Brexit - Is Cyprus the Alternative for Alternative Fund Managers?

At a glance 

Cyprus has strengthened and modernised its legislation and practices governing the operations of funds and fund managers and  now offers a compelling set of good arguments for being the EU’s hub of choice for structuring AIFs and establishing AIFM for a pan-European reach. This coupled, with Cyprus’ positive growth expectations for 2017 and beyond, makes it even more attractive for international businesses and investment. 

Cyprus’ flexible and pro-business attitude and culture are the key pillars attracting international business and investors. The island has one of the most attractive and stable tax regimes in the EU for funds and fund managers and the fact that English is the language of business together with the low set-up and maintenance costs makes the country an ideal location for the redomiciliation of fund businesses. 

Legal framework 

Cyprus transposed the UCITS IV Directive in 2012, UCITS V in 2016, and the Alternative Investment Funds Managers Directive (AIFMD) in 2013, becoming the third country in Europe to transpose the latter. The island offers a European passport to the fund management industry, providing exceptional possibilities for cross-border and global fund distribution. This should attract both EU and non-EU firms keen to gain the badge of an “EU- compliant” manager and access to EU investors. 

New aspects that enhance the attractiveness of the existing framework are being introduced in 2017 such as the introduction of a Limited Partnership (LP) with legal personality which will allow among others benefits internally managed LPs, the introduction of a de minimis asset management regime for managers below AIFMD thresholds and an unauthorised AIF regime under strict conditions. These improvements will create all the necessary preconditions for growing the collective investment sector, which is expected to contribute significantly to the economy and spark a surge in the number of funds.

Brexit and Fund Managers

The result of the UK’s referendum has already led to considerable market turbulence, with Brexit likely to result in a significant upheaval as funds and fund managers start to implement their strategies in preparation for the UK’s departure from the EU. Brexit transformation programmes are likely to be broad with activities ranging from restructuring legal entities and designing new ways of operating. This creates a number of challenges for UK-based fund managers. 

Brexit could lead to  funds established in the UK becoming automatically  “third country” funds and UK-based fund managers “third country” managers, for the purposes of the AIFMD meaning that they may no longer be able to market funds to EU investors based on EU ‘passporting’ arrangements. Fund managers should, therefore, look at other alternatives that will enable them to continue to have access to the EU market. Cyprus could be the domicile of choice for UK fund managers reassessing their business models in light of Brexit. Cyprus can provide practical solutions to ensure they retain their access to the EU market whilst at the same time enabling them to take advantage of significant tax breaks and benefits available to them. 

Benefits 

• EU member state compliant with EU laws and regulations

• Eurozone member

• Cost-effective setting up and on-going operational services

• Access to an extensive network of double tax treaties allowing for tax efficient structuring of investments

• Incentives and tax benefits for high-earning mangers and high-net-worth individuals coupled with the most attractive corporate tax regime in the EU ensure the most efficient tax structuring

• For Fund managers becoming tax resident, there is zero tax on dividends and interest income

• Increased flexibility as a number of asset classes can be included in an AIF investment strategy

• One regulator, the Cyprus Securities Exchange Committee (CySEC) which provides streamlined procedures, reduced bureaucracy and lower regulatory fees

• Highly qualified professionals and sophisticated infrastructure

• Extensive range of excellent legal and accounting services

• Full transparency through annual audited reports to CySEC and investors

• Proximity to some key markets like the Middle East and Eastern Europe 

Our team 

At PwC Cyprus, we stand ready to help you address the challenges following Brexit all the way. We have a dedicated financial services team, fully integrated into our global network, with the latest strategic, operational and technical insights that can deliver expert opinions on likely fiscal, legal and financial developments on your business. At the same time we have a dedicated funds team that are waiting to guide you through all the practical and regulatory requirements necessary to implement your solutions end to end.

Contact us

Stelios Constantinou

Partner, Assurance, Head of Industries, In charge of Financial Services & Insurance , PwC Cyprus

Tel: +357-25555190

Andreas Yiasemides

Partner, In charge of Fund Services, PwC Cyprus

Tel: +357-22555035

Marios Charalambides

Director, Assurance, PwC Cyprus

Tel: +357-22555639

Contact us

Andreas Yiasemides

Partner, In charge of Fund Services

Tel: +357-22555035

Marios Charalambides

Director, Fund Services

Tel: +357-22555639

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