The Reasons AIFM, AIF and RAIF come to Cyprus

In 2018, the legal framework for the Alternative Investment Funds (AIFs) in Cyprus has been enhanced significantly. The new legislation introduced new rules for authorization as well as enhanced roles and responsibilities for directors, external managers, and depositaries. Most importantly, Cyprus introduced the Registered Alternative Investment Funds (RAIFs) – a cost-effective solution and operationally lean structure.

In continuation of the series of articles in the Fund’s sector, within this article, we discuss

  1. The responsibilities and requirements of;
    1. The Alternative Investment Fund Manager (AIFM),
    2. The Alternative Investment Fund (AIF),
    3. The Registered Alternative Investment Fund (RAIF),
    4. Type of AIFs and their key features
  2. The Investment Funds Industry performance and state in Cyprus.
  3. Why Cyprus
  4. The tax environment and the tax incentives for foreign investors.
  5. Passporting

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First of all,

What is an Alternative Investment Fund Manager (AIFM)?

Each Alternative Investment Fund (AIF – see below) must have a single AIFM, which is responsible for safeguarding compliance with the Alternative Investment Fund Manager Law. The AIFM can be

  1. through an external (AIFM) manager, which is the entity appointed by the AIF, which through its appointment is responsible for managing the AIF, or
  2. internally managed, where the legal form is that of a Variable Capital Investment Company (VCIC) and subject to the thresholds mentioned A below, the AIF is permitted an internal management and where the AIF’s board may choose not to appoint an external AIFM. In this case the AIF itself shall act as an AIFM.
    • The AIF holds assets under the threshold of;
      • EUR 100 Million, including assets acquired through leverage, or
      • EUR 500 Million, where no leverage is employed, and the unitholders have no redemption rights for 5 years.

The AIFM must at least engage in the following core investment management functions when managing an Alternative Investment Fund (AIF):

  • Portfolio management,
  • Risk management.

In the course of collectively managing an AIF, the AIFM may be authorised to perform any of the following functions:

  • Administration
    • Legal and fund management accounting services
    • Customer inquiries
    • Valuation and pricing, including tax returns
    • Regulatory compliance monitoring
    •  Maintenance of unit/shareholder register
    • Distribution of income
    • Issues and redemptions of unit/shares in the AIF
    • Contract settlements, including certificate dispatch
    • Record keeping
  • Marketing services
  • Activities related to the assets of the AIF, namely services necessary to meet the fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF and the companies and other assets in which it has invested.

Additional Investment Services

An external AIFM may also be authorised to provide the following MiFID services, subject to compliance with the relevant MiFID rules without separate MiFID authorisation being required. These are:

  • management of portfolios of investments, including those owned by pension funds and institutions for occupational retirement, in accordance with the mandates given by investors on a discretionary, client-by client basis
  • along with the provision of portfolio management services outlined above, an AIFM may further be authorised to provide non-core services including
    • investment advice
    • safe-keeping and administration in relation to shares or units of collective investment undertakings
    • reception and transmission of orders in relation to financial instruments.

The Alternative Fund Managers Law applies to:

  • A Cyprus AIFM managing Cyprus AIFs, RAIFs or of another EU Member State or third country.
  • An EU or third country AIFM managing Cyprus AIF and RAIF.
  • A Cyprus AIFM, marketing units or shares of AIFs and RAIFs they manage in other EU Member States or third countries.
  • An EU or third country AIFM marketing units or shares of AIFs and RAIFs they manage in Cyprus.

The Cyprus Securities and Exchange Commission (CySEC) is the regulator for investment funds and investment fund managers in Cyprus. CySEC is the supervising authority for AIFs, AIF Managers (and UCITS). Among other things, CySEC is responsible to apply the Laws, examine applications, issue directives and generally supervise the operation of AIF and AIFMs in the Republic of Cyprus.


What is an Alternative Investment Fund (AIF)?

Alternative Investment Funds (AIF) are collective investment undertakings, which raise capital (i.e. funds) from many investors. They do so, with a view to investing such capital (therefore, investment funds) in accordance with a strictly defined investment policy for the benefit of their investors. An AIF requires the prior authorisation by the regulator, in the case of Cyprus, the Cyprus Securities and Exchange Commission (CySEC), before the commencement of its operations.

AIFs can take one of the following forms:

  • variable capital company
  • fixed capital company
  • limited partnership
  • common fund

And finally,

What is a Registered AIF (RAIF)?

A Cyprus Registered Alternative Investment Fund (RAIF) in summary has the following characteristics:

  • does not need to be authorised by the Cyprus Security and Exchange Commission (CySEC)
  • will not be directly regulated by the Cyprus Security and Exchange Commission (CySEC) but will be instead under the supervision of the appointed external AIMF
  • there are no minimum capital requirements
    • may be structured as
    • common fund,
    • an investment company with variable or
    • fixed capital or
    • as a limited partnership.
  • may be open-ended or closed-ended,
  • can be set up as an umbrella fund (i.e. with sub-funds), allowing the setup of multiple investment compartments,
  • there are no investment restrictions, with the exception that RAIFs cannot be set up as
    • Funds of Funds,
    • Money Market Funds or
    • Loan Origination Funds.
  • may have an unlimited number of investors,
  • there is no limitation for the assets under management.

The RAIF in Cyprus has drastically eased the setting up of a fund by eliminating the lengthy authorisation and licencing procedures by CySEC and accordingly, the licencing costs has been reduced substantially.

