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PKF Cyprus

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Cyprus Investment Funds


Cyprus Investment Funds: Investment through alternative funding vehicles

(Please answer to the questions contained in the questionnaire below to get a free fee quotation)

(Fee quotation questionnaire form)

Cyprus is expanding its role as a location in which to establish Cyprus investment funds, both EU regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and alternative investment funds. Cyprus Funds have full access to EU legislation establishing pass porting rights for funds to be freely distributed in other EU jurisdictions. Cyprus has begun to show its potential as an attractive alternative within the EU investment funds market. A number of EU directives, strengthening the degree of harmonisation across all EU member states such as the UCITS IV Directive and the Alternative Investment Fund Managers Directive (AIFMD), are expected to effectively increase the attractiveness of EU jurisdictions. The island has already seen increased interest and has attracted international industry leaders.

Cyprus promises fund promoters’ cost-effectiveness through economies of scale, providing all back office support, administration and other services necessary for the creation and management of a Cyprus Investment fund. In addition, set-up costs are considerably lower. According to industry experts, the cost of legal fees for setting up a fund in other EU countries is generally some 70,000 to 100,000 euro, in Cyprus it is a fraction of that at around 15,000 to 20,000 euro.

The Cyprus Law also permits accountants with experience in the process to represent a fund to the regulator rather than requiring direct client presence with the regulator. Fund administration and custodial services are also less expensive than in other finance centres.

Cyprus, Through Cyprus Funds can be used as an investment route to western European countries through new alternative funding vehicles..


Cyprus tax regime

Notably, Cyprus’s attractive tax regime remains fundamentally unchanged over years.

Effectively the Cyprus tax rate is 12,5 % Tax on intra group loans, which is taxable – net of deductible business expenses – at the corporate income tax rate of 12.5%.


Cyprus Alternative Investment Funds (AIFs) (Previously International Collective Investment Schemes (“ICIS”))

Cyprus introduced in May 1999, a legislation enabling the establishment and regulation of International Collective Investment Schemes (“ICIS”). The law  was the legal framework for the establishment, regulation of operations and supervision of ICIS. The Central Bank of Cyprus was the regulatory authority in Cyprus until 2014.


Cyprus Investment Funds reformed law (Alternative Investment Funds (AIFs)Law)

In the year 2014 the establishment and the supervision passed under the Cyprus Securities and Exchange Commission (CySEC)


Main Objective

An Alternative Investment Fund (AIF) can be established and operated by non-residents and the main objective of these schemes is the collective investment of funds of unit holders. These unit holders may be other international collective schemes, International Cyprus companies or individuals who are not residents in Cyprus. Clients who set up and operate such investment schemes are financial services companies, fund managers, groups of high net worth individuals and investment firms.


Structure of the Cyprus Alternative Investment Funds

Cyprus Alternative Investment Funds can be of two types

Funds of Unlimited Number of Investors

–     Funds which are addressed to retail, professionals and well informed investors with minimum capital €125,000 and €300,000 if self managed

–     Funds which are addressed to professionals and well-informed investors with minimum capital €125,000 and €300,000 if self managed

Funds of Limited Number of Investors

Funds which are addressed to well-informed investors having up to 75 investors. These type of funds have no minimum capital requirements (€50.000 minimum capital for self managed funds)

A well informed investor should be an investor who is aware of the risks, invest minimum €125,000 or assessed by credit institution or investment firm


Other important differences between Alternative Investment Funds (AIF) and Alternative Investment Funds with Limited number of investors (AIFLNP):
Investment restrictions apply for liquidity and risk diversification No investment restrictions
Obligation to appoint Depositary No obligation to appoint Depositary if 1) Less than 5 investors in the fund or 2) Assets does not exceed €5m or 3) Investments not subject to custody i.e. real estate, commodity etc.
No Alternative Investment Fund Manager (AIFM) thresholds Must remain below Alternative Investment Fund Manager (AIFM) thresholds

–      €100m with leverage

–      €500m with no leverage and no redemption rights within 5 years

Annual (audited) and half-yearly (unaudited) reporting is required Annual audited reporting is required



Legal forms of Alternative Investment Funds

A Cyprus Alternative investment fund can take the form of:

– Company, Fixed or Variable Company. 80% of Cyprus Investment Funds are Variable Companies

– Partnership

– A Common Fund

The most used form of Cyprus Alternative Investment Fund is that of a Cyprus International Variable Capital Company. This is an International Investment Company that is incorporated under the Cyprus Companies Law and is recognizable as a Cyprus International Variable Capital Company. In more detail, the shares in the Cyprus company are issued or redeemed as investors buy or sell their investments in the fund. The shares issued by a Cyprus Alternative Investment Fund must, at the option of the investors, be redeemed or repurchased directly out of the assets of the AIF. The AIF may be established without having a limited duration.


