On July 10 2018, the Cyprus Parliament approved the new alternative investment fund (AIF) legislation which will replace the existing law and which enables, for the first time, the establishment of registered alternative investment funds (RAIF) in Cyprus. This is a major advancement in the field as it will substantially reduce the time and cost involved in establishing an AIF in Cyprus.
The details of the law will become available once the legislation is published in the government's Official Gazette, at which point the law will also come into effect. From the information available, the following criteria and characteristics in relation to RAIFs are expected:
- Funds will not be regulated by CySEC. Supervision will be at the level of the registered fund manager;
- Appointment of local depository;
- No minimum capital requirements;
- Can be either open or closed ended;
- Has the option for an umbrella structure;
- Addressed at professional and/or well-informed investors;
- Can be structured as a common fund, investment company (variable or fixed capital), or limited partnership;
- CySEC will register all RAIFs in a register of RAIFs; and
- Within one month of receipt of all required documents in accordance with the directive, the CySEC will inform applicants in writing of its decision to accept or reject an application.
In addition to the introduction of RAIFs, the new provisions in the Cyprus tax legislation mentioned below have also been introduced in relation to investment funds:
- No permanent establishment will be deemed to arise in Cyprus in the case of investment into Cyprus tax-transparent funds by non-resident investors and/or in the case of management in Cyprus of non-Cyprus investment funds. As a result, income earned on such investments will be taxed in the country of residence of the investor;
- Introduction of a special mode of taxation at the rate of 8% and a minimum annual tax payable of €10,000 ($11,700), subject to specific criteria, for certain employees and executives of investment fund management companies. This new mode of taxation will be available for a total period of 10 years; and
- Persons who are both Cyprus tax resident and Cyprus domiciled will be subject to a special defence contribution at a rate of 17% (instead of 3%, which has been applicable to date) on profits deemed to be received from Cyprus investment funds.