Cyprus is fast becoming one of the top emerging investment fund centers in Europe in light of its continuous efforts to upgrade its legislative and regulatory regime, which is backed up by its strong network of financial and professional services providers. Determined to stay at the forefront of industry developments and offering unique access to high growth markets, as well as a professional and cost-efficient jurisdiction for funds, the country has developed into a key regional domicile for investment funds and asset managers. The country’s population is one of the most highly educated within the EU, and the expertise of its service providers has established Cyprus as a

location of choice for international fund promoters and investors seeking secure and advantageous fund solutions.

Cyprus’ appeal as an EU funds and asset management domicile has been strengthened by the introduction of ground-breaking new legislation, and if current growth rates are sustained, assets under management are expected to rise to an incredible €20 billion in the next five years.

The purpose of a Fund is the collective investment of the funds injected in various schemes by unit holders. A fund allows a number of investors to:-

  • Collectively join their investment assets
  • Have these assets professionally managed and invested by an independent fund manager
  • Extract their profits in a tax efficient manner
  • Obtain a Cyprus passport and citizenship

Alternative Investment Funds (AIFs) are governed by the Alternative Investment Funds Law of 2014 and are authorised and regulated by the Cyprus Securities and Exchange Commission.

The following structuring options are possible under the provisions of the AIF Law:

Umbrella fund structures

AIFs with multiple segregated investment compartments with their own investment policy and assets. Each compartment is subject to the provisions of the AIF Law as a separate AIF. Investors’ rights derive from the assets of the relevant investment compartment in which they are invested in.

Common fund structures

AIFs structured as pools of assets in which investors participate on the basis of a single contractual document known as the “Common Fund Rules”. They are co-owners of each of the assets comprising the portfolio of the AIF and are liable only to the amount of their contribution.

Funds with various investment policies

The establishment and operation of Cyprus AIFs with a number of different investment policies (investing for example in assets other than financial instruments such as real estate or works of art).

Public offerings and listings

The AIF’s shares / units may now be the subject of a public offering and may be admitted for listing in a stock market, options that allow the establishment and structuring of AIFs looking to enhance their marketability, transparency and investor base through such means. 

Taxation of Funds and investors

Funds

  • Gains from trading in securities are tax exempt
  • Notional Interest Deduction (NID) for new equity may reduce taxable base for interest received by up to 80% (for company-type funds) reducing the effective tax on interest to 2.5%
  • Excluded from tax are overseas dividends received (subject to certain conditions), capital gains arising from sale of property abroad, capital gains from sale of shares of foreign property companies
  • No subscription tax on the net assets of the fund
  • Fund management services provided to alternative funds are not subject to VAT
  • Each compartment of an AIF, although legally is not treated as a separate entity, for tax purposes each compartment is treated as a separate person (i.e. separate taxpayer)

Foreign investors

  • No withholding tax on dividends
  • No taxation on redemption of units
  • No deemed distribution restrictions

Resident investors – domiciled

  • Option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • A withholding tax on dividends of 17% if the investor is an individual who is both tax resident and domiciled in Cyprus
  • No taxation on redemption of units
  • No withholding tax if investor is a company

Resident investors – non domiciled

  • Option of 8% flat rate taxation on performance based variable remuneration for certain employees
  • Exemption from withholding tax on dividends of 17%
  • No taxation on redemption of units
  • No withholding tax if investor is a company

Why Cyprus for Investment Funds

  • EU member state compliant with EU laws and regulations
  • Eurozone member
  • Strategic geographical location between Europe, Middle East and Africa
  • Mature business center with highly qualified professionals and sophisticated infrastructure
  • Extensive range of excellent legal and accounting services
  • Cost-effective setting-up and ongoing operational services
  • Favourable EU and OECD-approved tax regime
  • Access to an extensive network of double tax treaties allowing for tax efficient structuring of investments
  • Efficient and up-to-date regulation, fully harmonised with related EU Directives
  • Collective investments can be listed on the Cyprus Stock Exchange and other recognised EU stock exchanges
  • Cyprus-based funds and asset managers benefit from low tax burdens levied on Cyprus-based corporations
  • Incentives and tax benefits for high-earning managers and high-net-worth individuals