Funds

If you are a Family Office or have a select pool of qualified investors that wish to pool their money to invest in different asset classes with light regulation, fast set-up, low management costs and entry into the European Union economy, with good professional management and excellent reputation, then you’re in the right place. You’re looking for a Cyprus Alternative Investment Fund (AIF).

Our appointed experts can assist you establish a fund, appoint a manager and obtain registration with CySEC as well as establish relations with a reputable Cypriot bank in very little time. The AIF fund is an ideal structure for project-funding in and from Latin America due to its plethora of double taxation treaties and excellent pool of management talent.

Cyprus has become one of the top choices for investors seeking beneficial fund solutions. The CySEC supervises the investment market, including the emerging asset management market. The strong regulatory framework has turned Cyprus into one of the most attractive jurisdictions for investors. Likewise, the country has an aptly prepared competitive workforce filled with competent service providers.

And among that talent is our experts, who are among the top financial advisors in Cyprus. We work with them in all our financial services because they have a proven track record.

But let’s begin with some history.

In 2018, the Cypriot Parliament passed an amendment to the law regarding Alternative Investment Funds. AIFs are collective investment funds where the capital is raised from a variety of investors to invest in a particular investment policy from which all investors will benefit. The law was initially passed in July 2014, but its latest amendments made it even more beneficial for those interested. 

The AIFs are highly beneficial many reasons:

  • First, different asset types can be included in the investment strategy, meaning it gives investors a ton of flexibility

  • They are simple to arrange, manage, and operate, and are surprisingly cost-effective

  • They have amazing tax incentives (more on that ahead)

First, we need to talk about the UCITS (European Directive on Undertakings for Collective Investment in Transferable Securities). It is a collective investment directive that aims to regulate transferable securities and other financial instruments in the EU to harmonize the legal framework across the countries of the Union. The Cyprus UCITS comes with full EU rights, meaning they can be sold and negotiated in any EU country, but they are way cheaper to set up in the island that in any other EU country with low-investment risk and allowing sub-funds with full transparency.

The new 2018 AIF Law gave Cyprus a competitive edge as it expanded and strengthened the regulatory framework of the investment fund market in Cyprus. It offers investors access to innovative and protective mechanisms, introducing the Registered AIF (RAIF) to the already-existing Unlimited AIF and Limited AIF.

The new framework allows to start AIFs in less time and reducing costs. RAIFs can be registered by previously authorized AIF managers, which means they do not require an additional authorization by the Cyprus Securities and Exchange Commission to start operating. That means that the registration process is reduced from 3-4 months to 2-3 weeks, with reduced registration costs. RAIFs can be converted into AIF later and there are no minimum share capital requirements, and they can be open-ended or closed-ended.

For investors, especially unregulated investors such as family offices, the Cyprus RAIF is an incredibly attractive investment mean from a potential, legal, regulatory, and fiscal perspective. But you may ask: What legal protection do I have as an investor? Simple. The law requires an appointment of an AIF manager that ensures regulatory compliance. Likewise, you can structure an AIF under the Limited Partnership corporate structure, which has legal personality, meaning the AIF would fall under such legal regulation.

AIFs in Cyprus can:

  • Segregate into sub-funds

  • List units on different exchanges

  • Allow investors to move their units to other investors

Cyprus is the best jurisdiction for financial services in the EU because there are no restrictions over the type of investments. Cypriot AIFs can be self-managed and can set up sub-funds or become a part of a larger fund, which gives flexibility for many expansions and a variety of investment strategies. Likewise, the country offers a favorable tax environment as it provides solid tax planning and many tax benefits to financial services such as:

  • No capital gains tax on profits from the sale and management of securities

  • No taxes on capital dividends

  • No tax on deemed dividend distribution for non-tax resident investors

Add that to the fact that the corporate tax rate is 12.5 % and that the country has more than 60 double tax treaties, and Cyprus may seem like heaven. 

All these have led the fund management industry in the country to become a beauty to behold. The volume of funds and managed assets have hit record highs almost yearly, leading the assets under management in the country to more than triple from €2.1 billion in 2012 to €7.7 billion in 2018. As a middle point between Western Europe, Eastern Europe, North Africa, and the Middle East, Cyprus has attracted lots of funds and capital investments from those countries. However, new investors from China, India, and Japan are using Cyprus as the opening gate to invest in Europe. It’s also seen as a safe jurisdiction for British asset managers who want to expand or relocate after Brexit.

However, Cyprus has one main challenge: attracting bigger players. Right now, most of the market is limited to regional organizations, startup-funds, AIFs, and a few larger entities who want to diversify into other asset classes with little risk and costs. Yet, the country is pointing in the right direction. It has the perfect balance between a country that protects investors’ privacy and allows incredible opportunities for tax optimization with full legal compliance with international standards. Other jurisdictions such as the Cayman Islands, now enjoy a controversial image that scares some asset managers that prefer better-regulated jurisdictions to operate on a world scale. And that’s when Cyprus comes: a country with a solid legal frame in full compliance with international norms, with a low-cost environment, the capability of obtaining an EU passport, great service providers, and a fantastic tax regime.

Entering into further details of the AIFs, they have three types of investors:

  • Professional investor: the one who complies with the regulatory requirements that prove he or she has the experience and knowledge to make the investment decisions

  • Well-informed investor: One that doesn’t satisfy the criteria but writes down that he or she is aware of any risks involved in the investment and makes an investment of at least $125k.