Type of AIFs and their key features
The below table summarizes the differences of each AIF type and their requirements for;

  • AIFs with unlimited number of persons (AIF
  • AIFs with limited number of persons (AIFLNP) *max 50 persons,
  • registered AIFs (RAIF)
Legal Form– Common fund,
– Investment company,
– Partnership.
– Investment company,
– Partnership.
– Common fund,
– Investment company,
– Partnership.
Eligible Investors– Professional,
– Well-informed,
– Retail.
– Professional,
– Well-informed.
– Professional,
– Well-informed.
Number of InvestorsUnlimitedUp to 50 investors
(applies for all compartments)
Min AUM within the first 12 monthsEUR 500,000EUR 250,000EUR 500,000
Fund Management– Self-managed (in the case of an investment
company or a limited partnership with separate legal personality),
– Externally Managed by a fund manager.
– Self-managed (in the case of an investment
company or a limited partnership with separate legal personality),
– Externally Managed by a fund manager.
Always externally managed
Min Capital requirementIf self-managed: EUR 125,000If self-managed: EUR 50,000Not subject to minimum capital requirements.
Assets Under Management– No restriction if AIFM is appointed.
– If AIFM is not appointed then:
AIF can hold assets under the threshold of;
1. EUR 100 Million including assets acquired through leverage, or
2. EUR 500 Million where no leverage is employed and the unitholders have no
redemption rights for 5 years
– No restriction if AIFM is appointed.
– If AIFM is not appointed then:
AIF can hold assets under the threshold of;
1. EUR 100 Million including assets acquired through leverage, or
2. EUR 500 Million where no leverage is employed and the unitholders have no
redemption rights for 5 years
No restrictions
DepositaryMandatory appointmentMandatory appointment
(An exception not to appoint a depositary is permitted upon certain
Mandatory appointment

The Investment Funds Industry performance and state in Cyprus

Cyprus has had a very strong 2019 and its position as an investment funds jurisdiction, is reinforced one quarter at time – as the number testify every quarter. While upcoming changes such as the Mini-Manager law, further improvements in the AIFM, UCITS, and Partnership Law and the introduction of the law for the Fund Administrators are still expected, the country is on the right path.


Why Cyprus?

Cyprus has had a challenging journey in its effort to gain a competitive position within the global financial services industry. In doing so, the following have played key reasons for decision makers:

  • An ecosystem of reliable professionals, and professional services at competitive rates. AIFMs, AIFs, and RAIFs will work within a modern and transparent legal system based on common law, supported by high quality audit services conducted by qualified accountants, and a banking system supervised by the European Central Bank (ECB).
  • AIFMs not based in the European Union (EU) can access the European market by choosing the Republic of Cyprus as their Member State of Reference and entrance point into the Union.
  • Once an AIFM is authorised in one Member State and complies with the Law, this manager will be entitled to manage or market funds to professional investors throughout the EU. Therefore, Cyprus is the gateway to Europe offering to AIFMs a passport (see Passporting below) to provide portfolio fund management services across the European Union.
  • AIFs can be listed on the Cyprus Stock Exchange, where applicable, and other stock exchanges.
  • The Depository role can be undertaken by other entities such as investment firms and it is no longer reserved for credit or banking institutions.
  • An advantageous tax environment (see Tax Environment below). AIFs and RAIFs based in Cyprus, have one of the lowest corporate tax rates across the European Union while investors in Cyprus AIFs who are not Cypriot residents, benefit from an extensive double tax treaty network at the time of redemption. Also, no withholding tax is imposed on dividend distribution in the case where the recipient is an overseas Company or individual.

Tax Environment

As legal entities, investment funds (AIF, RAIF) incorporated in Cyprus, benefit from the low tax as well as from other tax provisions that provide additional tax incentives:

  • One of the lowest corporate tax in the European Union at 12.5%
  • Tax exemption for:
    • dividends received,
    • gains arising from the trading of securities,
    • capital gains from sale of property abroad and
    • capital gains from sale of shares of foreign property companies.
  • No subscription tax on the Net Assets of the investment fund
  • Fund management services are not subject to VAT
  • The lowest in the European Union for ancillary management services at 19% VAT
  • A double tax treaties network with more than 50 other countries
  • No minimum participation on inbound dividends to qualify for tax exemption
  • The liquidation of open and closed-ended collective schemes are not taxable if the unitholders are not tax residents of Cyprus
  • No stamp duties on the subscription, redemption, repurchase or transfer of units

Tax incentives for foreign investors

  • No withholding tax on dividends
  • No taxation on redemption of units
  • No deemed distribution restrictions Tax advantages for Resident Investors
  • If the investor is a company, there is no withholding tax on dividends
  • If the investor is a non-domicile Cyprus tax resident, the tax rate for Defence is 0%, for 17 years following the commencement of their tax residency
  • No taxation on redemption of units


Passport within the European Union – AIFMs, once authorised in Cyprus by CySEC, can manage, market and distribute units of AIFs and RAIFs based in Cyprus to professional investors in all other Member States using the regulator-to-regulator notification mechanism without seeking permission from each Member State and the need to comply with different national laws.

Passport for Third Countries – Cypriot AIFMs can take advantage of cooperation arrangements that are in place between CySEC and regulators in third countries where non-European Union AIFs are established so that, under certain conditions, a Cyprus AIFM can use the third country passport to market the units of non-EU AIFs to professional investors in the EU and/or manage non-EU AIFs marketed outside the EU.

To conclude, the Cyprus AIFM and AIF law framework will continue its enhancement in the immediate months and years to come. Please, do not hesitate to contact us at info@salvusfunds.com if you require further information. We will be glad to support you in finding a solution appropriate to your business plans.

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

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