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Cyprus: Alternative Investment Funds (AIFs)

In July 2014, Cyprus harmonised its legislation in an effort to modernise its legislation on investment fund products in accordance with the EU directives. The AIF Law of 2014 defined an AIF as a collective investment undertaking that raises capital from a number of investors with a view to invest it in accordance with a defined investment policy for the benefit of these investors and that has not been authorisedas an undertaking for the collective investment of transferable securities (UCIT).

With the AIF Law in place, new structuring options are now possible such as:

  • Umbrella structures with multiple investment compartments
  • Common fund structure as pools of assets
  • Funds with various investment policies
  • Public offerings

An AIF may either be:

  • Self-managed, if it is established as an investing company and the assets of the portfolio including any assets acquired through the use of leverage do not exceed €100 million. In the case that the AIF does not employ leverage and its unit-holders have no redemption rights exercisable during a period of five years the assets should not exceed €500 million
  • Externally managed where a manager under the Law 56(I) 2013 is appointed
  • An AIF formed as an Investing Company is subject to a minimum capital requirement of at least €125,000 or €300,000 where it is selfmanaged.

The assets of an AIF shall be entrusted for safe-keeping to a depository who has its registered office in Cyprus or in another member state or in a third country provided that the SEC has an agreement with the competent authorities of the third country or is a credit institution or an investing firm.

The units of an AIF may be admitted for listing in a stock market including the Cyprus Stock Exchange. An AIF may consist of more than one investment compartment each of which is subject to the provisions of the Law as a separate AIF. The establishment of an AIF with limited number of persons is allowed (being 75) which may be marketed to well informed and/or professional investors. An AIF with limited number of persons may be set up as a company where it operates as an investing company(either be self-managed or appoint an external manager) or as a limited liability partnership where a manager always has to be appointed.

This type of AIF represents the most lightly regulated investment product since it is not subject to an investment restriction and not subject to minimum capital.

AIFs formed as investing companies are subject to tax like any other Cyprus company.

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