Currently very few AIFs operate in Cyprus. However demand as well as desire for their incorporation and set up and onwards management is growing day by day. An asset for both foreign investors looking to establish a Fund in Cyprus as well as High Net Worth Individuals in Cyprus, the AIF shall become a prominent tool for Corporate Tax Planning in the near future.
Facts, Figures & Benefits
Derived from the passing of the Alternative Investment Fund Managers Law of 2013, Cyprus harmonized with the EU Directive of 2011 No. 61 (EU Directive 2001/61/EC) and the Law 131(I)/2014 regulating the Alternative Investment Funds as amended by Law 11(I)/2015. Some of the main benefits in using an AIF are:
- Cyprus residents holding units of AIF under certain conditions are subject to a reduced taxation, which totals to just 2,1% of AIF’s profits compared to up to 17% dividend income tax applicable in other cases.
- Full exemption from tax on profits from the disposal of securities / titles and no withholding taxes on repatriation of dividends, interest and royalties to non-residents. A 12.5% corporate tax rate, being among the lowest in the EU.
- An extensive and continuously growing network of double tax treaties.
- No stamp duty on the issue of units in AIF.
- An AIF can be used for real estate, private equity, leveraged forex to hedge fund trading in exotic financial instruments and investments of any kind, listed or non-listed.
- The price at which an investor may subscribe to the shares of an AIF or have its shares redeemed is based on the prevailing Net Asset Value (NAV), plus or minus a subscription or redemption fee respectively.
- AIF can be set up as an umbrella fund, with its sub-funds being segregated portfolios of assets and, accordingly, the assets of a sub-fund belong exclusively to that sub-fund shareholders and shall not be used to discharge directly or indirectly the liabilities or claims against the umbrella of any other sub-fund.
- The sub-funds can be denominated in another currency than the currency of the main AIF.
- Every sub-fund can have its own currency, shareholders, asset pools, liabilities, investment strategies and operate totally independently from the other investors.
- Must always appoint a depositary/ custodian who can be a credit institution, a MiFiD investment firm or any other company subject to prudential supervision who may be based in Cyprus, the EU or in any third country which CySec has a signed cooperation agreement with. However, an AIF with limited number of persons is not required to appoint a depositary / custodian if a. its assets are less than €5.000,000 or b. if it sets the maximum number of investors to 5, or c. its assets are not subject to custody
- An approved and licensed AIFM company will provide the core service of Portfolio Management and Risk Management as well as the ancillary services of Fund Administration, Marketing and Distribution and other activities related to the assets of the AIFs. This will in turn furnish the investors with credibility and provide safety to the stakeholders.
- Investors in units of the AIF will enjoy confidentiality with the list of unit holders only being kept by the Fund manager.
- Non Cyprus residents who invest a minimum of EUR.2,5 million in a Cyprus AIF and form part of a minimum collective investment of EUR.12,5 million shared among other investors in the same AIF, may apply to the Cyprus Civil Registry and Migration Department for citizenship (acquiring Cypriot passport) by means of investment instead of the fixed EUR. 5 million pre-requirement.
- The Investors’ Units are transferable while the units of an AIF can be listed on various stock exchanges.
AIFs in a nutshell:
- Legal Form: Fixed Capital Company, Variable Capital Company, LLP or Common Fund (available only as an AIF with Unlimited Number of Persons)
- Legislation: Cyprus AIF Law and Cyprus AIFM Law
- Regulated by the Cyprus Securities and Exchange Commission (CySec) and the European Securities and Markets Authority (ESMA)
- Passporting is available providing that the cap criteria are met
- Taxed in Cyprus
- Deposits are placed with a custodian bank
- Multiple classes of shares without limitation
- The legislation looks to invite investors through a vehicle that can house endless numbers of invertors
- All assets welcomed
Should you require further information on AIFs, whether you are thinking to become a unit holder, in need of a tax optimization structure, looking for a fund manager vacancy in established AIFs or interested in setting up an AIF in Cyprus do not hesitate to contact us at [email protected] and we will discuss with you the numerous possibilities available to best suit your interests.
