Foreign investors who come to Cyprus can set up businesses in various industries, however, the financial one remains one of the most appealing, mainly because of the numerous opportunities it offers.
For example, one of the most attractive types of investments to make is to open an investment fund in Cyprus. The legislation and the taxation system favor qualified and non-professional investors who can create hedge funds, one of the fastest ways of obtaining high returns in a short period of time.
Below, our company formation agents in Cyprus explain how to open a hedge fund. We are at your service with tailored assistance if you want to open a hedge fund in Cyprus.
Table of Contents
The main characteristics of hedge funds
Hedge funds are preferred by many investors because they have a set of characteristics that favor their establishment and operation. Among these, the most important ones are:
- they can be operated on domestic and foreign markets, especially when it comes to a country like Cyprus, which is an EU member state;
- they can generate important returns for various types of investors;
- they are easier to create compared to other types of investment funds;
- they can use various investment strategies, from general trading to selective trading.
– Alternative Investment Fund Managers Law (AIFM),
– Investment Services Law,
– Open-ended Undertakings for Collective Investment Law(the UCITS Act),
– the International Collective Investment Schemes Law,
– the Investment Services Law
Types of Cypriot hedge funds
Types of investors addressed
|Legal forms available for registration
– investment company,
– common fund,
– limited partnership
– investment company registration,
– appointment of a fund manager,
|Share capital requirements (if any)
The share capital depends on the type of entity used, where the minimum amount is EUR 50,000 for an Alternative Investment Fund with Limited number of People
|Authorization requirements (if any)
Yes, with the Securities and Exchange Commission
|Local manager required (YES/NO)
No, however, the manager must comply with the Alternative Investment Fund Management Directive
|Registration timeframe (approx.)
2 – 3 months
|Types of assets to invest in
– currencies (digital coins included), etc.
|Possibility to operate abroad (YES/NO)
Yes, a Cyprus-based hedge fund can also operate abroad.
When set up a as corporate form, the fund will pay the 12.5% corporate tax.
– easy setup procedure,
– possibility to operate on multiple markets,
– it can use various investment strategies
|Support in creating a Cypriot hedge fund (YES/NO)
Yes, we can assist with the establishment of a hedge fund in Cyprus.
If you decide to open a hedge fund in Cyprus, you need to respect several laws.
The main laws providing for those who want to open a hedge fund in Cyprus
In order to set up a Cypriot hedge fund, an investor must first get acquainted with the legislation governing it and the requirements to respect it. From these points of view, Cyprus has strict regulations and imposes specific conditions when it comes to creating any type of fund.
With respect to the laws that need to be respected when opening a hedge fund, here are the most important:
- the Investment Services Law;
- the International Collective Investment Schemes Law;
- the Alternative Investment Fund Managers Law (AIFM);
- the Open-ended Undertakings for Collective Investment Law(the UCITS Act);
- the Transparency Laws;
- the Consolidated Market Abuse Law;
- the Prevention and Suppression of Money Laundering Activities Law.
Apart from these, there are also several EU directives that must be respected but which offer numerous facilities in terms of operating in all EU countries.
Our Cypriot company formation consultants can provide more information on the laws governing hedge funds.
Legal forms that can be used to create a hedge fund in Cyprus
Apart from the laws that need to be respected if you want to open a hedge fund in Cyprus, one must also know the types of legal entities that can be used to operate on this market. Among these, the following are the most employed:
- the common fund which must respect the conditions imposed by the Contract Law;
- the limited partnership which is broadly used in other reputable jurisdictions, such as Luxembourg and Liechtenstein;
- the investment company which falls under the supervision of the Company Law.
It should also be noted that Cyprus-based hedge funds can be categorized as onshore and offshore. The main difference between them consists of the types of investors they can be marketed to and the rules they were authorized under.
If you want to open a hedge fund, our specialists in Cyprus are at your disposal with quick and reliable services so you can enjoy your investments in a timely manner.