Licensing process

For the establishment of Cyprus Alternative Investment Fund (AIF), the approval of the Cyprus Securities and Exchange Commission (CySEC) , as the regulatory and supervisory authority, is required. In order to do so, the Cyprus Securities and Exchange Commission (CySEC) , must be provided with information which will satisfy them regarding the competence of the directors, promoters, managers or trustees, as the case may be, and that their probity is such as to render them suitable to act in their respective capacities.


Procedure requirements in a “Nutshell”

– Private Offering Memorandum (POM) describing the strategy, investors returns, risks associated, service providers etc

– Procedures manual describing full Cyprus fund procedures

– For directors (should be “fit and proper

+  CV;

+   Reference reports (Last 10 years);

+   Bank reference letter;

+   Lawyer reference letter;

+    Copy of university diplomas etc translated officially in English language;

+   Clean criminal record report translated officially in English language;

+   CySec questionnaire form

+  Copy of passport and recent utility bill

– Details of Investment Manager (if applicable), Auditors, Custodian, Administrator

– An application fee approx. €2000


Recognition of the Fund

In order to recognize the Fund the supervising authorities must be satisfied that:

– The directors, the promoters, the managers and the trustee of the scheme are competent and honest, and that the manager, the general partner and the trustee (as the case may be) act independently of one another.

– The manager and the trustee meet the necessary requirements as per the legislation and the regulations.

– The general partner meets the requirements of a manager.

In addition, the Cyprus Securities and Exchange Commission (CySEC)  and the supervising authorities must be satisfied that the constitutional documentation and the offering memorandum of the scheme contain the information prescribed by the supervising authorities and that they are in a form acceptable to the supervising authorities. The scheme will have to submit to the supervising authorities other documentation and information as prescribed.

To register a Fund under the supervision of the Cyprus Securities and Exchange Commission (CySEC)  usually takes less than twelve weeks.


Cyprus Taxation and Alternative Investment Funds Taxation Advantages

Cyprus Alternative Investment Funds are subject to Cyprus tax like any other Cyprus Company. Although Cyprus taxation rate is the lowest corporate taxation in the EU (12.5%), cannot be characterized as a ‘tax haven’ as Cyprus complies with OECD rules against Harmful Tax Competition. However, the basic features of Cyprus tax system are highlighted as follows:

– Unified corporate rate of 12.5% for both international and local business enterprises;

– Adoption of the residency basis rather than source basis as the criteria of taxation;

– Exemption of profits from the disposal of securities;

– Dividend income is exempted in most cases;

– No withholding tax on payments of dividend, interest and royalties to non-residents;

– Capital gains realized on immovable property held outside Cyprus, are outside the scope of capital gains tax.

– Dividends distributed to foreign Investors (foreign tax residents) are not subject to Cyprus tax. Dividends distributed or deemed to be distributed to Cyprus tax residents are subject to 3% special defense contribution (17% applies for Cyprus Companies to Cyprus tax residents);

– There is no tax on redemption of units;

– Cyprus Investment Fund formation automatically creates Cyprus economic substance ;

– Advantages of Cyprus Double Tax Treaty network (Currently there are over 60 Cyprus Double Tax Treaties in force);


‘Feeder Fund’ structure

An alternative Investment Fund established in an international jurisdiction such as the Cayman Islands or Luxembourg can establish a wholly owned International Cyprus Business Company. The International Cyprus Company invests on behalf of its parent entity mainly into countries that Cyprus has a double tax treaty with.

Such a structure is known as a ‘Feeder Fund’ or a ‘Two-tier Fund’. The Investing Cyprus Company enjoys the tax benefits and the access of Cyprus to the European Union Directives. A variation to the ‘Feeder Fund’ can be established where the Investing Cyprus Company can act as the trustee or custodian for the overseas International Collective Investment Schemes.


Fund Manager

The regulated authorities require the Alternative Investment Funds amongst other officers to be appointed to appoint a fund manager, which can be either a regulated Cyprus Company, licensed by the Cyprus Securities & Exchange Commission, or from any other member state of the EU.

Managers can be:

– A UCITS management company

– Licensed under the AIFM Directive

– A licensed Investment Firm from any part of the world, subject to conditions

There is an exemption to the above, where if proven that the members of the Board of Directors have track records in investment management. In this case the fund can apply to be managed by the BoD.

– A Mini Manager expected to pass into law. The scheme will be applicable to managers with Assets Under Management (AUM) up to €100m with leverage or €500m with no leverage



As required by the supervising authorities, an International Collective Investment Scheme must appoint a custodian who will take under custody the assets of the fund, settle all trades and make sure that the Cyprus fund is following the stated and approved investment strategy.

These services can be offered by a company that engages in custodian services either in Cyprus, other EU member state or another regulated third country.



