Collective Investments in Transferable Securities

Undertakings for Collective Investments in Transferrable Securities (“UCITS”) are a type of investment fund, suitable for Blockchain projects looking to market their security assets to a wide range of European retail investors through a medium that is regulated by the Laws of Cyprus in accordance with the European Directives. Because of the extensive regulations, surrounding their licensing and operations, they are regarded as trustworthy by regulators at an international level.

What are UCITs?

UCITS are undertakings which have as their only objective the collective investment of capital raised from the public, in transferable securities and/or other liquid financial instruments set by the Law regulating Open-Ended Undertakings for Collective Investment Law. The definition of transferable securities is provided by the Markets in Financial Instruments Directive II and within its scope fall most security crypto assets. Under the Law, UCITs operate on the principle of risk-spreading and they can be redeemed or repurchased at the request of the investor, directly or indirectly, out of the undertaking’s assets.

UCITs license

Under Cyprus Law, UCITS may be created by a contractual instrument as a Common Fund or by the incorporation of a Cyprus company as a Variable Capital Investment Company, see their main features below.

Common Fund 

Common Fund (CF) is a pool of assets which belong jointly and undivided to all unitholders. Therefore, CFs are formed under the Contract Law of Cyprus. The units must be fully paid up by the unitholders and be deposited with a duly licensed Depository, such as financial institutions.

Form and Management

CFs are formed as a contractual relationship that has no separate legal personality and is managed by a Management Company which is licensed and regulated by Cyprus Securities and Exchange Authority (“CySEC”) or from a competent authority of another member state, for this reason. To establish a CF an instrument called Regulation is drawn by the Management Company and the Depository. In CFs the investors’ role is only advisory.

Capital Requirements

For the establishment of a CF, it is required that the value of the initial assets reaches the amount of €200,000 and they are fully paid up in cash. If the CF is comprised of various investment compartments, then every compartment must comply with the initial asset requirement separately and not collectively.   

Variable Capital Investment Company 

Variable Capital Investment Company (“VCIC”) is formed under Cyprus Company Law as a company limited by shares governed by its Memorandum and Articles of Association. A benefit of the VCICs is that they can be self- managed by their Board of Directors or managed by a Management Company.

Capital Requirements

VCIC’s funds are comprised of the fully paid-up share capital of the company. Under the law, the share capital can be decreased or increased without complying with the formalities imposed by the Cyprus Companies Law. The initial capital requirement to establish a VCIC is €200,000 if managed by a Management Company and €300,000 if they are self-managed.

UCITs Passporting

The term passporting describes the ability of a UCIT licensed under CySEC to advertise its investment products to investors in the European Union, upon the approval of a notification being sent to the relevant authorities of the Member-State where the UCIT wants to advertise.

Fees and Timeline of Application for UCITs license

Under the law, the authority that will examine and grant the application is Cyprus Securities and Exchange Commission (“CySEC”). CySEC is obligated to reply within 2 months from the submission of the application if the UCIT is managed by a Fund Manager and within 6 months if it is self-managed.

The cost to apply for the CF license is €1,800 without investment compartments plus €400 for 15 investment compartments and €250 from the 16th and afterwards. The cost to apply for the VCIC license is €1,800 without investment compartments plus €400 for 15 investment compartments and €250 from the 16th and afterwards.

Taxation for UCITs 

While common funds are a pass-through vehicle for tax purposes, there are two types of tax liability VCICs are subject to, which are the following:

  • VCICs 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 income arising from trading in securities. Also, a full exemption applies from tax on dividend income. Plus, there’s no withholding tax for dividends paid to non-residents and no capital gains tax.
  • Value Added Tax is applicable where the transactions carried out by the VCICs fall within the definition of economic activity and its earnings from abroad exceed the amount of €15.600, in this case, it is obligatory to register with the VAT.

UCITs Management Company License

External UCITs managers are formed as limited liability companies and are licensed under CySEC to perform the management of UCITs set up in the European Economic Area, that involves tasks such as the investment management, the day-to-day administration of the fund and marketing. In addition, the company may apply to be licensed to manage other collective investment undertakings or to provide the following investment firm services:

-Management of portfolios of investments

-Investment advice

-Safekeeping and administration in relation to units in collective investment funds

When a UCITs management company provides the above investment firm services, it must comply with the requirements on organization, initial capital and business operations imposed on investment firms for the relevant services. The initial capital of UCITs manager company must be at least €125,000 provided that the assets under management do not exceed the amount of €250,000. Over this amount, additional capital is required equivalent to 0,02% of the capital in exceed to the above threshold, but the total must not be higher than €1,000,000.

