Alternative Investment Funds (AIFs)

AIFs are defined as collective investment undertakings with the intention to raise external capital from a number of investors, with a defined investment policy and without being authorised as a UCITS.

The adoption of the EU Alternative Investment Fund Managers Directive (the “AIFMD”) in 2011 has led to the modernisation of the legal framework governing investment funds in Cyprus. The AIFMD has been transposed into Cypriot Law by means of Law 56 of 2013 on Alternative Investment Fund Managers Law (the “AIFM Law”), as amended, while a year later the Alternative Investment Funds Law of 2014 (the “AIF Law”), as amended, repealed the International Collective Investment Schemes Law, being the former legislative framework for investment funds in Cyprus.

AIFs are authorised and regulated by the Cyprus Securities and Exchange Commission (the “CySEC”).


An AIF can be set up under the following legal structures:

  • (a) as a common fund;
  • (b) as an investment company, of either fixed or variable capital (minimum capital requirements apply depending on whether the company is self-managed or not); or
  • (c) as a limited liability partnership.


    AIFs are categorised into:

  • (a) AIFs targeting an unlimited number of retail or well-informed and/or professional investors; and
  • (b) AIFs targeting a limited number of 75 well-informed and/or professional investors (the “Limited Investor AIFs”).
  • Units of all AIFs are transferable, unless otherwise provided in the constitutional documents of the AIF. As to Limited Investor AIFs, the AIF Law requires that the management of such AIF ensures that the number of 75 professional and/or well-informed investors is not exceeded.

    The AIF Law allows umbrella funds with multiple investment compartments, which allow the management of different pools of assets with different investment policies, the assets and liabilities of each such pool of assets being ring-fenced.


    As per Section 6 of the AIF Law, an AIF may be either:

  • (a) self-managed, where it does not appoint an external manager, if it is established as an investment company and one of the following applies:
    • (i) the assets of the portfolio of the AIF, including any assets acquired through use of leverage, do not exceed a threshold of EUR 100,000,000 in total;
    • (ii) the assets of the portfolio of the AIF, where the AIF does not employ leverage and its unitholders have no redemption rights exercisable during a period of five years following the date of initial investments in each AIF, do not exceed a threshold of EUR 500,000,000; and
    • (iii) the persons that sign the instruments of incorporation of the investment company under incorporation or the members of the board of directors, in case of an incorporated company, decide not to appoint an external manager, but to exercise internal management according to the provisions of the AIFM Law, either obligatory in the case that the assets of the portfolio of the investment company exceed the thresholds of points (i) or (ii) above, respectively, or by choice, because they choose to opt into the AIFM Law, then the investment company is considered as an AIFM and falls within the scope of the AIFM Law; or
  • (b) externally managed, where it appoints an external portfolio manager who:
    • (i) is an Alternative Investment Fund Managers authorised in accordance with the AIFM Law;
    • (ii) where subparagraph (i) does not apply, may operate as a management company authorised in accordance with the Open-ended Undertakings for Collective Investments Law; or
    • (iii) operates as an Investment Firm authorised in accordance with the Investment Services and Activities and Regulated Markets Law, as amended.

    Each self-managed AIF and each external manager of an AIF, where they are not authorised AIFMs, are subject to registration in accordance with the provisions of section 4(3) of the AIFM Law, in the Special Register of sub-threshold AIFMs which is maintained by the CySEC.


    Does not require a licence to act as an outsourced administrator of a fund. The administrator is responsible for keeping the fund’s books and records, accounting, reporting filling, share issue and other services.


    As per the provisions of the AIF Law, the assets of the AIF shall be entrusted for safe-keeping to a depositary which (a) has its registered office in Cyprus or in another EU country or in a third country, provided that the CySEC has signed a Memorandum of Understanding and Exchange of Information with the competent authorities of the third country, and (b) is either a credit institution or investment firm or another category of institution which is subject to prudential regulation and ongoing supervision and which falls within the categories of institution which have been defined by their home state as eligible to be a depositary.


    An AIF can be established as:

  • (a) an open-ended AIF, where its unitholders have the right to redeem or repurchase their units upon request,
    • (i) at any time, or
    • (ii) at regular intervals which do not exceed one year and are defined in the fund rules or the instruments of incorporation of the AIF; or
  • (b) a closed-ended AIF, where its unitholders have the right to redeem or repurchase their units upon request,
    • (i) at regular intervals that exceed one year but shall not extend to more than five years and are defined in the rules or instruments of incorporation of the AIF, or
    • (ii) at a specific time that is defined in the fund rules or the instruments of incorporation of the AIF.


    The commencement of operations of the AIF requires the prior authorisation of the CySEC.

    The CySEC shall grant authorisation to the AIF once it is satisfied that the application – including the information on the fund manager, or board of directors in the case that there is no external manager of the fund, the custodian, the prospectus and all necessary incorporation documentation – has been submitted as per the requirements of the AIF Law.

    The CySEC shall inform the external manager of the AIF, or the AIF itself in the case that it is selfmanaged, within three months of the submission of the filing of the complete application whether or not the authorisation has been granted.

    In the case that the CySEC refuses to grant the authorisation, the reasons for such a decision must be justified.


    Pursuant to the AIF Law, the external manager of the AIF or the self-managed investment company are required to prepare and submit to the CySEC the following:

  • (a) the prospectus of the AIF and any amendments thereto;
  • (b) the annual report of the AIF for each fiscal year; and
  • (c) the half-yearly report of the AIF for the first six months of the fiscal year.

  • (a) Wide network of treaties for the avoidance of double taxation;
  • (b) Dividend income is exempt from Income Tax;
  • (c) Profit from the disposal of securities is exempt;
  • (d) No tax on the redemption of units;
  • (e) 80% of income from royalties is exempt from Income Tax;
  • (f) Profits from permanent establishments outside Cyprus are exempt from Income Tax;
  • (g) Capital gain taxes from the disposal of immovable property situated outside Cyprus is exempt from taxes in Cyprus;
  • (h) Taxable losses are carried forward up to 5 years;
  • (i) Group relief for utilisation of tax losses;
  • (j) Tax credit relief;
  • (k) Dividends paid to foreign resident unitholders are free from withholding taxes or any other taxes;
  • (l) Interest paid to a non-resident company is exempt from withholding taxes;
  • (m) Foreign exchange gain and losses are tax neutral with the exemption of foreign exchange differences arising from trading in foreign currencies and related derivatives;
  • (n) Notional interest deduction on new equity up to 80% of the taxable profit derived from assets financed by the new equity;
  • (o) Fund management services are exempt from VAT in Cyprus (ancillary services are subject to the standard VAT rate of 19%).
  • Posted on Jul 21, 2017

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