  • Retail investor: what that doesn’t meet the criteria to be a professional or well-informed investor.

AIFs are divided into three main types:

  • Limited AIFs: They can have up to 75 professional and/or well-informed investors.  These funds don’t have any investment limits or restrictions, and can be both internally or externally managed

  • Unlimited AIFs: They can have an unlimited number of investors but have investment limits and restrictions, and can be both internally or externally managed

  • Registered AIFs: They are the newest type. They can only be externally managed, are cheaper than both limited and unlimited AIFs to set up, the annual fees are lower, have an unlimited number of investors with fewer restrictions than unlimited AIFs. They can only be externally managed

You can see its main differences and particularities right here:

 

LAIF

UAIF

RAIF

Management Type

Externally Managed

Internally Managed

Externally Managed

Internally Managed

Externally Managed

Legal Forms

Mutual Fund
Fixed or Variable Capital Investment Company
Limited Partnership, with or without legal personality

Fixed or Variable Capital Investment Company
Limited Partnership, with or without legal personality

Mutual Fund
Fixed or Variable Capital Investment Company
Limited Partnership, with or without legal personality

Physical Office

The manager's offices can be used

Required

The manager's offices can be used

Required

Not required

Number of Directors*

Minimum 2
(1 Executive Director)

Minimum 4
(2 Executive Director)

Minimum 2
(1 Executive Director)

Minimum 3
(1 Executive Director)

Minimum 2
(1 Executive Director)

Number of Investors

Unlimited

No more than 50

Unlimited

Investment Restrictions

Investment Restrictions apply depending on the investment strategy and type of investors

No requirements or limitations

Limited rules may apply 

Capital Requirements

No initial requirement, €500,000 within the first 12 months following authorization

€125,000 initial requirement, €500,000 within the first 12 months following authorization

No initial requirement, €250,000 within the first 12 months following authorization

€50,000 initial requirement, €250,000 within the first 12 months following authorization

No initial requirement, €500,000 within the first 12 months following authorization

Assets Under Management

The assets under management should reach the threshold for AIFM registration set in the AIFM law being:

  • €100 mil with leverage, or

  • €500 mil without leverage and a lock up period of 5 years

The assets under management should reach the threshold for AIFM registration set in the AIFM law being:

  • €100 mil with leverage, or

  • €500 mil without leverage and a lock up period of 5 years

No limitations

Portfolio Management***

By the manager

By the AIF board

By the manager

By the AIF board

By the manager

Unit transferability

no limitations

freely as long as the number of investors do not exceed 50 and the potential transferees are Professional and/or Well - Informed Investors**

freely as long as the potential transferees are Professional and/or Well - Informed Investors**

CySEC Application Fees

€1,800 plus €400 for each additional investment compartment

€1,300 plus €300 for each additional investment compartment

€400 plus €100 for each additional investment compartment

CySEC Annual Fees

€1,800 plus €400 for each additional investment compartment

€1,300 plus €300 for each additional investment compartment

€400 plus €100 for each additional investment compartment

Now, the capitals industry is a market where the improvement of the Cyprus economy is yet to be felt fully. The capital market is improving with the economy, but the 2013 crisis left a mark with some of the key players who are still recovering from tough years. However, the stabilization of the economy, the tax benefits, and the fact that the country is a member of the EU mean that many international companies are looking at it as a cost-effective way to diversify their investment portfolios and enter into the EU capital markets.

The Cyprus Stock Exchange has strengthened its role in the economy as a capital-raising tool to help companies expand their activities in the country and abroad. The Exchange provides all the regular stock exchange operations such as listing, trading, clearing, and settlement in full compliance with EU directives and international securities practices. The CSE currently operates with 20 broker firms, 13 custodians, and 55 nominated advisors. 

In the last few years, the ECM has changed. It has stopped focusing on national companies to growingly offer investment opportunities for companies with personalized services at cost-effective fees, especially to companies that are still too small to go public on larger exchange markets or want to enter the European securities market.  The CSE is focusing on industries that are showing strength, growth, and potential. Some examples are funds, shipping, and energy. 

Another interesting aspect that must be evaluated on the financial services industry in Cyprus is trusts. In Cyprus, a trust is a legal relationship between three people: the settlor, the trustee, and the beneficiaries. The settlor, who owns the property or assets, places the assets under the responsibility and control of the trustee for the benefit of the beneficiary. There is a fourth, optional participant in the trust: protectors. They can restrict the powers of the trustees, such as adding beneficiaries to the trust.

About us

Investment funds are one of the best ways to diversify your strategy and protect your assets. In Mundo Offshore, we are committed to offering you the best possible options with the finest experts.

Since 1994, we’ve been helping high net worth individuals protect their investments and obtain better returns. In these 25 years we’ve built a solid network of experts, which includes our experts in Cyprus, as they are a team of finance, banking, and compliance specialists that provide unparalleled know-how and they offer a one-stop that offers corporate, investment, banking, licensing, tax (and more) services, meaning you can trust them your operations entirely.

They can help you in 1) Consulting the fund type, 2) Preparing your application, 3) Monitoring your application, 4) Preparing your documentation, 5) Assisting with the legal documents, 6) Consulting on regulatory compliance.

Want to hire one of the top AIF consultants in Cyprus? Check our front page and get in touch with us! Trust

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