The recent upgrade and further consolidation of the current Cyprus legislative framework in respect of investment funds has contributed in Cyprus being considered as a European and International Investment Funds Hub accommodating sophisticated fund structures as well as fund managers.
Being one of the first EU member states to transpose the Alternative Investment Fund Managers Directive into national legislation and together with the enactment and constant modernization of the Cyprus Alternative Investment Funds Law, Cyprus has transformed in an attractive and competitive environment for the evolvement of the national alternative investments industry.
In addition, the transposition of the Undertakings for Collective Investment in Transferable Securities (UCITS V) into national law offers prospective UCITS fund initiators the advantage of establishing an internationally reputable and regulated fund structure, with high transparency, enhanced risk management and liquidity provisions with lower set-up costs compared to other EU jurisdictions.
Cyprus is regarded to be in a considerable advantage compared to other countries for offering a complete package of investment fund services ranging from licensing to ongoing administration.
Pursuant to its membership within the EU since 1 May 2004, Cyprus is subject to and obliged to be in compliance with all the EU Directives and Regulations, resulting in Cyprus being a trusted destination for setting up credible investment funds and having the appropriate financial infrastructure for fund managers who wish to establish and/or register with CySEC in order to enjoy the full spectrum of their “passporting” rights.
Cyprus is also praised for its expert and knowledgeable service providers who offer their services at a comparatively lower cost without compromising the quality of their services. Furthermore, the smooth collaboration between the service providers and the competent authorities guarantee the swift and unwavering delivery of their services towards their clients.
By virtue of being one of the few former British colonies situated within the EU, Cyprus has inherited the English legal system and values. As a result, the Cyprus independent judicial system applies the principles of common law and draws guidance from English statutes and case law.
Cyprus also offers one of the most attractive tax regimes in Europe. Foreign investors and Cyprus non-domiciled individuals enjoy no withholding tax on dividends. At the fund level, there is a uniform 12,5% corporation tax on profits, constituting one of the lowest corporation tax percentages in Europe. Fund management and administration services provided to investment funds are not subject to VAT, resulting to the value base of the investment fund not being burdened with a non-recoverable cost. Last but not least, Cyprus has access to an extensive network of double tax treaties allowing for tax efficient structuring of investments.
The establishment of a Cyprus investment fund is required to obtain prior authorization from the Cyprus Securities and Exchange Commission (CySEC – the Regulator) being the competent supervisory authority and Regulator in respect of entities including, but not limited, to investment funds (Alternative Investment Funds, UCITS, EUVECA etc.), fund management companies (Alternative Investment Fund Managers, UCITS Management Companies etc.) and Investment Firms. An application form accompanied with the certain supplementary documents is required to be submitted for the consideration and approval of CySEC. Having all the aforesaid financial entities under a single integrated Regulator indicates Cyprus’ solid international presence as a reliable and safe investment hub, committing towards effective, consistent and fair supervision of all Cyprus investment entities for the benefit of investors.
PwC Cyprus is a fully-fledged service provider able to accommodate all the business needs of an investment fund initiator as well as registering fund managers either through full authorization or through the relevant notification application of ‘passporting’ rights as provided in the applicable legislation.
The most popular investment fund structures in Cyprus consist of Undertakings for Collective Investments in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) with emphasis on the latter.
Pursuant to the applicable legislation, an AIF can be structured as either a common fund (a contractual agreement) or an investment company (Variable/Fixed capital) or a limited partnership (LP). On the other hand, a UCITS may be structured as either a common fund or a variable capital investment company.
Each of the above available fund structures can be established with various investment compartments which allow for the segregation of assets and liabilities between compartments. Each one of the Investment Compartments may differ in terms of investment policy, minimum subscription amount, redemption terms etc.
WIPI investors may choose to set up an AIF with Limited Number of Persons (“AIFLNP”). An AIFLNP can take one of the following legal forms:
Fixed or Variable Capital Investment Company; or
An AIFLNP is exclusively addressed to WIPI and investors and, the number of its unitholders is restricted to a maximum number of fifty (50) natural persons.
The management of an AIFLNP in the legal form of an investment company (limited liability company) can be exercised internally by its board of directors or externally through the appointment of an eligible Fund Manager. An AIFLNP in the form of a Limited Partnership is always externally managed by its General Partner.
An AIFLNP may refrain from the obligation to appoint a Depositary if:
its total assets under management do not exceed the amount of €5 million, or currency equivalent; or
the number of its unitholders is restricted to a maximum number of five (5) natural persons; or
> the value of its assets that are subject to custody do not exceed ten per cent (10%) of its total assets; and
> the number of its unitholders is restricted to twenty five (25) natural persons; and
> each one of the unitholders contributes at a minimum investment of at least €500.000, or currency equivalent.