Fees and Timeline of Application of UCITS Manager License

Under the Law, CySEC is obligated to reply within 6 months from the submission of the application for UCITs management company license, whether the application is accepted or denied. The cost to apply for UCITs management company license is €2,000 plus additional fees of €450 when the management company will provide the services of management of investment portfolios. In addition, the fees increase when the management company will provide the investment firm services of investment advice by €450, safe-keeping and administration in relation to shares or units of collective investment undertakings by €450.

For more information on the fees see the link below:

https://www.cysec.gov.cy/CMSPages/GetFile.aspx?guid=1b135bc8-ed3f-427e-9556-000f08711426

Simon Zenios & Co. LLC assists you in establishing a Cyprus Open-Ended Investment Fund 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 Investment Fund in Cyprus provides various structures options which are adjustable to your projects’ requirements. Therefore, it is important to study your options closely to choose the most suitable for it.

UCITs Set Up Services:

Corporate Services (Part A)

  • Selection of the appropriate corporate/fund structure, corporate structure (where applicable) and initial capital requirement.
  • Advice and guidance on the restrictions provided by Cyprus Law and European Directives on investment strategies, when the UCIT is marketed to retail investors.
  • Draft of appropriate Memorandum & Articles of Association or Fund Rule.
  • Company name search & application the Companies Registrar.
  • Company incorporation in compliance with the licensing requirements.
  • Appropriate Memorandum & Articles of Association or constitutional document.
  • First minutes and Resolutions.
  • Director – Cyprus resident, qualified directors (individuals).
  • Registered office and arrangements for actual and adequate office premises (where applicable).
  • Drafting of corporate documents and Fiduciary Services.
  • Registered office and arrangements for actual and adequate office premises (where applicable).
  • Drafting of corporate documents and Fiduciary Services.
  • Company incorporation in compliance with the licensing requirements.
  • Assistance in day to day Governance and Administration.

Set Up, Licensing and Compliance (Part B)

  • Assistance and consultation in choosing a Depositary and UCITS Manager (where applicable) and review of all related contracts for the marketing of the units or other related services (where applicable).
  • Consultation regarding delegation to third parties.
  • Review and/or preparation of Prospectus and Key Investor’s Information Document (if applicable) and submission for approval by CySEC.
  • Preparation of internal operations manual, business plan and organisational structure.
  • Preparation of Anti-Money Laundering and Combating Terrorist Financing risk management and procedures manual.
  • Advice on any other documents which may be required according to the UCITS type.
  • Preparation and submission of the license application with all the accompanying questionnaires and documents.
  • Communication with CySEC for all matters relating to the application which may arise after the submission.
  • Consultation on UCITS Management in accordance with the compliance requirements and the UCITS constitutional documents.
  • Advice on the reporting requirements for UCITS.
  • Notification about changes in the regulatory framework and advice on how to implement new requirements.

Accounting and Audit Services (Part C)

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

UCITS Management Company Set Up Services

Corporate & Legal Services (Part A)

  • Selection of the appropriate license features, corporate structure and initial capital.
  • Company name search & application.
  • Draft appropriate Memorandum & Articles of Association for preliminary submission for approval by CySEC.
  • Company incorporation in compliance with the licensing requirements.
  • Director – Cyprus resident qualified directors (individuals).
  • Registered office and arrangements for actual and adequate office premises.
  • Drafting of corporate documents and Fiduciary Services.

Licensing and Compliance (Part B)

  • Consultation on hiring key personnel such as portfolio manager, risk manager, compliance officer, internal auditor if required.
  • Preparation of internal procedures manual, business plan and organisational structure.
  • Preparation of Anti-Money Laundering and Combating Terrorist Financing risk management and procedures manual.
  • Consultation on outsourcing functions to third parties.
  • Preparation and submission of the license application with all the accompanying questionnaires and documents.
  • Communication with CySEC for all matters relating to the application which may arise after the submission.
  • Advice on the reporting requirements for UCIT Managers.
  • Notification about changes in the regulatory framework and advice on how to implement new requirements.

Accounting and Audit Services (Part C)

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

For any queries regarding any aspect of Undertakings for Collective Investments in Transferable Securities (UCITS) License in Cyprus for Europe in general, or any other legal matter under the sun, we are always available.

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