The Cyprus legislative framework regarding investment fund structures and fund managers is considered to be amongst the most sophisticated in Europe. This has created a competitive business environment attracting investments from all around the world, making Cyprus a hub for the set-up of funds.
Cyprus, an EU member since 2004, is subject to all EU directives and regulations. This has resulted in Cyprus being one of the first member states to take the initiative and adopt the EU’s Alternative Investment Fund Managers Directive into national law through the Cyprus Alternative Investment Funds Law, which is constantly kept up to date. The governing body for funds located on the island is the Cyprus Securities and Exchange Commission (CySEC) and through registration, funds can make use of the passporting rights within the EU jurisdiction.
Cyprus offers one of the lowest tax regimes in Europe. Corporate tax is a fixed rate of 12.5% and foreign investors, along with Cyprus non-domiciled individuals, can benefit from no withholding tax on dividends under specific circumstances. Fund management and administration services provided to investment funds are not subject to VAT.
Setting up an alternative investment fund
CySEC is the supervisory authority responsible for the overall supervision of all types of collective funds and investment firms. An application form for granting of authorisation to a fund accompanied with certain documents are required to be submitted for the consideration and approval of CySEC.
The main focus of the application is based on evidence provided that the fund is managed by qualified and competent people in key positions. This is shown through their qualifications and prior experience in similar positions. CySEC will extensively study business plans and policies put in place to ensure that there are sufficient internal and external strategies to protect investors from any unfair and ill-intentioned practices.
There are two preferred investment fund structures in Cyprus which consist of Ucits and alternative investment funds (AIFs).
Pursuant to the regulations of Cyprus there are three structures for setting up a fund: Fixed or Variable Capital Investment Company; Limited Partnership (not available for Ucits); and Common Fund. Each can be established with various investment compartments which allow for the segregation of assets and liabilities between compartments. Each one of the investment compartments may differ in terms of investment policy, minimum subscription amount, redemption terms, etc.
Recording a 14% increase over the fourth quarter of 2020, the value of total assets under management in Cyprus has reached €9.8 billion in the first quarter of 2021. The total number of management companies includes 31 AIFMs, 73 subthreshold AIFMs, three Ucits management companies and four dual-licence entities (AIFMs and Ucits management companies).
The latest Quarterly Statistics bulletin published by CySEC offers evidence that the jurisdiction is positioning itself as one of the emerging hubs for the set-up of funds in Europe.
Elena Kanarini is a senior associate lawyer and George Tashev is an associate lawyer at AGP in Cyprus.
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