025
Annual subscription/Maintenance Fees:
 
-Single fund-EUR 1.025
-Umbrella Fund-EUR 1.025 plus EUR 427 per sub-fund
 
Annual fees for Publication of Prices:
 
Single Fund –EUR 256
Umbrella fund with up to 20 sub-funds EUR 171 per sub fund
Umbrella fund with more than 20 sub-funds EUR 128 per sub fund
 
Annual Fees -Depositary – percentage of NAV but subject to a minimum annual fee
-Administration - percentage of NAV but subject to a minimum annual fee
-Audit-fixed fee
-Legal-depending on the agreement (i.e hourly or retainer)
 

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