Alternative Investment Fund

The Alternative Investment Funds Law enacted in 2018 aims to make Cyprus one of the major destinations for fund establishment in Europe and fund management companies licensing, as it provides very flexible structures and cost-efficient opportunities for establishing a fund that can be marketed to the European Union. As Alternative Investment Funds (“AIFs”) have no limitations related to investment policy, they are suitable for raising funds from a range of EU investors with a view to investing them in crypto assets.

Why establish a Cyprus AIF?

  • They may be established to have limited or unlimited number of investors who may be retail or well-informed and professional investors.
  • AIFs may be set with unlimited number of investment compartments, the sub-funds which are widely known as umbrella funds, each with a separate investment strategy and asset pool.
  • AIF’s units can be listed on all recognized stock exchanges.
  • Ability to register with the Cyprus Securities and Exchange Commission (“CySEC”) a Registered AIF that does not require license.

There are many forms an AIF may take under the Law, their main features are mentioned below.

AIFs with Unlimited Number of Persons (AIFUNP)

This type of AIF requires a license by CySEC.

Form and Management

The most important feature of this type of AIF is that it is addressed to an unlimited number of persons, who may be both professional investors, well-informed investors and retail investors. It can be set up as a fixed or variable capital investment company, a limited partnership (with or without legal personality) or a mutual fund. The units of the AIFUNP can be listed on a recognized stock exchange.

Also, another important feature is that whereas the AIFUNP is formed as a limited liability company or as a limited partnership with legal personality, it can be self-managed by its Board of Directors or General Partner. In all other cases, the appointment of an external investment manager is required.

Under the Law, the external investment managers may be a management company authorised either under the Cyprus AIF Managers legislation or Cyprus Open-Ended Undertakings in Collective Investments Law, or a European fund management company duly authorised under the relevant authority of another Member State, or a Cyprus Investment Firm.

Depositary/Custodian

Pursuant to the Law, an AIFUNP must always appoint a depositary/custodian. The depository/custodian may be a credit institution, or an investment firm, or any other company subject to prudential supervision based in Cyprus, or the EU, or any third country with which CySEC has signed a cooperation agreement.

Units in AIFUNP

One of the benefits of an AIFUNP is the ability to be established with unlimited investment compartments, the sub-funds which are widely known as umbrella funds, each with a separate investment strategy and asset pool. The units of the AIFUNP can be listed on a recognized stock exchange.

Management Body and Capital Requirements

The management body of a self-managed AIFUNP must comprise of at least four persons, two of which should hold an executive position. A self-managed AIFUNP should have in place at all time minimum capital of €125,000. All AIFUNP, within 12 months of authorisation, must raise capital of at least €500,000 from investors. The period in which this amount of capital must be raised may be extended further by 12 months.

AIFs with Limited Number of Persons (AIFLNP)

This type of AIF requires a license by CySEC.

Form and Management

AIF-LNP the maximum number of permitted investors is 50 and they can only be addressed to professional and well-informed investors. They can be set up either as a fixed or variable capital investment company, or a limited partnership (with or without legal personality) or a mutual fund.

Significantly, whereas an AIFLNP is formed as a limited liability company or as a limited partnership with legal personality, it can be self-managed by its Board of Directors or General Partner. In all other cases, the appointment of an external investment manager is required.

Under the Law, the external investment managers may be a management company authorised either under the Cyprus AIF Managers legislation or Cyprus Open-Ended Undertakings in Collective Investments Law, or a European management company duly authorised under the relevant authority of another Member State, or a Cyprus Investment Firm, or a company incorporated with the sole purpose of managing the investments of this specific AIFLNP.

Depositary/Custodian

The Law provides that in certain situations a depositary/custodian may not be appointed, for example where the AIFLNP’s assets are less than €5,000,000 or where the maximum number of investors is 5. In all other situations, the depository/custodian may be a credit institution, or an investment firm, or any other company subject to prudential supervision based in Cyprus, or the EU, or any third country with which CySEC has signed a cooperation agreement.

Units in AIFLNP

AIFUNP can be established with unlimited investment compartments, the sub-funds which are widely known as umbrella funds, each with a separate investment strategy and asset pool, however, the number of investors must always be limited to 50. The units of the AIFLNP can be listed on a recognized stock exchange.

Management Body and Capital Requirements

The management body of a self-managed AIFLNP must comprise of at least three persons, one of which should hold an executive capacity. A self-managed AIFLNP should have in place at all time minimum capital of €50,000. All AIFLNP, within 12 months of authorisation, must raise capital of at least €250,000 from investors. The period in which this amount of capital must be raised may be extended further by 12 months. There are no minimum initial capital requirements.

