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Cyprus: Amendments to alternative investment funds laws

Cyprus's new law on alternative investment funds, Law 124(I)/2018, has now entered into effect following its publication in the official gazette.

The new law repeals and replaces Law 131(I)/2014. It introduces a new form of alternative investment fund, known as the registered AIF, or RAIF, with the aim of reducing the time and cost involved in establishing an AIF in Cyprus. RAIFs which are externally managed by an AIF manager (AIFM) established in an EU member state do not require authorisation by the Cyprus Securities and Exchange Commission (CySEC) to operate in Cyprus; they are merely required to notify CySEC, which will maintain a register of RAIFs. RAIFs may not be marketed to retail investors, but only to professional or well-informed investors.

The RAIF structure offers great flexibility. RAIFs will be required to appoint a local depository but supervision will be only at the level of the AIFM: there is no minimum capital requirement and RAIFs may be open- or closed-ended and standalone, or with an umbrella structure. They may take the form of a mutual fund, an investment company with fixed or variable capital, or a limited partnership, and the new law introduces the concept of limited partnerships with separate legal personality.

As an incentive for funds to establish their operations in Cyprus, the Income Tax Law has been amended to provide for carried interest paid to senior employees of fund managers to be taxed at the highly beneficial rate of eight per cent for the first 10 years following the recipient's relocation to Cyprus, subject to a minimum €10,000 ($11,500 approximately) tax liability per year, and provided the net book value of the fund's assets is greater than the initial investment by the investors.

Elias Neocleous

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