The Alternative Investment Funds Law of 2014 was enacted by the parliament on the 10th of July 2014 and entered into force on the 27th of July 2014.
This new Law provides for the establishment and operation of Alternative Investment Funds (AIF) in Cyprus. The Alternative Investment Funds Law of 2014 replaces the International Collective Investment Schemes Laws of 1999 and 2000. The new Law creates a framework for the operation of Alternative Investment Funds which is in harmony with the relevant EU directives.
Key Provisions of the Law
• The sole regulatory body responsible for the regulation and supervision of Alternative Investment Funds is the Cyprus Securities and Exchange Commission (CySEC). Under the previous regime the relevant regulatory body was the Central Bank of Cyprus.
• Better transparency through a set of requirements in regards to transparency seeking to offer the best possible protection to investors.
• New structures such as umbrella structures with multiple compartments and common funds where investors participate as co-owners of the assets of the AIF.
• The law offers the possibility to make public offerings of shares of AIFs.
• Securities can be listed, which improves transparency and increases the potential investor pool.
•The AIF provides for two different types of AIFs:
a) AIFs available to an unlimited number of investors which can be marketed to retail or well informed and/or professional investors.
b) AIFs available to a maximum of 75 people which can be marketed to well informed and/or professional investors.
Professional investor is any investor that is considered or can be treated on request as a professional client as defined in the Markets in Financial Instruments Directive 2004/39/EC.
A well informed investor is an investor not considered to be a professional investor who confirms in writing that he is a well informed investor and has been informed of the risks associated with investing in the relevant AIF. He must invest a minimum of 125,000 Euros in the AIF or has been evaluated by a banking institution or regulated investment firm as a well informed investor having the knowledge and expertise to assess the suitability of the investment.
• There are several exemptions from tax such as exemption from tax on foreign dividends received and tax on profits from disposal of shares and no withholding tax on redemption of units. AIFs will generally not be subject to tax in Cyprus as they mostly generate exempt forms of income.
• Cyprus has double tax treaties with more than 40 countries.
• No requirement for minimum initial capital.
• No investment restrictions.
• No requirement to have local directors.
• No asset diversification rules for AIFs (Type B above) available to a maximum of 75 people.
• No formal leveraging restrictions.