Written by 9:11 am EU Investment

Cyprus Establishment/Management Of A Fund (AIF – RAIF) – Fund Management/ REITs

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During the last decade, Cyprus alternative investment market
faced rapid expansion due to the introduction of several investment
norms such as the Alternative Investment Fund
(“AIF“) and the Registered Alternative
Investment Fund (“RAIF“). Those norms
offer several incentives which turn to benefit investors by
minimizing many market risks and losses.

An AIF is a collective investment undertaking, including
investment compartments, which raise capital from several
investors, with a view to investing it in accordance with a defined
investment policy for the benefit of those investors. Typically, it
involves non-traditional assets such as a hedge fund, a private
equity, a real estate etc. The capital for an AIF can be raised
from professional investors or well-inform investors having proper
knowledge in this field and being involved in similar

However, due to inherent market risks, the norm of Alternative
Investment Fund Manager (“AIFM“) assists
the scheme. An AIFM is typically a legal person whose regular
business is managing one or more AIFs by running the day-to-day
life of the AIF and absolving investors from it. Alternatively, the
AIFM allows for any AIF that is established in Cyprus to be sold on
a private placement basis in the EU.

Cyprus Market offers the below options:

  1. An AIF with Unlimited number of persons

    • may be formed as a Common Fund, Limited Partnership, Fixed
      Capital Investment Company, or Variable Capital Investment

    • has freely transferable shares

    • is subject to minimum share capital requirements of
      €125.000 or €300.000 if self-managed and over the asset
      thresholds. There is no minimum capital requirement if it is
      externally managed

    • minimum assets under management within the first 12 months:

    • must appoint a depositary

    • there are no restrictions if an external AIFM is appointed. If
      an AIFM is not appointed, then AIF can hold assets under the
      threshold of €100m including assets acquired through leverage
      or €500m without leverage and the unitholders have no
      redemption rights for 5 years.

  2. An AIF with Limited number of persons

    • may be formed as Limited Partnership, Fixed Capital Investment
      Company, or Variable Capital Investment Company

    • may be marketed to professional and/or well-informed investors

    • may have up to 50 investors

    • there is minimum share capital requirement of €50,000 if
      is self-managed. There is no minimum capital requirement if it is
      externally managed

    • minimum assets under management within the first 12 months:

    • under certain circumstances may be exempted from appointing a

    • there are no restrictions if an external AIFM is appointed. If
      no AIFM is appointed, the AIF can hold assets under the threshold
      of €100m including assets acquired through leverage or
      €500m without leverage and the unitholders have no redemption
      rights for 5 years.

  3. A Registered AIF (RAIF)

    • may be formed as a Common Fund, Limited Partnership, Fixed
      Capital Investment Company or Variable Capital Investment Company
      but RAIFs cannot be set up as Fund of Funds, Money Market Funds or
      Loan Origination Funds

    • RAIF does not need to be licensed by CySEC and it does not fall
      under the direct supervision of CySEC. However, the establishment
      of a RAIF needs to be notified to CySEC and included in a CySEC
      RAIFs register.

    • RAIF may be set up as an umbrella fund which has separate
      compartments treated as a separate legal entity.

    • have freely transferable shares

    • not subject to minimum capital requirements

    • unlimited number of investors

    • is allowed to invest in non-financial assets

    • minimum assets under management within the first 12 months:
      €500.000 (may be extended to 24 months).

    • must appoint a licensed AIFM which supervises the RAIF and
      provides certain mandatory services (risk management, compliance,
      internal compliance audit etc.). AIFM may be from Cyprus, from the
      EU or outside the EU provided that it has received the passport of
      Directive 2001/61/EU and has defined a reference country in EU

    • The AIFM should also appoint a custodian as per the provisions
      of AIFM Law.

More specifically, the introduction of RAIF is considered one of
the most important changes made in the fund industry. A RAIF will
be a special type of an AIF that will not be subject to
authorisation itself from CySEC, but it will be regulated through
its manager who should always be a licensed AIFM. For a RAIF
registration, an application to CySEC is submitted by the External
Manager for registration in CySEC’s registry within (1) month
from the RAIFs registration with the Registrar of Companies/the
signing of the Rules of Incorporation in the case of a common fund,
accompanied with many documents. CySEC within a period of (1) month
from the receipt of all required information/documentation verifies
that the license of the Manager also covers the investment strategy
of the RAIF. Once CySEC confirms that the RAIF has been included in
the special register, the RAIF may start to operate.


