Thursday, 13 April, 2017

Investing Via Cyprus: a Choice of Funds

Strategically located at the crossroads of Europe, Asia and Africa, Cyprus is increasingly the jurisdiction of choice for international investors. It boasts a sophisticated infrastructure, highly qualified professionals and English as a common second language. Alongside these advantages, Cyprus continues to develop its investment offering.

Two funds in particular are gaining prominence: the Alternative Investment Fund (AIF) and Undertaking for Collective Investment in Transferable Securities (UCITS).

The investment services market and transactions in transferrable securities performed in Cyprus are regulated by the Cyprus Securities and Exchange Commission (CySEC), an independent and prestigious supervisory body. Both these funds are regulated in line with EU directives, reassuring fund managers and investors. They also both benefit from Cyprus’s attractive tax regime. This includes a 12.5% corporation tax rate; exemption on capital gains from the sale of shares and other securities as well as immovable property held outside Cyprus; and a double tax treaty network with more than 55 countries.

AIF offers maximum flexibility

The AIF is a collective investment undertaking in transferable securities and alternative investments. It is designed to raise external capital from multiple investors. While it must follow a defined investment policy, it does not need the same authorisation as a UCITS.

A key benefit of the AIF is its flexibility: it can take any legal form (investment company, limited partnership or common fund), be open- or closed-ended, admit a limited or unlimited number of investors, and invest in any type of assets.

If the fund has a limited number of investors (not exceeding 75), there is no capital requirement. For unlimited investors, the capital requirement ranges from EUR 125,000 for third-party managed funds to EUR 300,000 for self-managed funds exceeding the AIFMD thresholds.

UCITS facilitates marketing across the EU

The sole aim of a UCITS is to function as a collective investment of publicly collected capital in transferable securities via stock markets and bank deposits. A UCITS can be established as an investment entity or common fund but must be open-ended.

Unlike the AIF, there are restrictions on the type of assets into which a UCITS can invest, set out in Cyprus’s Open-ended Undertakings for Collective Law. There are also restrictions on the level of exposure.

The UCITS benefits from complete EU passporting rights, which means the fund can be marketed in other EU member shares.

The capital requirement for a third-party-managed UCITS is higher than for an AIF, at EUR 200,000. For a self-managed fund, the requirement matches the AIF, at EUR 300,000.

Establishing an AIF or a UCITS

Setting up an AIF or UCITS is a straightforward process which involves submitting an application to the CySEC. CySEC will review and approve the application in around nine months.

 

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