We assist in achieving the objectives of the investment funds in which we are involved

Set-up and redomiciliation of investment funds and management companies, bookkeeping and NAV calculation, regulatory reporting, secretarial, processing investors’ transactions.

The essence of an investment fund is the collective investment of the funds of investors. An investor is the owner of units which, depending on the legal form, can be shares, participations or interests in an investment fund.

There are various types of investment funds depending on whether they are available to the general public, whether they are open ended, etc.

Investing through an investment fund offers significant advantages as compared to individual investing, such as:

  • reduction of risk through diversification
  •  sharing of operating and administrative costs (commissions, etc.)
  •  wider choice of investments

The legal, tax and overall business environment of Cyprus is ideal for the setting up and management of investment funds. It is presented in some detail below.


A. Alternative Investment Funds

The Alternative Investment Funds (AIF) Law of July 2018, which repealed and replaced the AIF Law of July 2014, forms the legal framework for the registration, operation and supervision of Alternative Investment Funds.

The Law defines an AIF as a collective investment undertaking that raises external capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and that has not been authorised as an Undertakings for Collective Investments in Transferable Securities (known as UCITS).

As per the Law, an AIF can take the following forms:

  • Fixed Capital Investment Company (FCIC)
  • Variable Capital Investment Company (VCIC)
  • Limited Partnership, with or without legal personality (LP)
  • Common Fund (only for AIFs with Unlimited Number of Persons and Registered AIFs)

Variable Capital Investment Company is the most commonly used legal form for AIFs. This is a limited liability company with the special characteristic that its share capital can be increased or decreased as investors buy in or sell their investments in the fund.

AIFs can be used for various purposes such as property investments, portfolio management, raising of venture capital, investing in the shipping industry, etc.

Retail investors may be eligible for investing in some types of AIFs. Well-informed and/or professional investors may also invest to AIFs. These are defined as follows:

  • Professional investor is any investor who possesses the experience, knowledge and expertise to make his or her own investment decisions and properly assess the risks that he or she incurs.
  • Well-informed investor is an investor not considered to be a professional investor who confirms in writing that he is a well-informed investor and has been notified of the risks associated with investing in the AIF in question, and invests at least €125,000 in the AIF or has been evaluated by a bank or regulated investment business as a well-informed investor possessing the appropriate expertise and knowledge to assess the suitability of the investment.


1. Scope and main characteristics of the AIF Law

The AIF Law aligns the funds regime in Cyprus with the latest EU directives on this field, with a focus on transparency and investor protection. It lays down rules for the authorisation, ongoing operations, transparency requirements and supervision of AIFs in Cyprus and regulates the role and responsibilities of persons involved in the activities of AIFs such as custodians, directors and external managers.

The AIF Law provides a modern regulatory framework with significant advantages such as the following:

  • umbrella structures with multiple investment compartments, which allow the management of different pools of assets with distinct investment policies, with each such pool of assets being ring- fenced
  • common contractual fund structures, where investors participate as co-owners of the assets of the AIF
  • subject to the approval of the regulator, which is the Cyprus Securities and Exchange Commission (CySEC or Regulator), an AIF can be self-managed by its Board of Directors
  • allows public offerings of units of AIFs
  • possibility of listing securities issued by AIFs on Cyprus Stock Exchange and other recognized EU stock exchanges, which enhances marketability and transparency and widens the potential investor base
  • investor units are freely transferable
  • redomiciliation of an AIF in and out of Cyprus is possible
  • full transparency through frequent reporting to CySEC


2. Types of AIFs

There are three types of AIFs, as follows:

  • AIF with Unlimited Number of Persons (AIF-UNP)
  • AIF with Limited Number of Persons (AIF-LNP)
  • Registered AIF (RAIF)

The main features of the three types of AIFs are summarised in the below table:














No license required

Available legal structures

- Fixed Capital Investment Company (FCIC)

- Variable Capital Investment Company (VCIC)

- Limited Partnership, with or without legal personality (LP)

- Common Fund

- Fixed Capital Investment Company (FCIC)

- Variable Capital Investment Company (VCIC)

- Limited Partnership, with or without legal personality (LP)

- Fixed Capital Investment Company (FCIC)

- Variable Capital Investment Company (VCIC)

- Limited Partnership, with or without legal personality (LP)

- Common Fund

Fund management

Appoint fund manager OR it can be self-managed if FCIC/VCIC or a LP with legal    


Appoint fund manager OR it can be self-managed if FCIC/VCIC or a LP with legal    


Fund manager must be appointed.

