Investment Funds in Cyprus

An emerging investment fund center.

Investment Funds in Cyprus.

Why Investment Funds in Cyprus? Cyprus is one of the top emerging investment fund centers in Europe. Cyprus by upgrading its legislative and regulatory regime is aiming to establish itself as one of the top and most attractive investment fund centers in Europe.

The driving factor and at the same time the backbone of safeguarding that Cyprus will obtain a significant position in the funds market in Europe is the strong and robust network of financial and professional service providers on the island. Due to the above and in addition to the fact that Cyprus is a cost-efficient jurisdiction, it turned to be an ideal destination for fund promoters and investors seeking secure and advantageous fund solutions within the European Union.

Advantages of Cyprus as an investment destination.

  • EU member state in compliance with EU legislation.
  • Attractive and OECD approved Tax regime.
  • Geographical location allowing fast transportation between Europe, Middle East, Asia, Africa.
  • Business center with high quality financial and legal service providers.
  • Low operational and setup cost.
  • Structuring of investments based on the double tax treaties network of Cyprus.
  • Investments can be listed on any recognized EU stock exchange.
  • Tax benefits for Cyprus-based funds and asset managers.
  • Tax incentives for high earning managers and high net worth individuals.

The Fund management industry is fast becoming one of the most promising sectors of Cyprus economy. The volume of funds and assets under management have shown huge increase, as assets under management have more than tripled from €2.1 billion in 2012 to €6.8 billion in June 2019. Assets under management are expected to reach €20 billion in the next five years

Cyprus as an emerging funds jurisdiction is attracting investors and managers thanks to the cost the effectiveness and flexibility of the legislation, its proximity to the Middle East and Africa, and longstanding preferential access to Eastern and Central Europe.

Cyprus is attracting funds from European but also Asian countries such as China, India and Japan, aiming to establish their base on the island facilitating their access and investment in the wide European market. In addition, the jurisdiction is a credible alternative for UK-based asset managers seeking to expand or relocate to the European Union due to Brexit.

Cyprus Funds Opportunities

Cyprus’s jurisdiction is ideal for regional players, start-up funds, alternative funds, as well as larger entities looking to diversify into new asset classes with minimum risk and cost. Cyprus is also benefiting from de-offshorization measures in other parts of the world and seeing increasing interest from those looking into new EU-regulated jurisdictions. With a solid legislative framework, relatively low-cost operating environment, EU passporting capability, professional service providers and efficient tax regime, Cyprus is an ideal domicile for these types of managers to find a firm foothold to expand their business.

Cyprus has opened new roads full of opportunities for investors by transforming a debt-driven economy into an investment-driven one – and AIFs in particular pose a promising prospect to tap into the potential of this new economy. Investment opportunities in real estate, shipping, infrastructure, non-performing loans, oil and gas, renewable energy, start-ups and private equity projects can all be accommodated through Cyprus fund vehicles in an EU-compliant manner.

Investment Schemes.

Alternative Investment Funds (AIF).

The Alternative Investment Funds law has aligned the Cyprus legal and regulatory framework with EU directives on asset management, enhancing transparency and investor protection.

Cyprus in order to further develop its fund framework has 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, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers. 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 Alternative Investment Fund Managers Directive (AIFMD) passport.

Legal forms of AIF's

FCIC – Fixed Capital Investment Company
VCIC – Variable Capital Investment Company
LP – Limited Partnership
CF – Common Fund

A Variable Capital Investment Company (VCIC) and Fixed Capital Investment Company (FCIC) may be set-up as self-managed, or it may be externally managed. A Limited Partnership (LP) and Common Fund (CF) must always appoint an external manager.

Advantages of Alternative Investment Funds.

  • Cost-efficient and simple to set-up, manage and operate.
  • Modern regulatory framework fully in line with relevant EU directives
  • Increased flexibility as a number of asset classes can be included in an AIF investment strategy
  • Significant tax incentives offered by the country’s advantageous tax framework
  • Transparency through annual audited 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

Cyprus Registered AIF is able to market to investors across the EU and be managed by a full scope Cyprus or EU Alternative Investment Fund Manager (AIFM).