AIFs and RAIFs

Main CY/EU Legislation

  1. The Alternative Investment Funds Law of 2018 (124(I)/2018)

Secondary Leglislation

  1. Directive OD 124-01 of CySEC regarding the registration of RAIF
    in the RAIF register and the deletion from it

  2. Directive DI131-2014-02 of CySEC regarding the terms and
    conditions of operation of AIFs with limited number of persons and
    the authorisation procedure to an AIF with limited number of

  3. Directive DI131-2014-01 of CySEC regarding the procedure for
    the authorisation of an AIF.

  4. Directive OD131-2014-03 of CySEC on the categorization of the
    AIFs of the Republic and other related issues

  5. Directive DI131/56/02 of CySEC regarding the procedure and
    conditions for the marketing of units of AIFs and AIF-LNPs in the
    Republic, the organisation of the marketing network, the
    obligations of the persons that participate in the marketing
    network, as well as the conditions for the marketing of units of
    AIFs established in the Republic, in another member state or in a
    third country.

  6. Directive OD131-2014-05 of CySEC on the custodian of AIF and
    AIF-LNPs and the conditions for the assignment of custodian
    functions of AIF and AIF-LNPs.

  7. Directive 124/56-01 of CySEC on the payable fees and annual
    contributions of AIFs and their managers

  8. Directive OD131-2014-04 of CySEC regarding the organization and
    operation requirements of the external AIF manager which is an
    investment firm or an investment company of another member state
    other than the Republic


Main CY/EU Legislation

  1. The Alternative Investment Fund Managers Law of 2013

  2. The Small Managers of Alternative Investment Organizations Law
    of 2020 (81(I)/2020)

  3. REGULATION (EU) 2019/1156 on facilitating cross-border
    distribution of collective investment undertakings and amending
    Regulations (EU) No 345/2013, (EU) No 346/2013 and (EU) No


In general, the below advantages are offered through setting up
an AIF in Cyprus:

  1. Units of AIFs can now be listed on several stock exchanges and
    are freely transferable

  2. Registered AIFs do not require to be licenced. Registered AIFs
    merely need to be registered on the regulator’s register. This
    can be done in a period of 30 days after submission

  3. Cyprus has no restrictions regarding the type of investments,
    therefore there is the opportunity to form AIFs with unlimited
    investment compartments (umbrella funds)

  4. Low set-up and maintenance charges

  5. A Cyprus AIF can be self-managed by its Board of Directors,
    always subject to the approval of CySEC

  6. Cyprus AIFs can benefit from Cyprus tax system given the below

    1. the Cyprus tax system exempts all profits made from the
      disposal of securities.

    2. No tax is imposed on dividend income and capital gains of
      Cyprus tax resident fund (subject to conditions)

    3. No withholding tax on dividend distributions, interest and
      royalties to non-residents

    4. Corporation tax of 12.5% which is amongst the lowest rates in
      the EU

    5. No stamp duty on issue of units of AIFs/RAIFs

    6. Services provided by the Investment Management and Fund
      Administrators are not subject to any VAT

  7. Can be seen through a collective Investment scheme

  8. They offer diversification and transparency

  9. Protection: All the activities required to manage assets are
    performed by the professionals responsible for the AIF/RAIF
    (administrator, auditor). What is more, the funds are regulated by
    a competent authority and property management is performed by
    licensed professionals (oversee construction, manage tenants,
    perform maintenance, pay taxes etc.).

To be more precise, RAIF offers greater flexibility because of
the below characteristics:

  1. Transparency and increased investor protection through
    disclosure of information and circulation of reporting

  2. Not licensed or supervised by CySEC.

  3. Lower cost than other EU fund jurisdictions; cost efficient to
    set up and maintain a Cyprus RAIF;

  4. The investor is relieved from concentrating all his/her funds
    in a single asset


Haviaras & Philippou LLC can assist on the below parts:

  1. Assistance during authorization procedures for AIFs, RAIFs and

  2. Legal services in relation to all matters for AIFs, RAIFs and

  3. Provision of compliance services

  4. Regulatory advice

  5. Set up AIFs and RAIFs


The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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