Alternative Investment Funds in Cyprus. Service offer

• Cyprus Alternative Investment Funds Law 2014
• Cyprus Alternative Investment Funds Managers Law 2013
• EU Alternative Investment Fund Manager Directive (AIFMD)
• Cyprus Prospectus Law 114(I)/2005 as amended

An AIF can be created in the form of a fixed capital company, a variable capital company, a limited partnership and a common fund (not a separate legal entity). AIFs can have a limitation on the number of investors (no more than 75) or not. An AIF with a limited number of members may only offer shares to professional or well-informed investors*. An AIF without limitation on the number of investors may work with any class of investors, but obtaining a licence for this category of AIF is much more difficult.

Under section 6 of the Cyprus Alternative Investment Funds Law, the AIF is not obliged to appoint a management company (i.e. such fund will be considered self-managed, but this option is only available to funds formed as variable or fixed capital companies), if:

• The fund’s assets do not exceed EUR 100 000 000, or
• The fund’s assets do not exceed EUR 500 000 000 and investors cannot exercise redemption rights on their shares within 5 years of the date of investment in the fund.

In all other cases, the AIF must have a manager who meets the requirements of the Cyprus Alternative Investment Funds Law – usually it is a legal entity licenced as a Cyprus Investment Company.

The AIF must also have a licenced auditor and depositary.

Funds and management companies are regulated by the Cyprus Securities and Exchange Commission (CySEC).

To obtain an authorization for the activities of the fund, a special application form is submitted to the CySEC, accompanied by the following documents:

• Private placement memorandum with a description of the fund’s investment strategy, expected profitability, and risks, and details of the service providers (manager, depositary and auditor);
• For each director: Detailed CV, Reference letters, Copies of diplomas (apostilled and translated into English), Clean criminal record certificate (apostilled and translated into English), Completed CySEC questionnaire, Copies of passport and proof of address (apostilled and translated into English);
• Details of the management company (if any), auditor, administrator and depositary, including the service agreements made with them.

If, in addition to the fund, a fund management company is created, then such company must apply for a separate licence as a Cyprus Investment Firm (CIF).

A CIF must meet the minimum capital requirements which depend on the number of functions performed by the CIF and ability to accept client funds.

Together with the application for a licence, CIF submits to the CySEC the following documents:

1. Business plan (for 3 years)
2. Operational Manual detailing the AML and KYC policy
3. For each director, shareholder and senior officer:

• Detailed CV;
• Reference letters;
• Copies of diplomas (apostilled and translated into English);
• Clean criminal record certificate (apostilled and translated into English);
• Completed CySEC questionnaire;
• Copies of passport and proof of address (apostilled and translated into English).

A CIF must have at least two executive directors who are tax residents of Cyprus, and two non-executive directors; the CIF must have an operational office in Cyprus.

Like all structures involved in investment activities, the fund and the management company must have a Compliance Officer responsible for AMLKYC procedures.

Like any Cyprus tax resident company, the AIF is exempt from taxes on:

• dividend income received (subject to certain conditions);
• income received from the sale of shares and other financial instruments;
• capital gains.

Other kinds of income are subject to income tax at the rate of 12.5%.

*A well-informed investor means an investor which is not a professional investor and meets the following conditions:

• confirms in writing that he is a well-informed investor and is aware of the risks related to investments; and
• invests in the AIF at least EUR 125 000 OR is assessed as a well-informed investor either by an EU credit institution or by a Cyprus Investment Firm.