Subject to conditions a UCITS Management Company, Investment Firm or any other entity   authorised to manage AIFs may be appointed

Number of investors


Up to 50


Eligible investors

Retail, professional & well-informed

Professional & well-informed

Professional & well-informed

Minimum AUM

- Minimum €500,000 within the first year with no restriction if an AIFM is appointed

- Limitations apply if an AIFM is not appointed (same as AIF-LNP)

Minimum €250,000 within the first year with maximum of €100 million including leverage or €500 million with no leverage      and no redemption rights for 5 years

- Minimum €500,000 within the first year with no restriction if an AIFM is appointed

- Limitations apply if an AIFM is not appointed (same as AIF-LNP)

Investment restrictions

- Restrictions apply if marketed to retail investors  

- Limited rules may apply if marketed to professional and well-informed investors

No investment restrictions

Limited rules may apply

Minimum capital

No minimum if externally managed and a minimum of €125,000 or €300,000 if self-managed (depending on the total AUM)

No minimum if externally managed and a minimum of €50,000 if self-managed

No minimum


Local depositary if managed by an AIFM and any jurisdiction depositary in the absence of an AIFM

Any jurisdiction depositary can be appointed (requirement may be waived subject to certain criteria been met)

Local depositary if managed by an AIFM and any jurisdiction depositary in the absence of an AIFM


Limited or unlimited

Limited or unlimited

Limited or unlimited


3. Management and Administration of AIFs

A. Fund Manager

Under the relevant laws, a manager must have sufficient financial and operational resources and sufficient investment expertise to meet its liabilities and to enable it to conduct its business effectively.

A management company established in any EU Member State can offer its services in Cyprus by a simple notification to the competent authorities of the host Member State, without any permission required from the competent authorities in Cyprus. The services can be offered either through a branch in Cyprus or cross border.

The EU Alternative Investment Fund Managers Directive and related Directives and Regulations were transposed in to Cyprus legislation in July 2013. The Law regulates the setting up and operation of Alternative Investments Fund Managers (AIFM), which manage all types of investments which are not UCITS (see below) and form part of the Alternative Investment Funds (AIF) category. As per the Law the CySEC is the relevant competent authority for regulating AIFM.

B. Custodian

The Custodian is responsible for keeping the assets of the fund and must have sufficient mechanisms established to ensure protection of the fund’s assets. A credit institution, a Cyprus Investment Firm or any other entity to be determined as eligible can act as the Custodian of the fund.

C. Directors

The fund must appoint at least two executive directors. The directors must be competent and honest to act as such and must be fit and proper persons (educational and professional qualifications, as well as reputation).

D. Administration

The fund manager may appoint an administrator to administer the day-to-day operations and business of the fund and perform general administrative tasks, including handling correspondence, processing subscriptions, redemptions and withdrawals, computing Net Asset Values, maintaining books and records, disbursing payments, establishing and maintaining accounts on behalf of the fund, etc. In any case, the administrator must be suitably qualified and should also be resident of Cyprus for tax residency purposes.



B. Undertakings for Collective Investments in Transferable Securities (UCITS)

The EU Directive on UCITS 2009/65/EC was implemented in Cypriot legislation as from 2004, with the last amendment to the relevant Law taking place in 2012. The Law forms the framework for the registration, operation and marketing of local and foreign funds in Cyprus.

The Law defines as a UCITS, every organisation whose sole aim is to collectively invest publicly collected capital in transferable securities via stock markets, banking deposits and any other investments based on the principle of risk-spreading and whose units can be liquidated by the unit holder on request using the assets of the organisation.

UCITSs must:

  • be open ended;
  • market their units to the public in Cyprus and to other EU Member States; and
  • follow the Law 225 of 2002 concerning their investment and borrowing policy.


Types of UCITSs

UCITSs can either be Common Funds or Variable Capital Investment Companies.

Common Funds

A Common Fund is a pool of assets which belong jointly and ab indiviso to the unit-holders, which are deposited with a Depositary and which constitute a collective portfolio managed by the Management Company to the interest of the unit holders. It is constituted based on the law of contract, it has no legal personality and is represented by the Management Company in any case of formal representation.


Variable Capital Investment Companies

A Variable Capital Investment Companies is a limited liability company whose issued share capital is variable and equal to the value of the assets of the company after deduction of its liabilities. The sole purpose of such a company is the collective management of its portfolio of assets, either on its own or through a Management Company.

The minimum issued share capital for a UCITS in the form of a Variable Capital Investment Company is EUR 200,000 in case it has a Management Company and EUR300,000 if no Management Company is appointed.


Management and Administration of UCITSs

A. Management Company

A Management Company is a common company with liability limited with shares in accordance with the Companies’ Law – Cap 113, which has its registered office and central administration in Cyprus and its main objects relate to the management of UCITSs. Prior authorisation by CySEC is required in order for a Management Company to commence business. The authorisation is granted as an operational licence and it is valid in all member states of the European Union.

