Cyprus Investment Funds

Introduction: Forming a Cyprus Investment Fund

The EU Directives (AIFMD and MiFID) together with their regulatory, tax and cost implications have encouraged fund managers, custodians, administrators and promoters who want to benefit from cross border EU opportunities, raise funds intra EU and maximize returns for investors at low cost and enhanced tax efficiency, to transfer their funds and operations to Cyprus which is now a credible alternative to onshore fund jurisdictions such as Luxembourg, Ireland and the UK and offshore jurisdictions such as the Cayman Islands or BVI.

The relevant EU regulatory framework derives from the UCITS IV Directive and the Alternative Investment Fund Managers Directive (“AIFMD”).

The Prospectus Directive and the Markets in Financial Instruments Directive (MiFID) have both been transposed into Cyprus national legislation, and allow issuers with a single EU passport for prospectuses and managers to promote their services in all EU member states.

Our Firm provides this service in collaboration with a licensed financial consultant in order to provide the following:

  • Advice and directorship for ICIS registered in Cyprus.
  • Preparation and advice on the content of the application to the Central Bank of Cyprus, including monitoring thereafter.
  • Provision of fund administrative services accounting and bookkeeping reporting to the Central Bank of Cyprus.
  • Administration and provision of external parties services i.e. custody, audit, brokers, and banks.

 The UCITS (Undertakings for Collective Investment in Transferable Securities)


The legislation of 200(I)/2004, as amended, has transposed the UCITS IV Directive and regulates the registration and marketing of open ended local and foreign funds in Cyprus.

The legislation allows the incorporation of two legal forms of open ended public funds, namely Mutual Funds (MF) and Variable Capital Investment Companies (VCIC) both of which are regulated by the Cyprus Securities and Exchange Commission (CySEC).

The funds can be offered to the public at large and that can be sold across the EU subject to a brief registration procedure with each country regulator. Moreover, the purpose of the UCITS is the collective investment in transferable securities from funds raised from the public, the issue of units reflecting these investments and their repurchase and redemption out of the assets of the UCITS.

At least 90% of the investment portfolio of a UCITS must consist of listed securities or recently listed transferable securities.

Main provisions

The fund can take two different forms, namely a Mutual Fund (MF) where the investor gets units according to his investment or a Variable Capital Investment Companies (VCIC) where the investor gets company shares according to his investment.

There is no limit to the number of investors and the minimum investment per individual is €1,000.

The fund does not need an office in Cyprus but it must however be managed by a Management Company licensed by Cyprus Securities and Exchange Commission (CySEC), and must have a custodian which should be a local institution (usually a bank).

The minimum capital for a new fund is:

  • €125,000 if Management Company’s sole purpose is management of UCITS
  • €200,000 if UCITS appoints an external manager (per sub fund if applicable)
  • €300,000 if UCITS is a self Managed VCIC (per sub fund if applicable)

Both the Mutual Fund and the Variable Capital Investment Company may be set up as a single fund or as an umbrella fund consisting of multiple compartments, each with a different investment policy and different share classes, depending on the needs of the investors to whom the fund is distributed.

It is possible to form funds in Cyprus and manage them from an approved institution outside Cyprus in another EU country and it is possible to sell the fund in any EU country.

A UCITS can be marketed in another member state within 10 days after the receipt of the notification letter with key investor information, in order to be able to assess the risks associated with the specific UCITS.

Alternative Investment Funds Directive (AIF’s) or Non UCITS (as per meaning of UCITS IV Directive)


The AIFMD legislation applies to funds which are considered non UCITS and therefore do not fall under the scope of the UCITS IV Directive, but under the scope of the AIFMD (Alternative Investment Funds Directive) which will be implemented across EU from 2013 for Funds such as Hedge Funds, Commodities Funds, Funds of Funds, and Real Estate Funds etc. The AIFMD makes provision for the authorization, ongoing operation and transparency of Alternative Investment Fund Managers (“AIFM”) of AIFs and applies to any AIFM which:

  1. Has its registered office in the EU;
  2. Manages any AIF which is authorized or registered in, or has its registered office or head office in the EU; or
  3. Markets any AIF in the EU.

