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Alternative Investment Funds in Cyprus. Service offer

An alternative investment fund (AIF) means any fund that does not fall under the regulation of the European Directive on Undertakings for Collective Investment in Transferable Securities (UCITS), in particular alternative investment funds include hedge funds, venture capital funds and real estate funds.

The formation and subsequent operation of the AIF is governed by the following legislation:

  • 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.

The Cyprus Alternative Investment Funds Law does not contain any restrictions on the investment strategy of the fund, or investment diversification requirements, or minimum capital requirements

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.

Pic. 1 Example of an AIF structure. Self-managed Cyprus alternative investment fund in the form of a variable capital company with an unlimited number of investors

Investment licence/authorization application procedure

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.
The application fee is EUR 2 000

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.

The minimum capital is EUR 50 000, the maximum is EUR 730 000

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).
The application fee ranges from EUR 4 000 to EUR 10 000

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.

Taking into account the requirements of the Regulator, the cost of CIF administration, including expenses relating to the office and employees, ranges from EUR 150 000 to EUR 200 000 per year

AIF taxation

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.
In addition, Cyprus does not charge withholding tax on income paid to non-residents, which makes Cyprus the optimal jurisdiction for the formation of investment funds

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

Fees

Fund

Services
Fees
Formation (including drafting of non-standard articles specific to the fund’s operations)
EUR 7 000
CySEC application fee
EUR 2 000
Fees for the preparation of all legal documents for a fund licence application
From EUR 33 000
Administrator’s fees
Upon request
Depositary’s fees
Upon request
Auditor’s fees
USD 100 – 400 per hour

Management company

Services
Fees
Formation (including drafting of non-standard articles specific to the company’s operations)
6 000 EUR
Initial licence fee
From EUR 4 000 to 10 000
Fees for the preparation of all legal documents for an investment management licence application
From EUR 30 000
Auditor’s fees
USD 100 – 400 per hour
Qualified director’s fees
Upon request

*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.
Are you interested in the offer?
42000 EUR
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