Steps to create a hedge fund in Cyprus
The establishment of any investment fund in Cyprus implies respecting a simple procedure, as it is made of just a few steps. The first one is registering the legal entity under which the fund will operate. Then, the investor must appoint the fund manager in accordance with the AIFM regulations, followed by authorization with the Cyprus Securities and Exchange Commission (CySec) which falls under the supervision of the Cypriot National Bank.
Out of all these steps, the authorization takes the longest, as there are various documents to verify.
Types of Alternative Investment Funds (AIFs) under which a Cypriot hedge fund can operate
The creation of a hedge fund using an AIF offers the possibility for the investors to choose between the following types of fund companies for this purpose:
- AIFs with an unlimited number of participants;
- AIFs with a limited number of participants;
- Registered AIFs.
Each of them has specific requirements in terms of management and investors it can address, which is why if you need guidance in setting up a hedge fund using any of them, contact us.
We can also handle the process of company formation in Cyprus for the investment company to administer the fund.
Hedge fund management in Cyprus
A hedge fund set up as a company with fixed or variable capital may be configured for self-management. One that employs a non-corporate form for the management company, which lacks independent legal personality, must always appoint an outside manager.
The external manager needs to meet these license requirements:
- the AIFMD Directive, or MiFID authorization is required if the establishment takes place in a member state of the EU.
- if it is based in Cyprus, authorization under the Investment Fund Managers Law or the Alternative Serve as a Management Company for Open-Ended Undertakings is required;
- if it is based in a non-EU/EEA country, it must be an AIFM that complies with the applicable rules of the Alternative Investment Fund Managers Law.
In the case of a Real Estate Alternative Investment Fund, the external manager must be headquartered in Cyprus or another EU member state. If not, it can comply with the Directive 2011/61/EC related to passporting rights.
Apart from the management company, an AIF must designate a single, independent depositary, who will be in charge of keeping all financial instruments in custody—both those that can be physically delivered and those that can be registered in the custodian’s books—in order to ensure the safety of the fund’s assets. With respect to other assets, the depositary is required to confirm fund ownership and keep an accurate record of all assets.
Feel free to address our Cypriot company formation agents for details on the management of a hedge fund.
Our local agents are also at your service if you want to buy a shelf company in Cyprus.
Taxation of investors in Cypriot hedge funds
In terms of taxation, Cypriot hedge funds are taxed at a fund level and at the investor level, as follows:
- funds registered as investment companies are imposed the standard corporate tax rate of 12.5%;
- however, they can obtain tax deductions under Cyprus’ more than 60 double tax treaties;
- resident investors will be taxed progressively on the income they earn at rates ranging from 0% to 35%;
- a 3% Special Defense Contribution must also be paid.
On the other hand, Cyprus does not impose a capital gains tax, while dividend payments can be exempted from taxation under certain conditions.
Do not hesitate to get in touch with our Cyprus company formation consultants for additional information on the investment fund legislation.
Tax benefits for hedge funds in Cyprus
Apart from low taxation, Cyprus also offers other benefits to investors who decide to set up hedge funds, among which:
- the fund’s net assets are not subject to the subscription tax;
- it is also free from tax on profits from the sale of shares and other instruments;
- it is not subject to withholding tax on income repatriation or dividends paid to unit holders;
- it is not subject to capital gains tax when holders dispose of their shares or units;
- it is not subject to tax on capital gains from the sale of immovable property located outside of Cyprus.
Another advantage of establishing a hedge fund in Cyprus is that the Cyprus Stock Exchange’s (CSE) new collective investment scheme law permits listing (with or without trading) of both UCITS and AIF units and shares.
The fund can be more effectively marketed to investors and it can also be considered eligible specific institutional investors by listing in the relevant market of the CSE. This allows the Cypriot hedge fund to overcome specific restrictions from investing in non-listed securities or investments that are not listed on a recognized exchange. Additionally, the fund can benefit from the straightforward listing procedures that exist to obtain access to an EU-regulated Exchange.
If you want to know more about how to open a hedge fund in Cyprus, please contact our company registration advisors.