Registered Alternative Investment Funds (RAIF).

Registered AIFs are a new fund vehicle and are geared to professional and educated Investors only offering a quick and cost-efficient fund launch of only one month from the date of filling a properly completed ‘notification pack’ to regulator CySEC, which will include the AIF in the list of Registered AIFs.

RAIF’s are able to market to investors across the EU and be managed by a full scope Cyprus or EU Alternative Investment Fund Manager.

This vehicle also provides structuring flexibility as it may be organised in any legal form available under Cyprus Law (investment company with fixed or variable capital, limited partnership or common fund), it can be open or closed-ended and it can follow any strategy and invest in any type of assets.

Key features of RAIF.

  • No licensing required
  • No minimum capital requirements
  • No investment restrictions
  • Multiple compartments possible
  • Can operate as open or close ended
  • Units of RAIFs may be listed
  • Requirement to appoint local depository
  • Addressed solely to well-informed and/or professional investors

Undertaking for Collective Investment in Tranferable Securities (UCITS).

Authorized and in full compliance with the EU legal framework, UCITS are regarded as one of the most effective asset management tools available, due to their strong regulation ensuring high investor protection.

Key features of RAIF.

VCIC – Variable Capital Investment Company CF – Common Fund

Key features of RAIF.

  • Cost-efficient to set-up and operate in Cyprus
  • Low investment risk and internationally regarded as one of the most efficient asset management tools
  • Investments are fully transparent and easy to monitor through publication of Net Asset Value (NAV) which is made at least every fortnight on the first business day
  • Full EU passporting rights. Cyprus UCITS can be marketed and sold in other EU member states
  • Upon request, investors are entitled to repurchase or redeem their units from the assets of the UCITS
  • Robust legislative framework that protects and promotes investor interests
  • Possibility to set up umbrella funds, allowing different sub-funds and share classes
  • Highly skilled pool of professionals in Cyprus
  • Supervised by a competent and accessible regulatory authority

Cyprus Tax resident.

Learn how to acquire the Cyprus Tax Resident Status under the 60 days rule.

Taxation.

Advantages for Fund Managers and Management companies.

  • 35% cap on personal income tax, and new option to be taxed at a flat rate of 8% on carried interest for certain employees
  • Exemptions for up to 50% of taxable income derived from emoluments exceeding €100,000 for up to
  • 10 years will apply to previously non-tax resident individuals that take on Cyprus-based employment
  • Exemptions apply for dividend, interest or rent income for tax resident individuals who are not domiciled in Cyprus
  • 12.5% cap on corporate tax, amongst the lowest in the European Union
  • Gains from trading in a wide range of securities including shares and units of investment funds are tax exempt

Advantages for Investors.

Foreign Investors.

  • no withholding tax on dividends
  • no taxation on redemption of units
  • no deemed distribution restrictions

Resident Investors.

  • option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • a withholding tax on dividends of 17% if the investor is an individual who is both tax resident and domiciled in Cyprus
  • no taxation on redemption of units
  • no withholding tax if investor is a company

Resident Investors - Non Domiciled.

  • option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • exemption from withholding tax on dividends of 17%
  • no taxation on redemption of units
  • no withholding tax if investor is a company

Fund Taxation.

  • gains from trading in securities are tax exempt
  • notional Interest Deduction (NID) for new equity may reduce taxable base for interest received by up to 80% (for company-type funds) reducing the effective tax on interest to 2.5%
  • excluded from tax are dividends received, capital gains arising from sale of property abroad, capital gains from sale of shares of foreign property companies
  • no subscription tax on the net assets of the fund
  • fund management services provided to alternative funds are not subject to VAT
  • each compartment of an AIF, although legally is not treated as a separate entity, for tax purposes each compartment is treated as a separate person (i.e. separate taxpayer)

Ask our advisors.

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