Advantages of setting up an AIFLNP:
No restrictions or diversification rules are imposed by the regulatory framework on the underlying type of the AIFLNP’s investments
Low set up and ongoing costs, as there is no legal requirement to appoint an a Depositary if certain conditions are met and other service providers
Subject to a lighter legislative regime compared to other fund structures, for example less robust organisational structure requirements
Since the establishment of a statutory framework regulating the purchase and sale of credit facilities in Cyprus, it is now possible for legal entities to engage in activities for acquiring credit facilities in Cyprus, subject to prior authorisation from the Central Bank of Cyprus. This development enabling the establishment of the so-called credit acquiring companies (“CAC”) has undoubtedly re-shaped the scene of the banking and financial sector in Cyprus with the penetration of private companies, other than credit institutions in the credit market and is expected to further expand the range of investment possibilities in Cyprus.
Specifically, the Sale of Credit Facilities and Related Matters Laws of 2015 and 2018 (L.169(I)/2015 and L.86(I)/2018) (the "Law") gives the power to the CBC to authorise, regulate and supervise the business activity of credit acquiring by an credit institution which is either incorporated in Cyprus and governed by Cypriot law, or operate, by means of a branch in the Republic of Cyprus. The Law defines credit facilities those that have been granted either to (a) natural persons where the total balance of the credit facilities, at the time of the transfer, does not exceed EUR 1m; or (b) micro and small enterprises, where the total balance of the credit facilities to that enterprise or group of connected enterprises, at the time of the transfer, does not exceed EUR 1m. Credit facilities not fulfilling the above-mentioned criteria fall beyond the application of the Law and as such, may be sold to any legal entity without prior authorization by the CBC.
The authorisation requirements set out in the Law revolves around, inter alia, the assessment of the proposed directors, key officers and shareholders, the formulation and maintenance of a business plan and a sound organisational structure ensuring the provision of services in accordance with the Law and evidence that the entity’s activities will not be detrimental to the financial stability in Cyprus. It is also worth highlighting the efficient timeframe of the application procedure, which, as prescribed in the Law, should not take longer than three months from the date of submission of the application.
While a minimum initial capital requirement is in place, currently set at EUR 100.000, the Cyprus parliament opted not to impose express limits on leverage and liquidity requirements at this stage, in order to offer wider opportunities for new companies entering the market for such services, with a view to facilitating private debt restructuring.
The implementation of the legal framework so far is regarded as a success story, in the sense that it enables credit institutions to dispose of non-performing loans at an appropriate price to regulated entities, enabling in this way for alternative market players, other than credit institutions, to enter the market of credit facilities acquisition and management, while at the same time the Law ensures that such activities are properly carried out to the benefit of the national financial system.
The Investment Funds landscape is constantly changing and evolving due to European and International calls for increased regulation and supervision of the concerned industry. PwC Cyprus, anticipating the growth of the investment funds industry and acting in a proactive manner, has established a specialized department (PwC Fund Services) with the mandate to assist in all aspects of setting up a fund and/or a fund manager, the licensing process and the ongoing administration and compliance of the preferred investment fund/manager structure.
The diversified team of PwC Fund Services consists of more than 10 professionals specializing in investment funds, including duly qualified accountants, CySEC certified professionals and qualified lawyers. In addition, our team is actively participating in committees of the Cyprus Investment Funds Association (CIFA) i.e. Fund Administration, UCITS, AIFs, AML and Regulatory committees.
Providing Fund Administration services to hedge funds, private equity and real estate funds registered within Cyprus and the EU e.g. Netherlands. Our Fund Administration is equipped with the specialized computer software “FundCount” which offers simplicity, flexibility and accuracy in one fully integrated accounting and reporting platform.
Using our specialist Fund Services group and our extensive global network, we will implement your preferred fund structure and provide you with valuable market insights and experience that are second to none.
- Preparation of notices, agendas and minutes of directors’ and shareholders’ meetings and/or directors’ and shareholders’ written resolutions.
- Filing of the annual return with the Cyprus Registrar of Companies, as well a preparation and filing of any other statutory returns.
- Arrangements for legalization/certification of documents where required.
Initial Analysis : We analyze the Regulatory requirements under CRS/FATCA and their impact and assess the action that needs to be taken to comply.
Classifications of Investors : We assist with an initial analysis in order to determine the classification of each Investor and identify the relevant implications arising from such classification.
Reporting : We assist with the completion of self-certification forms, registration with local and foreign authorities and voluntary disclosure of accounts to the Tax Department.
Assessments : We carry out a high-level risk assessment and agree an internal audit plan that could be followed in the execution of the internal audit work.
Internal Audit Plan: We prepare an annual internal audit plan to be approved by the Fund’s Board of Directors.
Preparation of Audit Programs and Controls: Prepare internal audit programs for guiding the execution of the internal audit work.
Implementation of Audit Programs and identification of weaknesses : Implement the internal audit programs and identify weaknesses in the internal controls.
Head of Risk, Compliance & Regulation, Clients & Markets Leader, In charge of Funds Services, PwC Cyprus
Director, International Private Clients, PwC Cyprus