Cyprus Funds that do not have a physical presence in Cyprus must appoint a company which will administer the scheme. The Administrator must be located in Cyprus and approved by the Cyprus Securities and Exchange Commission (CySEC) .(New legislation is expected for “fit and proper” administrators)

The Administrator or an affiliate thereof will act as registrar and agent for the Fund’s shares, maintain the Share Register of all Shares, calculate and issue the net asset valuation of the Fund. In addition, the Administrator will be responsible for the calling and conducting of all shareholders’ meetings, for the day-to-day administration of the Fund (exclusive of activities performed by the Directors) including the compliance by the Fund with applicable anti-money laundering regulations and provide accounting and other administrative services to the Fund.



Alternative Investment Funds with limited number of investors regulated under the Cyprus Securities and Exchange Commission (CySEC)  are required to:

– Appoint an auditor who will audit and sign the yearly financial statements according to the relevant Accounting and Audit Standards.

– Prepare Financial Statements,

– Comply with Cyprus tax laws by preparing the annual tax return

– Report to Central Bank of Cyprus and comply with monthly or Quarterly Statistical reporting

– Report to the Cyprus Stock Exchange and submit annual information requested

– Reporting on prevention of money laundering and terrorist financing

– Provide to investors a Net Asset Value (NAV) quarterly report


Umbrella Funds

A Cyprus Alternative Investment Fund can take the form of an “Umbrella” (Umbrella structures) having multiple investment compartments which allow the management of different pools of assets with different investment policies, the assets of each such pool of being ring fenced (no transfer of liabilities or claims between sub-funds)



– A Cyprus Alternative investment Fund can obtain International Securities Identification Number (ISIN) number.

– A Cyprus Alternative Investment Fund of Unlimited Number of Investors may be listed.

– A Cyprus Alternative Investment Fund (AIF) marketed to retail investors may be listed and traded on a recognized stock exchange in the EU or in a third country.


Other recent Cyprus funds’ developments

Registered Cyprus Alternative Investment Funds (RAIFs)

The law also provides for the setting up of Cyprus Registered Alternative Investment Funds (RAIFs), which clearly bear reduced costs and time to set up in relation to the setting up of a Cyprus Alternative Investment Fund (AIF)

Registered Alternative Investment Funds RAIFs) characteristics:

– No licensing required by the Cyprus Securities and Exchange Commission (CySEC) and only required to notify Cyprus Securities and Exchange Commission (CySEC) , which maintains a register of Cyprus Registered Alternative Investment Funds RAIFs).

– Addressed to professional/ well informed investors

– Managed by Alternative Investment Fund Managers (AIFM) in Cyprus or in an EU Member State

– No capital requirements

– No investment restrictions

– Obligation for depositary

may be open or closed-ended and stand-alone or with an umbrella structure

– may take the form of a mutual fund, an investment company with fixed or variable capital, or a limited partnership,

– Unlimited number of investors

Permanent establishment issues

Investment by a non-resident individual in a mutual fund or partnership operating in accordance with the provisions of the Open-ended Undertaking for Collective Investment Funds Law or the Alternative Investment Funds Law does not create a permanent establishment in Cyprus with respect to the investment. Similarly, the management by a Cyprus tax resident of a UCITS or AIF that operates overseas does not give rise to a permanent establishment in Cyprus for the UCITS or the AIF.

Managers benefits

Special incentives are also available for investment managers. Carried interest and share of the profits paid to the investment manager are taxed at the highly rate of 8% for the first 10 Years subject to a minimum of EUR 10.000 tax liability per year and subject to the following conditions:

1) the individual is employed in a senior executive capacity by a self-managed AIF, an AIF management company, or a company to which the AIF management company has delegated the portfolio management or risk management function of the fund;

2) the individual became a Cyprus tax resident when his employment with the company began, and was not a Cyprus tax resident in the year preceding the year in which the employment began, or for three or more of the five tax years preceding the year in which the employment began; and

3) the net book value of the fund’s assets is greater than the initial investment by the investors.

The concessionary rate is available to an individual for 10 years in total in one or more employments, including the year of commencement and the year of termination.


PKF Cyprus can offer:

– Advice and application to the Cyprus Stock Exchange, on behalf of clients, to obtain approval;

– Assistance in drafting the offering memorandum, incorporation and legal documents;

– Provision of administrator services i.e. act as registrar and transfer agent for the Fund’s Shares / Units, maintain the Share Register of all Shares / Units, processing of Investors applications and redemption of shares / Units,  calculate and issue the net asset valuation of the Alternative Investment Fund, calling and conducting of all shareholders’ meetings, compliance by the Fund with applicable anti-money laundering regulations, provide accounting and other administrative services to the Alternative Investment Fund, be responsible for the day-to-day work, etc;

– Arranging the provision of external audit and tax services.

– Provision of administrative services including nominees, office facilities, administration of affairs, accounting, etc;

 Please answer to the questions contained in the questionnaire below to get a free fee quotation)

(Fee quotation questionnaire form)


For more information on how to set up and administer an Investment Fund in Cyprus please contact

Email: [email protected]


The authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this website.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.

PKF Cyprus firms are member firms of the PKF International Limited network of legally independent firms and do not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.”