And finally it is possible to setup a Cyprus RAIF. Over the past few years, a strong level of collaboration between the Cypriot government, the regulator (CySec) and stakeholders of the fund industry has developed. This collaboration has resulted in the enactment of law 124(I)/2018 titled ‘the Alternative Investments Funds Law of Cyprus’ (the “AIF Law”) along with the AIF Law several other amendments have been made to align the Cypriot fund legislation to the competitive environment of the ever-growing international fund industry. RAIF means Registered Alternative Investment Fund.
Highlights of the Cyprus RAIF
Speed to market is a key metric when considering the jurisdiction of choice for a new fund. The AIF Law has circumvented the requirement to obtain regulatory approval for the establishment of a RAIF. The process is intended to require Alternative Investment Fund Manager (the “AIFM”) to notify the Cyprus Securities and Exchange Commission (“CySec”) of the establishment of the RAIF. The AIFM will then continue to monitor the RAIF and it’s compliance with the applicable rules and regulations.
Structure of Cyprus RAIF
RAIF’s may be structured as a common, a limited liability partnership (with legal personality or not) or a company with fixed or variable capital. With the exception of the variable capital company, which needs to be open-ended, all other structures can be either open-ended or closed-ended. RAIFs may be set up as umbrella funds which have separate compartments treated for all intents and purposes as a separate legal entity.
A local custodian or depository must be appointed for the safekeeping of assets and apart from the custodian, an independent financial auditor is required to conduct the financial audit of the RAIF. This is to ensure that the RAIFs account presents a true and fair view in accordance to International Financial Reporting Standards (IFRS).
Nevertheless depending on the type of assets certain exemptions apply.
Cyprus RAIF Tax
The recently introduced tax amendments exclude investors from the creation of a permanent establishment in the Republic of Cyprus exclusively due to the investment in a RAIF. This ensures that any income derived by the investor is taxed in the investor’s country of tax residency. Furthermore, a special mode of taxation is applicable to the senior executives of RAIFS that participate in the profits of the RAIF. This mode of taxation provides for taxation at a rate of 8%, with a minimum tax payable of €10.000 per year, under conditions. Prior to this amendment carried interest was taxed as income tax and taxed at the normal rate.
In general, a RAIF is treated as Cypriot tax resident entity and is subject to income tax at a rate of 12.5% on profits. Not subject to tax are dividends, foreign exchange gains, gains arising from the disposal of securities and several other exemptions.
The Cypriot regulatory environment, combined with Cyprus’s geographical location at the crossroad of three continents, is attracting investment fund promoters offering unique investment opportunities and specialised expertise. Closely associated with the Central and Eastern European region the Middle East, India and Asia, a Cypriot RAIF can perform very well with EU and none-EU investors or in the instance that EU wide investments will be carried out.