An AIF or Alternative Investment Fund can raise funds from sophisticated investors, through private placement. An AIF is essentially a collective investment, whereby investors’ capital is pooled, and the returns are also pooled.
And Cyprus, has been the jurisdiction of choice for a good number of AIFs and RAIFs. But before we explain why this has been so, lets first define alternative investments.
Defining Alternative Investment Funds (AIFs)
To understand AIFs, one must first define alternative investments, which are essentially non-traditional financial assets that fall outside of the most common or traditional asset categories such as stocks, government bonds, and cash.
Alternative investments generally include private equity, hedge funds, venture capital, futures, commodities, derivative contracts, collectible and luxury items like art and antiques, and in some instances even real estate. These assets are usually dealt with by institutional investors or authorized HNWIs since they involve higher levels of risk, are more complex in nature, and may be loosely regulated.
Hence, an alternative investment fund (AIF) is a privately pooled fund that allows institutional, professional, and well-informed investors to openly invest in these non-standard asset categories.
One of the main advantages of investing in AIFs is that it allows you to diversify your portfolio and benefit from markets that do not immediately follow the financial trends seen with indices such as the S&P 500 or Dow Jones. If you invest wisely, AIFs will help you build a portfolio that touches upon many different sets of assets, capitalization levels, and industries, and boost your income by not being tied to how stock and bond markets generally perform.
AIFs in Cyprus
In Cyprus, AIFs can be created with an unlimited number of persons (AIF-UNP), a limited number of persons (AIF-LNP), or as a registered fund (RAIF). Furthermore, AIFs can be set up as fixed or variable investment companies, limited partnerships, or mutual funds in the case of AIF-UNPs.
Below are some of the most salient facts you need to know about how Cyprus AIFs work:
- You can set up your Cyprus AIF with unlimited investment compartments, for instance, umbrella funds, where each one has its own investment strategy and pool of assets.
- You have plenty of flexibility when it comes to appointing an investment manager or depository.
- You can only add up to 50 investors in the case of an AIF-LNP.
- You can rush into the market by setting up a RAIF, which does not require licensing, only pre-registration with the relevant regulatory authority.
- AIF units can be listed in certain stock exchange and investor units can be transferred without a problem.
RAIFs in Cyprus
A RAIF in Cyprus (a Registered Alternative Investment Fund), is one of the most popular types of AIFs.
The Cyprus RAIF is unique because it does not place any limitations on the number of investors that can be involved in the fund, nor does it contain any provisions that dictate a minimum capital required. Furthermore, the RAIF does not need to be officially authorized by the Cyprus Securities and Exchange Commission (CySEC) but does have to be registered with said regulatory body. This allows you to set it up in a very short amount of time, making it a highly cost-effective vehicle.
Do keep in mind, however, that the RAIF has to be managed by an external administrator and can only be marketed to professional or well-informed investors. Additionally, a RAIF must invest at least 500 thousand Euros within its first year of existence.
Why you should register your AIF or RAIF in Cyprus
During the past five years or so, Cyprus has established itself as a preferred AIF center within the European Union.
Growth in the sector has been remarkable. According to the Cyprus Investment Funds Association (CIFA), as of March 2022, there are 11.1 billion euros in assets under management with 322 management companies and Undertakings of Collective Investments (UCIs). 56 percent of the assets under management alone are handled by alternative investment fund managers (AIFMs).
So, what has led to this impressive build up in the local funds sector?
Reasons abound for professionals looking to set up their funds in Cyprus. Here’s a short list with the island’s main advantages:
- The jurisdiction’s political and social stability.
- A robust regulatory and legal framework that has been developed and improved via the combined efforts of regulatory authorities and the private sector to the benefit of all parties involved.
- A regulatory environment that falls in line with all of the latest EU rules relevant to AIFs, UCITS, and their managers.
- An ample array of tax breaks, exemptions, and incentives for dedicated investors.
- A fairly simple and straightforward procedure via which you can receive a license or register the investment fund of your choice, AIF or RAIF.
- A central geographic location that makes these funds easily accessible to investors from Europe, North Africa, the Middle East, and beyond.
- A strong adherence to best practices of fund investor protection and anti-money laundering policies.
- A highly skilled, educated, and multilingual professional workforce that includes lawyers, accountants, auditors, financial service providers, and more.
- Affordable rental spaces and a high quality of life including excellent healthcare, a strong educational system, vast transportation and communication networks, and great leisure activities.
AIFs and taxation
One of the primary reasons why professionals choose to register an AIF in Cyprus, is taxation.
Throughout the financial world, Cyprus is well known for the lenient and favorable tax conditions it offers international businesses. As a result, on an annual basis, hundreds of companies choose to register their companies and establish their headquarters or operation centers in Cyprus.
When it comes to AIFs, Cyprus’ flexible and business-friendly tax regime delivers the following:
- Immediate access to the range of EU tax directives.
- Favorable tax conditions for AIFs in the equities, venture capital, and infrastructure sectors, as well as for foreign investors.
- Double tax treaties with more than 60 different jurisdictions.
- Bespoke tax regimes for fund management, as well as associated incentive schemes.
- Zero value-added tax on management and admin fees.
- Tax exemptions on the amount invested to the fund and the capital gains from the sale of AIF units or shares.
- Tax exemptions on money made by the fund from the disposal of shares or other instruments and the dividends received by companies in which the fund has invested.
- AIF investment compartments that are taxed as standalone entities.
- Among the lowest corporate income tax rate (12.5 percent) in Europe.
As part of what’s needed to register an AIF and run a successful fund in Cyprus, we can help you out with the following:
- AIF Registration & Licensing: Gain full support—from A to Z—when it comes to registering your RAIF or submitting your application to become a licensed AIF under Cypriot law. Meridian Trust will advise you on your choice of fund to set up, handle the relevant paperwork, and liaise with CySEC to make sure your application is received in a timely manner and deemed to be ready for approval.
- Tax Advisory: Make the most of Cyprus’ many tax advantages with our assistance. We will help you structure your operations so that you benefit from the island’s business-friendly and flexible tax regime.
- Fund Administration Services: Rest assured that the fund of your choice will be properly managed and administered with Meridian Trust’s lending hand. Our services in this realm include accounting, management, and investor reporting, among others. We will provide the necessary support completing all of your fund’s required filings and statutory obligations, and help you arrange for the issuing, transfer, allotment, conversion, redemption, and buying of shares as required by your fund’s rules. Finally, if you require help hiring personnel for the running of your fund, we can rely on our local and international network to find suitable candidates to fill these roles.
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