We will discuss how to set up a regulated Investment Funds in Cyprus and why we believe Cyprus may be the next best place where to register a fund.

1. WHY AND HOW TO SET UP A FUND IN CYPRUS?
In this second post on Investment Funds matter. We will discuss how to set up a regulated Investment Funds in
Cyprus and why we believe Cyprus may be the next best place where to register a fund. Do not hesitate to contact
me if you have questions in relation to this matter or to register your funds at corporate@offshorepremium.com
Why Cyprus?
I will first deal with the Elephant in the room. Why recommend Cyprus as a fund incorporation destination one year
after Cyprus financial crisis?
 Firstly because if financial crisis were the end of a country financial markets then New York stock exchange
would not exist anymore.
 Secondly because Cyprus crisis was not about Cyprus financial system. What I mean is that there are hundreds
of banks and financial institutions that were not affected at all. The crisis was not about banks having played with
Junk Bonds or subprime or having cheated but about the two main banks of the country having invested too
much in Greek government bonds, as did French, German or English or Swiss banks that have lost tens of
billions dollars on the Greek government bonds. French banks were rescued by the French government in 2010.
Laiki or Bank of Cyprus were not rescued which is why they failed. Cyprus financial system and institution are
sound.
 Thirdly for those that would still be sceptical it is not because the fund vehicle is registered in Cyprus that the
assets of the funds need to be in Cyprus. They could be in Switzerland or Luxembourg. Only the minimum
capital should be in Cyprus and if you don’t trust local bank you could deposit it with a big international bank
such as for example French Société Générale.
Then if the funds don’t need to be deposited in Cyprus then why bother to register in Cyprus?
What are then Cyprus advantages as a place of incorporation for a Fund?
1. A flexible Legal Framework that focus on transparency and investor protection
Cyprus has just adopted this year a new law called Alternative Investment Funds Law of 2014 that aligns Cyprus fund
regime with the latest EU directives on asset management. The focus of the law being on transparency and investor
protection.
This new legislative framework has evolved into a more flexible and yet robust infrastructure which provides today’s
asset manager and investor a modern platform upon which services will be provided. In particular it initiates the
option to set up Alternative Investment Funds and market them to Retail Investors and AIFs with multiple
compartments (cells).
2. Cyprus law protect investors while still being flexible

2.  No asset diversification rules for the AIF-LNI.
 No investment restrictions.
 No formal leveraging restrictions.
 No formal requirement to appoint local Directors. In practice Board of Directors can comprise of purely foreign
Directors who regularly meet in Cyprus, hence management and control requirements are met.
 No requirement to appoint an external investment manager, subject to certain conditions.
 No requirement to appoint a depositary, subject to certain conditions.
3. Investors of a Cyprus registered funds could obtain a Cypriot citizenship under certain investment
criteria
This is interesting if you cater to Middle East or African wealthy citizens. Can you see the pitch line “invest into my
funds and not only you will make money but you and your family will be entitled to European citizenship”
4. Registering a regulated funds in Cyprus is very affordable
As we have seen in our previous post setting up an unregulated fund in Luxembourg will set you back between 25 to
30,000 Euros. In Cyprus a regulated fund will cost between 40 to 45,000 Euros. The price of being regulated is not so
much expensive.
Are they Tax Advantages to Incorporate a Fund in Cyprus?
The following are the main tax advantages enjoyed by an Alternative Investment Funds In Cyprus
 Exemption from tax on profits from disposal of shares and other financial instruments
 Exemption from tax on foreign dividends received (with some conditions)
 No withholding tax on interest and dividend payments made to non-residents
 No withholding tax on redemption of units
 No stamp duties on the subscription, redemption, repurchase or transfer of units
 Dividends distributed or deemed to be distributed by an AIF to Cyprus tax residents are subject to 3% Special
Defense Contribution (compared to 17% that applies to dividends from normal limited liability companies to
Cyprus tax residents)
 Fund management services provided to AIF are not subject to VAT
 Can obtain a Tax Residency Certificate
 Cyprus has an extensive double tax treaty network.
What type of funds can be set in Cyprus and what are the legal forms possible?
You can have Real Estate Funds, Private Equity funds, Funds of Funds and Hedge Funds.
Legal forms available

3.  Fixed Capital Investment Company (closed-ended structures; incorporated under the Companies Law). The
share capital of an AIF is fixed from the beginning. Redemption is not possible during lock-up period and shares
can be sold on the secondary market. It usually runs for a fixed period of time and dissolves thereafter to
distribute the capital and profits to its shareholders
 Variable Capital Investment Company (open-ended structures; incorporated under the Companies Law).The
share capital will be at all times equal to the net assets of the AIF. The share capital increases or decreases
automatically as a result of subscriptions or redemptions without any of the formalities generally imposed under
the company law regarding the issuance or reduction of capital.
 Common Fund (only for unlimited number of investors).Are contractual fund structures where investors
participate as co-owners of the assets of the AIF. Could take the form of an open-ended or closed-ended
structures. Appoints an external manager who acts as the manager of the fund. Commonly used for structuring
investments of pension funds.
 Limited Liability Partnership (registered under the General and Limited Partnerships and Trade Names Law).
Under this structure a General Partner (GP) is appointed, which usually is a corporate entity established in
Cyprus, which acts as the manager of the AIF and which is responsible for any debt and obligations of the AIF
that may arise.
The four mentioned legal structures may be designated to (2) two types:
 Unlimited number of investors
 Limited number of investors (LNI) (75 or less)
Common fund can only be designated to unlimited number of investors
Both types may be marketed to well informed and/or professional investors whereas the unlimited type may be also
marketed to retail investors.
Umbrella Funds
Of course Umbrella Structure established with several investment compartments (sub-funds), each constituting a
separate pool of assets with distinct investing policies are also available
Finally the units/ shares of AIFs may be listed in a stock market. This increases the AIF’s potential investor case and
enhances liquidity, marketability and transparency.
Funds Management
As to management Cyprus fund they may be managed either
Internally, through the executive Directors appointed on the Board (where the AIF takes the form of a fixed capital
company or variable capital company and subject to certain conditions) or General Partner (where the AIF takes the

4. form of a limited liability partnership). In this case, the Manager is approved by the CySEC by virtue of his exclusive
management duties in the fund.
Externally, through an approved third party in Cyprus or in any other overseas jurisdiction where it is authorised
according to national law and the EU Directives. The Manager providing portfolio management services shall have
the relevant CySEC approval.
What does our fees include?
Our professional fees for a complete registration along the lines included herein is EUR 37,000 – 42,000 plus VAT
(as applicable) plus all out-of-pocket expenses.
This is payable as follows: 50% upon beginning our work, 25% upon the submission of the application to CySEC, and
25% upon the issuance of the AIF registration.
As part of our service, amongst others, we shall:
 application and reservation of company name
 company formation (inclusive of incorporation documentation: application for incorporation and statutory
documents in respect of appointment of directors, secretary)
 design and build the AIF structure
 draft prospectus
 drafting the key investor information document
 complete the application form to be submitted to CySEC
 review the questionnaires of the shareholders, directors and manager of the proposed AIF
 complete the relevant checklists
 prepare necessary justifications to be submitted to CySEC, as applicable
 prepare the letter(s) to accompany the application, in the events that any exceptions may be requested, as
applicable
 guide you in providing all the necessary documentation and certificates
 answer to any relevant questions concerning the application process
 Undertake to be responding, on your behalf, to CySEC’s queries, and suggestions relating to the applicatio