Registered AIFs

This type of AIF does not require a license by CySEC, but they are registered in CySEC’S relevant Register. In this case, the investment manager of the RAIF must within 1 month from establishment, submit the required details of the RAIF for registration. The registration is concluded within one month from submission, that is when the RAIF can commence raising capital from investors.  

Form and Management

A RAIF can only be addressed to professional and well-informed investors. They can be set up either as a fixed or variable capital investment company, or a limited partnership (with or without legal personality) or a mutual fund. They are always externally managed. AIFs may be open-ended or closed-ended and can be established with unlimited investment compartments. The units of the RAIF can be listed on a recognized stock exchange.

Under the Law, the external investment managers may be a management company authorised either under the Cyprus AIF Managers legislation or the Cyprus Open-Ended Undertakings in Collective Investments Law, or a European management company duly authorised under the relevant authority of another Member State, or a Cyprus Investment Firm.

Depositary/Custodian

Pursuant to the Law, n AIFUNP must always appoint a depositary/custodian. The depository/custodian may be a credit institution, or an investment firm, or any other company subject to prudential supervision based in Cyprus, or the EU, or any third country with which CySEC has signed a cooperation agreement.

Capital Requirements

An RAIF must, within 12 months of authorisation, raise capital of at least EUR 500,000 from investors. The period in which this amount of capital must be raised may be extended further by 12 months.

Taxation for AIFs 

The tax regime in Cyprus is very favourable for AIFs.

  • AIFs which are registered and Fund Managers as corporations are subject to corporation tax. Corporate income tax is applicable on the profits at the rate of 12.5%, one of the lowest in the European Union. Additionally, benefits arise from the fact that there is a tax exemption for gains arising from the disposal of titles and dividend income.
  • Also, a full exemption applies for dividends paid to non-residents and redemption of units in AIF. There is also a case to be made in applying for return through the Notional Interest Deduction on the capital raised by the Fund, that is a feature introduced in the Cyprus tax regime to incentivise companies who raise capital through equity.
  • The Fund Manager companies are exempted from the obligation to register with the VAT.

Simon Zenios & Co. LLC assists you in establishing a Cyprus AIF from A to Z

At Simon Zenios & Co LLC our lawyers have been closely following the developments in the area of investment funds and how they relate to cryptocurrencies with all the regulatory and licensing implications arising. Our lawyers understand the complexities arising from choosing the most suitable structure for your fund and the restrictions and complexities which come with the type of investors they are directed to.

Our team of lawyers will be able to advise and assist you in every aspect of establishing your fund. We provide legal guidance throughout the process which will begin with an introductory call with our team of experts, the point of which is for our team to understand your requirements and objectives. Following this, we can then provide you with a quote for our legal services. If the quote is accepted and you decide to engage our legal services, the next step will be for us to collaborate with your team and come up with a detailed legal services plan.

The legal framework for establishing an AIF in Cyprus provides various options which vary depending on the number and type of investors a project is directed to. Therefore, it is important to study your options closely to choose the most suitable for it.

We offer all the required Legal Services for licensing including:

Corporate Services (where applicable) (Part A)

  • Selection of the appropriate corporate/fund structure.
  • Company name search & application.
  • Company incorporation in compliance with the licensing requirements.
  • Appropriate Memorandum & Articles of Association.
  • First minutes and Resolutions.
  • Cyprus resident nominee directors (individuals)
  • Nominee Shareholder (corporate or individual shareholder).
  • Registered office services.
  • Drafting of corporate documents.
  • Fiduciary Services.
  • Assistance in day to day Governance and Administration.

Set Up, Licensing and Compliance (Part B)

  • Assistance and consultation in choosing a Depositary, Investment Fund Manager (where applicable) and Auditor
  • Preparation and submission of the AIF license application to CySEC with all the accompanying questionnaires and documents.
  • Preparation of Know Your Client procedures and Anti-Money Laundering compliance policies
  • Advice and guidance on the restrictions provided by Cyprus Law and European Directives on investment strategies
  • AIF Management in accordance with the compliance requirements and the AIF constitutional documents

Accounting and Audit Services (Part C)

  • Tax Registration & Services
  • Internal & Statutory Audit Services.

For any queries regarding any aspect of Establishing an Alternative Investment Fund (AIFs) license in Cyprus for Europe in general, or any other legal matter under the sun, we are always available.