Main Provisions

The implications of the AIFMD regulatory framework for investment managers and funds both within and outside the EU are:

  • Passporting effect of AIFs located in the EU across all member states (to professional investors): for an AIFM seeking to raise investment in the EU, the advantage of being able to passport in the EU is almost certain to outweigh any reasons for establishing an AIF outside the EU, due to the restriction the AIFMD is about to bring. This is a competitive advantage to Cyprus over other Non EU fund jurisdictions.
  • Authorization requirements for marketing services
  • Restrictions on marketing to retail investors
  • Detailed reporting and disclosure requirements
  • Additional authorization requirements for Non EU managers and non EU funds
  • Minimum capital requirements of AIF managers of €120,000
  • Restrictions and requirements for leveraged investments

Passporting UCITS IV and AIFMD (common for UCITS and AIF’s)

The passporting regime of management companies across the EU applies to UCITS managers only, and not to management companies of other types of funds such as the AIF’s. So, UCITS managers, which also manage non UCITS local funds, will have no passport under the UCITS IV Directive for the non UCITS part of their activity. This is where the AIFMD steps in and provides the passport for the non UCITS activities making it possible to consolidate management remotely; at least in certain instances the AIFMD (non UCITS) passport is only available for sales to professional investors.

The International Collective Investment Schemes Law (ICIS)


The ICIS Law of 1999 regulates private funds that are not open for the wide public.

This legislation regulates private funds not open for the wide public that allow no more than 100 investors, however the legislation will soon erase the limit on the number of investors.

There is restriction as to the investment scope of a private fund.

The relevant authority for the ICIS is the Central Bank, not the Cyprus Securities and Exchange Commission (CySEC).

A custodian is usually used, however since it is not mandatory for private funds, in the event it is not used the Central Bank needs to be satisfied that assets are adequately safeguarded.

There is no minimum subscription for a private ICIS.

The ICIS can take one of the following legal forms:

  • international fixed capital company
  • international variable capital company
  • international unit trust scheme
  • international investment limited partnership

The ICIS is mainly used for:

  • Real estate funds investing in Eastern Europe countries.
  • Fund of Funds structures.
  • Absolute return strategies.
  • Private equity funds.

 The important decisive factors of setting up an ICIS are:

 Flexible Investment Strategy

The regulations of UCITS IV do not apply therefore the fund can take any form the promoters decide to, such as an Equity Fund, Bond Fund, Hedge Fund, Property Fund, or a fund with general investment policy that can invest in several of the above.

Variable Capital

The ICIS works with variable capital and the 0.6% tax on capital increase does not apply.

Low Regulation

The fund is private therefore it has lower regulation and supervision compared to a public fund.

 Low set up & operational cost

  • Cyprus set up costs are comparatively lower compared to other jurisdictions
  • Cyprus costs on administration, custodian fees, audit, legal services, accounting and other, are 30-50% lower compared to other jurisdictions.
  • Cyprus does not require a fully fledged office.

Low reporting

Reporting requirements are limited to annual and semiannual reports and a monthly asset holdings statement.

Low to Zero taxation

The ICIS is a Cyprus resident company that can take advantage of the low tax benefits and double tax treaties.

Fast Set Up

The ICIS can be set up and be operational in a very short time (approx. 1-3 months).

Registration process

An ICIS must be approved by the Central Bank of Cyprus. In order to get the approval you need to submit to the Central Bank:

  • A completed application form
  • Questionnaires for all directors and people involved in the management of the fund.
  • An offering memorandum describing the scope of the fund, its legal form and the conditions for redemptions / subscriptions.

In order for the Central Bank to approve the Fund it needs to be satisfied that:

  • There is an approved investment manager based in Cyprus or abroad. However, it is possible for the Directors to manage a fund provided they satisfy the Central Bank that they have adequate knowledge and experience relevant to the investment strategy of the ICIS.
  • The directors and people involved in the management of the fund are technically competent and of a good standing.
  • In case the manager is not an approved investment services provider he / she has the experience and knowledge needed to manage the assets of the fund as per the investment objective contained in the offering memorandum.
  • The assets of the fund are adequately safeguarded (especially in case no custodian is employed).


 UCITS and ICIS are taxed as any other company in Cyprus.

  • No capital gains on disposal of securities.
  • Interest received is taxed at the corporate tax rate of 10%.
  • There is no tax on dividends received
  • Absence of withholding taxes on dividend payments from Cyprus to non residents
  • No thin capitalization rules
  • Favourable network of tax treaties with some 40 countries
  • Lowest corporate tax rate in the EU (10%)
  • Reduced deemed dividend distribution tax to Cyprus Resident investors to 3% from 15%


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