Cyprus mini managers of alternative investment funds

Cyprus Mini Managers

A sub-threshold AIFM (Mini Manager) can manage the following:

  • Cyprus alternative investment funds (AIFs) with limited or unlimited number of persons
  • Cyprus registered AIFs in the form of a limited partnership
  • Foreign AIFs (subject to the discretion of competent authorities in the other jurisdiction).

The total assets under management of a Cyprus Mini Manager must not exceed €100 million, with the use of leverage, or €500 million when unleveraged, with a lock up period of five years.

Mini Managers themselves are subject to a minimum paid-up capital requirement of €50,000.  Where the AIFs managed by a Mini Manager exceed €125,000,000 then the Mini Manager will require own funds equal to 0.02% of the surplus amount.

Mini-managers can market AIFs to professional/well-informed investors across the EU.

Forms of AIFs in Cyprus

Registered AIFs

Cyprus Registered AIFs (RAIFs) are AIFs registered in Cyprus by an authorised Alternative Investment Fund Manager (AIFM), without having to obtain prior authorisation by CySEC.  Cyprus RAIFs must always be managed externally.

A Cyprus RAIF can take the form of:

  • a fixed capital investment company
  • a variable capital investment company
  • a common fund
  • a limited partnership (with or without legal personality).

Where the RAIF is set up as a closed-ended type Limited Partnership which invests more than 70% in illiquid assets, an EU regulated sub-threshold manager, a MiFID investment firm or an EU-based UCITS management company may manage the RAIF.

In all other cases, a manager of a Cyprus RAIF can be licensed as an AIFM anywhere in the EU, enabling EU-wide distribution under the passporting framework.  Third country managers may also be appointed managers of RAIFs subject to having acquired passporting rights under applicable EU rules.

RAIFs can start operating on registration with CySEC without authorisation or supervision requirements.

RAIFs:

  • are exclusively addressed to professional/well-informed investors
  • can be established as investment companies or limited partnerships (with/without a separate legal personality)
  • can be open-ended or closed-ended
  • can have compartments
  • must be externally managed
  • are not subject to minimum capital requirements
  • must have, within 12 months of registration, at least €500,000 assets under management
  • must appoint a depositary
  • can be listed on a recognised stock exchange
  • can be marketed across the EU (passporting).

AIFs for an unlimited number of investors

A Cyprus AIF with an unlimited number of investors can take the form of:

  • a fixed capital investment company
  • a variable capital investment company
  • a common fund
  • a limited partnership (with or without legal personality).

Cyprus AIFs addressed to an unlimited number of investors have the following characteristics:

  • can be marketed to professional/well-informed as well as retail investors
  • can have an unlimited number of investors
  • can be both open-ended and closed-ended
  • if externally managed, no minimum capital is required (if self-managed, the minimum capital is €125,000)
  • must have at least €500,000 assets under management within 12 months from registration
  • if externally managed, there is no restriction on assets under management exists (if self-managed, assets under management must not exceed €100,000,000 for leveraged funds and €500,000,000 for unleveraged funds)
  • require a depositary (whether based in the EU or a third country, subject to certain conditions)
  • can be listed on a recognised stock exchange
  • can have compartments
  • can be marketed across the EU (passporting).

AIFs for a limited number of investors

A Cyprus AIF with a limited number of investors can take the form of:

  • a fixed capital investment company
  • a variable capital investment company
  • a limited partnership (with or without legal personality).

Cyprus AIFs addressed to a limited number of investors have the following characteristics:

  • can only be marketed to professional/well-informed investors
  • are subject to a maximum number of 50 investors (the shareholders of legal entities that are investors are taken into account for this threshold)
  • can be open-ended or closed-ended
  • can be externally managed or self-managed (if structured as an investment company or a limited partnership with a legal personality and assets under management do not exceed €100,000,000 if the fund is leveraged and €500,000,000 without leverage with a lock up period of 5 years)
  • if externally managed, no minimum capital is required (if self-managed, the minimum capital is €50,000)
  • must have at least €250,000 assets under management within 12 months from registration
  • may not require a depositary where assets under management do not exceed €5,000,000 or where investors are less than 25 and each investor subscribes to a minimum of €500,000
  • cannot be listed on a stock exchange
  • can be marketed across the EU (passporting).

Cyprus as a funds jurisdiction

Cyprus has seen a substantial growth of its fund and investment management sector over the past few years.  Certain trends in the use of Cyprus investment funds can be identified as follows:

  • private equity funds, harnessing Cyprus’ wide double tax treaties network with Asian jurisdictions
  • venture capital funds in start-ups and innovation
  • renewable energy funds
  • family office funds for high net worth individuals and their families
  • shipping sector funds.

Taxation

Investors’ taxation

Cyprus distinguishes between non-domiciled tax residents and domiciled tax residents. Taxation of investors varies as follows:

Foreign investors
  • are not subject to withholding tax on dividends
  • are not subject to taxation on redemption of units
  • are not subject to deemed distribution restrictions.

No permanent establishment is triggered where a non-resident investor invests in a Cyprus tax-transparent investment fund.

Non-domiciled resident investors
  • are not subject to withholding tax on dividends
  • are not subject to taxation on redemption of units
  • if employed in Cyprus by a self-managed Cyprus AIF or an AIFM the may have the option of being taxed at a flat rate of 8% for 10 years at a minimum tax liability of EUR 10,000 per annum.
Domiciled resident investors
  • are subject to a withholding tax of 17% on dividends
  • are not subject to taxation on redemption of units
  • if employed in Cyprus by a self-managed Cyprus AIF or an AIFM the may have the option of being taxed at a flat rate of 8% for 10 years at a minimum tax liability of EUR 10,000 per annum.

AIF taxation

In terms of the taxation of Cyprus AIFs themselves:

  • there is no subscription tax on the net assets of the AIF
  • there is a 12.5% tax on profit
  • there is no capital gains tax (i.e. no tax applies to gains from trading in securities, sales of shares, or sale of property abroad)
  • interest received by closed-ended and open-ended AIFs is taxed at 12.5% corporate tax
  • notional interest deduction for new equity injections may reduce taxable base for interest received up to 80%
  • each compartment (sub-fund) of an umbrella fund, while not a separate legal entity, may be treated as a separate taxpayer.

Contact us to discuss your precise requirements regarding AIFs and mini managers in Cyprus.

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