B. Depositary

The assets must be held by a depositary independent of and distinct from the management company. Depositary services may be provided by either:

  • banks or co-operative credit institutions, based in Cyprus or operating in the island through a branch, licensed by CySEC; or
  •  Cyprus companies authorised by CySEC which have provided adequate financial and professional guarantees.

It is possible for a UCITS in the form of a Variable Capital Investment Company to be relieved from the obligation to appoint a Depositary, provided certain conditions are met.

C. Directors of Variable Capital Investment Companies

A Variable Capital Investment Company must have at least two directors, who must be of sufficiently good repute and be sufficiently experienced also in relation to the type of business pursued by the Variable Capital Investment Company. To that end, the names of the directors and of every person succeeding them in office must be communicated forthwith to CySEC. Where a Variable Capital Investment Company does not appoint a Management Company, its directors are responsible to carry out the duties of the Management Company.


Investment restrictions

There are certain investment restrictions imposed by CySEC related to the nature, dispersion and liquidity of the investments made. A UCITS cannot:

  • invest in precious metals;
  • invest more than 10% of its assets in newly issued securities;
  • have an aggregate exposure under financial derivatives contracts that exceeds its NAV;
  • invest more than 10% of its assets in transferable securities or money market instruments issued by the same body; and
  • invest more than 20% of its assets in deposits made with the same body.


UCITSs authorised in the Republic that aim to market their units in another Member State, shall previously notify CySEC, which will inform the foreign competent authorities. Likewise, UCITSs authorized in another Member State can market their units within Cyprus, after the competent authorities of home Member States inform CySEC.

In addition, as mentioned above, the introduction of the UCITS IV Directive allows the establishment of a management company in a different country than the country in which the UCITS is established.



C. Differences between AIFs and UCITSs

The main differences between AIFs and UCITSs are summarised in the table below.




Invitation to general public

Prohibited for some types


Transfer of units



Type of investments

Any kind (incl. immovable property)

Transferable securities only

D. Tax Treatment

In an effort to promote investment funds in Cyprus, some very attractive tax incentives and provisions were introduced both for what concerns the funds themselves as well as their key stakeholders. These, combined with the general tax system of the country have led to a remarkable interest for Cypriot funds and fund management firms.

The specific provisions related to investment funds include the following:

  • all interest received by such funds is subject to Corporation Tax only, irrespective of its nature (i.e. active or passive). Investment (passive) interest income is thus exempted from Special Contribution for Defence SCD
  • gains on disposal of units of funds are not subject to Corporation Tax or any other tax
  • each compartment of umbrella funds is assessed separately for tax purposes
  • under circumstances and depending on their legal form, some funds may be transparent for tax purposes. Investors in AIFs which are tax transparent are not deemed to have a permanent establishment in Cyprus
  • the services provided by the fund manager and administrator are not subject to VAT


General tax advantages, which are also applicable and relevant to investment funds, are the following:

  • the extensive network of Double Tax Treaties of Cyprus
  • the tax credit offered in Cyprus on withholding tax suffered in the country of origin of the income
  • the exemption from any kind of tax in Cyprus of gains on disposal of shares, bonds and all major financial instruments currently traded in international financial markets
  • the exemption  from Corporation  Tax and in most cases also from SCD of dividend income
  • the absence of any WHT on payments of dividends and interest out of Cyprus
  • the exemption from any tax of gains on sale of immovable property held outside Cyprus (or of shares in companies owning such property)


As mentioned above, incentives and tax benefits are applicable also for personal taxation purposes for certain employees and executives of AIFs or fund management companies, as well as for the shareholders of funds. Below is a list of some of the most attractive such provisions:

  • carried interest/performance fee - fund managers may opt (subject to conditions and through an annual election) for a different mode of personal taxation based on which their variable employment remuneration, which is effectively connected to the carried interest of the fund managing entity, will be separately subject to Cyprus Income Tax at the flat rate of 8%, with a minimum tax liability of €10.000 per annum. This special mode of taxation is available for a period of 10 years
  • "Domicile” concept for SCD - individuals who will be relocating to Cyprus and become tax residents but are not considered as domiciled in Cyprus are exempt from payment of SCD on dividends, interest and rental income
  • 50% exemption from Income Tax - the exemption applies to employment income of non-resident person taking up residence in Cyprus to work for an employer in the country provided that the employment income exceeds €100,000 per annum. This exemption applies for a period of 10 years
  • redemption of units of funds is not considered  as reduction of capital, thus the amount the unitholder receives is not subject to SCD (for beneficial shareholders who are residents and domiciled in Cyprus)


For more information please do not hesitate to contact us in order to provide you with our Investment Funds guide, entitled Practical Note 2  Cyprus: Investment FundsWe would also be glad to discuss based on any specific facts or thoughts you may have with no commitments.


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