Monday, 23 July, 2018

New Alternative Investment Funds Legislation in Cyprus

The Cyprus House of Representatives has approved the much anticipated legislation which will further encourage the establishment of funds in the Republic of Cyprus.

The Alternative Investment Organisation Act 2018, which replaces the existing law, enables the establishment of Registered Alternative Investment Funds (RAIF) in Cyprus, essentially aiming at streamlining the timeframe and cost of setting up an alternative investment fund in Cyprus.

Although finer details of the law will become available on its publication in the official Government Gazette later this year, it is understood that, inter alia, a RAIF:

  • will not require authorization by CySec (the Cyprus Securities and Exchange Commission), but will be supervised by a licensed AIFM
  • can be established as a limited partnership, with or without a separate legal personality; a common fund; or a company with variable or fixed capital
  • has no minimum capital requirement
  • must appoint a local depository
  • should be restricted to well-informed and/or professional investors
  • can be open or closed ended
  • can have unlimited number of investors
  • must be registered with CySEC

Income Tax Law

The Cyprus Income Tax Law has been amended to attract both foreign investors, as well as senior fund administrators to the Republic.

Firstly, investment in a mutual fund or partnership established under the Cyprus Alternative Investment Funds Law and the Collective Investment Schemes (CIS) Law will not be considered as a permanent establishment in Cyprus. Therefore, any income earned by these persons from such investments will be taxed in their country of residence.

Furthermore, the amendment introduces a special mode of taxation for the variable remuneration received by executives of the administrator or manager of an AIF whereby 8% income tax is applied to an individual, with a cap of €10.000 per year.

Additional amendments are provided for the special defense tax on deemed dividend distributions and on profits attributable to Cypriot tax resident companies and tax resident domiciled individuals.

Conclusion

Cyprus remains a competitive jurisdiction thanks to its business-friendly environment, EU membership, Double Taxation Treaty network, geographical location and favorable tax treatment for companies, individuals and now funds.

Once the new fund legislation comes into effect, many more international entrepreneurs and businesses will undoubtedly consider setting up or relocating to Cyprus.

The Alternative Investment Organisation Act 2018 will come into effect on its publication in the official Government Gazette.

 

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