News and developments
The Registered Alternative Investment Fund
The Government, the Regulator and the Professionals have firmly
committed in providing their full support in developing further the Funds
industry in Cyprus and there is strong belief that this joint effort will
create even more positive results.
B. WHO CAN BENEFIT FROM THE SET UP OF A FUND
Conducting business through a fund, a vehicle which operates under more strict and transparent rules than normal limited liability companies, gives the ability to raise capital from private and institutional investors who are not really interested in being involved in the day to day management of their investment but seek a good return on their investment in accordance with the risk they chose to undertake.
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Funds are traditionally being used as an alternative method to bank financing and are used to finance real estate, shipping and other large scale investments. It is also one of the most widely used vehicle from Venture Capitalists whose investments may need extra funding.
The way investment funds operate provide a clear separation between ownership and the management and control of the underlying investments. This is due to the fact that the management is not performed by the owners (unitholders) but by fund managers who are subject to specific rules and supervision. This makes it appropriate for High Net Worth Individuals seeking to achieve asset protection and tax optimisation by replacing their traditional holding companies with a more sophisticated and professionally managed and regulated vehicle, as well as Family Offices who want to manage the family wealth in a more flexible and transparent way with specific risk and investment characteristics.
C. WHY SET UP A FUND IN CYPRUS
Cyprus being an EU Member State has a lot to offer in the financial services sector and the Funds industry in particular. With its efficient and up-to date regulation, which is fully harmonised with the related EU Directives, provides a framework in which Fund Managers and Funds can operate efficiently.
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Further, Cyprus is an already established International Business Center with years of experience in servicing international clients. The skills and knowhow obtained from the experienced lawyers and accountants is now put at work in servicing the Funds industry in a cost effective manner, keeping the set-up and ongoing operational costs well below other established EU Fund jurisdictions, without compromising the quality of the services offered.
The island’s strategic geographic location allows Cyprus to act as a footbridge between Europe and the emerging Middle East and African markets as well as the attractive Asian economies.
Finally, Cyprus enjoys one of the most attractive taxation systems which is fully compliant with EU and OECD requirements. Funds set up in Cyprus will have access to a wide network of double taxation treaties and will be benefited from low tax burdens levied on Cyprus based entities. In addition, specific incentives exist for fund managers and high-earning employees making the relocation of such persons very attractive from a taxation perspective.
D. TYPES OF ALTERNATIVE INVESTMENT FUNDS IN CYPRUS
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There are three types of Alternative Investment Funds that can be set up in Cyprus. It is the Alternative Investment Fund of unlimited number of investors (AIF), the Alternative Investment Fund of Limited Number of Investors (AIFLNP) and finally the Registered Alternative Investment Fund (RAIF). In this publication we provide an overview of the RAIF, which is a new type of Fund introduced in 2018 with the objective to provide speed and flexibility in setting up a Fund in Cyprus. We will identify below its main characteristics and requirements. For more information on the other types of Alternative Investment Funds you may refer to our separate publications on each specific fund type.
E. THE REGISTERED ALTERNATIVE INVESTMENT FUND (RAIF)
1. Authorisation Process
The Cyprus Securities and Exchange Commission (CySEC) is the regulatory authority, responsible under the AIF Law for the licensing and supervision of Alternative Investment Funds in Cyprus.
In accordance with the AIF legal framework, there are no authorisation requirements for a Cyprus RAIF since in effect a RAIF is indirectly subject to regulatory supervision through its Alternative Investment Fund Manager (AIFM).
Even though a RAIF is not subject to authorisation, it must still submit a notification to CySEC in order to be registered to the RAIF Register. The Register is maintained by CySEC.
The notification should be submitted by the AIFM within one month from the set-up of the RAIF and must be accompanied by supporting documents including but not limited to:
- Information regarding investment strategies, the policies of the external manager for the use of leverage, the risk profile and characteristics of the RAIF it manages.
- The regulation or the memorandum of the RAIF the manager intends to manage
- Information in relation to the appointment of a Depository.
- The RAIF’s Information Memorandum
- The authorisation of the AIFM
- Variable Capital Investment Company (VCIC)
- Fixed Capital Investment Company (FCIC)
- Limited Partnership
- Common Fund
- Ring fenced and fully segregated from the Umbrella Fund and the other Sub-Funds.
- Each Compartment’s investors’ rights are restricted to the assets of the compartment.
- Each Compartment can be dissolved separately.
- Each Compartment can have its own investment strategy.
- The set-up and running costs of each compartment is lower than separate funds
- Preparation of Fund authorisation application to CySEC.
- Assistance in drafting of constitutional and other legal documents of the Fund.
- Consulting in legal, tax and accounting matters of the Fund.
- Directorship services.
- Listing of funds in the Cyprus Stock Exchange.
- Corporate services such as secretary and registered office.