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The AIF Law allows for three different types of AIFs to be registered in Cyprus:
It should be noted the enactment of the AIF Law has repealed and replaced the previous International Collective Investment Schemes Law of 1999 (the “ICIS Law”), with existing ICIS required to convert into any of the above mentioned three categories of AIFs.
The following memo highlights the characteristics of the current AIF industry in Cyprus, and focuses on the most common form, being the AIF-LNP.
An AIF-LNP can have up to a maximum of 75 investors, also known as unit-holders, and must be marketed only to professional and/or well informed investors.
The AIF Law defines a professional investor as an investor who is considered to be a professional client or may, upon the investor’s request, be treated as a professional investor within the meaning of Annex II of the Investment Services and Activities and Regulated Markets Law, as amended.
The AIF Law defines a well-informed investor as being a non-professional investor who fulfils the following conditions:
80% of these funds take the legal form of International Variable Capital Companies and 20% are registered as Limited Liability Partnerships. The following table depicts the various industries represented by the Cyprus AIF-LNP regime:
Of the almost 80 AIF-LNP currently established, investment has been targeted in a wide spectrum of jurisdictions. The regional focus of all currently established AIF-LNP is summarised in the diagram below:
As at March 2015, the registered AIF-LNP in Cyprus had total assets under management of EUR 3.05 billion (as published by the statistics department of the Central Bank of Cyprus).
4. TAXATION AND OTHER BENEFITS OF AN AIF
There are no specific provisions or special modes of taxation in Cyprus tax law regarding AIFs. Therefore, provided an AIF is structured in the form of a private limited liability company, and its management and control is exercised in Cyprus, it is taxed in the same way as a Cyprus tax resident company. All of the advantages afforded by the Cyprus tax regime will fully apply to the AIF regime.
The following are the main tax advantages enjoyed by an AIF:
The following are the main non-tax advantages afforded by an AIF-LNP:
5. AIF LEGAL FRAMEWORK
Under the applicable Cypriot legislation, namely the AIF Law, the Cyprus Securities and Exchange Commission (“CySec”) is the regulatory and supervisory authority for AIFs and may, upon a written application, recognise a Company, a Common Fund or a Partnership as an AIF.
The various legal forms in which an AIF-LNP can manifest in are analytically described as follows:
(i) Fixed Capital Investment Company (FCIC)
(ii) Variable Capital Investment Company (VCIC)
(iii) Limited Liability Partnership (LLP)
6. KEY SERVICE PROVIDERS
Setting up a regulated AIF-LNP entails professional regulated services by qualified providers such as Savva & Associates. It also involves other professionals, which must be approved by CySec. Savva & Associates undertakes the selection and appointment of all professionals required for an AIF-LNP to be licensed, established and operate seamlessly, and our clients have the choice at all times to provide their own Investment Manager, Custodian or Auditor so long as such providers are approved by CySec.
In detail, the roles in an AIF-LNP are typically as follows:
(i) Investment Manager
(iii) Fund Administrator
(v) Legal Advisors
7. MANAGEMENT OF AN AIF-LNP IN THE FORM OF A COMPANY
The Directors are responsible for the overall management and control of a fund. The Directors should review the operations of the fund at regular meetings and should meet on a regular basis, at least quarterly. For this purpose, the Directors should receive periodic reports from the Administrator detailing the fund's performance.
Irrespective of whether or not an AIF appoints an Investment Manager, the Directors are overall responsible for the management of a fund, and all final investment decisions taken.
Management Shareholders' Functions
The holders of Management Shares have the right to vote as explained in detail below. The Management Shares are entitled to one vote per share and carry no right to dividends and on a winding up rank last for the return of capital paid up initially and will be paid out of the general assets of the fund, if any. Management Shares are not redeemable. The holders of the Management Shares have the exclusive right to vote (to the exclusion of the holders of participating units), and in such case are entitled to one vote per share, in respect of each of the following matters:
In case the certificates and documents that accompany the application are not in an official language of the Republic or in English, they must be accompanied by their true translations.
It should be noted that all Directors must be “fit and proper”, meaning they must have adequate financial and fund management experience and academic credentials. In addition, in practice CySec requires a minimum of two executive Directors.
9. FINANCIAL AND OTHER REPORTING REQUIREMENTS
The following is a list of the current filing and reporting requirements for all AIF-LNP as determined by CySec:
A list of all existing AIF-LNP along with a summary of their activities and key providers can be obtained directly from the website of CySec.
Our team of investment fund professionals is well positioned to assist you with the following AIF related services:
Please let us know if you have any questions or comments regarding the above information. Upon your request we can provide you with a summary of the initial information and documentation we will require in order to commence an AIF-LNP application.