XCH Funds practice provides unique industry insights to traditional asset managers, hedge funds, real estate firms and private equity houses.

The most popular investment fund structures in Cyprus consist of Undertakings for Collective Investments in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) with emphasis on the latter.

Pursuant to the applicable legislation, an AIF can be structured as either a common fund (a contractual agreement) or an investment company (Variable/Fixed capital) or a limited partnership (LP). On the other hand, a UCITS may be structured as either a common fund or a variable capital investment company.

Each of the above available fund structures can be established with various investment compartments which allow for the segregation of assets and liabilities between compartments. Each one of the Investment Compartments may differ in terms of investment policy, minimum subscription amount, redemption terms etc.

The recent upgrade and further consolidation of the current Cyprus legislative framework in respect of investment funds has contributed in Cyprus being considered as a European and International Investment Funds Hub accommodating sophisticated fund structures as well as fund managers.

Being one of the first EU member states to transpose the Alternative Investment Fund Managers Directive into national legislation and together with the enactment and constant modernization of the Cyprus Alternative Investment Funds Law, Cyprus has transformed in an attractive and competitive environment for the evolvement of the national alternative investments industry.

In addition, the transposition of the Undertakings for Collective Investment in Transferable Securities (UCITS V) into national law offers prospective UCITS fund initiators the advantage of establishing an internationally reputable and regulated fund structure, with high transparency, enhanced risk management and liquidity provisions with lower set-up costs compared to other EU jurisdictions.

Cyprus is regarded to be in a considerable advantage compared to other countries for offering a complete package of investment fund services ranging from licensing to ongoing administration.

Pursuant to its membership within the EU since 1 May 2004, Cyprus is subject to and obliged to be in compliance with all the EU Directives and Regulations, resulting in Cyprus being a trusted destination for setting up credible investment funds and having the appropriate financial infrastructure for fund managers who wish to establish and/or register with CySEC in order to enjoy the full spectrum of their “passporting” rights.

Cyprus is also praised for its expert and knowledgeable service providers who offer their services at a comparatively lower cost without compromising the quality of their services. Furthermore, the smooth collaboration between the service providers and the competent authorities guarantee the swift and unwavering delivery of their services towards their clients.

By virtue of being one of the few former British colonies situated within the EU, Cyprus has inherited the English legal system and values. As a result, the Cyprus independent judicial system applies the principles of common law and draws guidance from English statutes and case law.

Cyprus also offers one of the most attractive tax regimes in Europe. Foreign investors and Cyprus non-domiciled individuals enjoy no withholding tax on dividends. At the fund level, there is a uniform 12,5% corporation tax on profits, constituting one of the lowest corporation tax percentages in Europe.

Fund management and administration services provided to investment funds are not subject to VAT, resulting to the value base of the investment fund not being burdened with a non-recoverable cost. Last but not least, Cyprus has access to an extensive network of double tax treaties allowing for tax efficient structuring of investments.

The establishment of a Cyprus investment fund is required to obtain prior authorization from the Cyprus Securities and Exchange Commission (CySEC – the Regulator) being the competent supervisory authority and Regulator in respect of entities including, but not limited, to investment funds (Alternative Investment Funds, UCITS, EUVECA etc.), fund management companies (Alternative Investment Fund Managers, UCITS Management Companies etc.) and Investment Firms.

An application form accompanied with the certain supplementary documents is required to be submitted for the consideration and approval of CySEC. Having all the aforesaid financial entities under a single integrated Regulator indicates Cyprus’ solid international presence as a reliable and safe investment hub, committing towards effective, consistent and fair supervision of all Cyprus investment entities for the benefit of investors.

XCH Cyprus is a fully-fledged service provider able to accommodate all the business needs of an investment fund initiator as well as registering fund managers either through full authorization or through the relevant notification application of ‘passporting’ rights as provided in the applicable legislation.

WIPI investors may choose to set up an AIF with Limited Number of Persons (AIFLNP). An AIFLNP can take one of the following legal forms:
  • • Fixed or Variable Capital Investment Company
  • • Limited Partnership.

An AIFLNP is exclusively addressed to WIPI investors, the number of which is limited to seventy five (75) persons. It should be noted that pursuant to the applicable law, if the AIFLNP will be established as a private company, then the number of the WIPI investors is limited to 50, whereas if the number of the WIPI lays between 50 and 75 then the AIFLNP will have to be authorized as a public company.

The management of an AIFLNP in the legal form of an investment company (limited liability company) can be exercised internally by its Board of Directors or externally through the appointment of an eligible Fund Manager. An AIFLNP in the form of a Limited Partnership is always externally managed by its General Partner.

An AIFLNP could be exempted from the obligation to appoint a Depositary provided that one of the following criteria is met:

  • • the total assets of the AIFLNP are less than €5 million, or its equivalent in another currency
  • • the AIFLNP has a limit of up to 5 investors
  • • the assets of the AIFLNP are not subject to custody e.g. private equity, real estate etc.

Advantages of setting up an AIFLNP:

  • • No restrictions are imposed by the CySEC regarding the underlying type of the AIFLNP’s investments
  • • Low set up and ongoing costs, as there is no legal requirement to appoint an External Manager and/or a Depositary in certain circumstances
  • • No defined minimum capital requirement
  • • Subject to a lighter legislative regime compared to other fund structures, for example less ongoing reporting requirements to CySEC

Licensing application to the regulator

  • • Choosing the right form of your AIF: We examine the alternative forms that the fund can take so that it meets your requirements.
  • • Preparation of the application package: We can prepare the full application package that needs to be submitted to the Regulator. During this process, our experienced team will advise you on how better to structure your operations and will assist with the preparation of all the necessary documents to be included in the application package.
  • • Follow-up of the processing of the application: We can assist you in replying to any queries or providing additional clarifications as requested by the Regulator during their examination of the application.

Fund Administration Services

  • • Fund Accounting: We maintain the general ledger in accordance with IFRS, calculate income and expenses and record any receipts, payment confirmations and other supporting documents.
  • • Net Asset Valuations: We perform valuations of the NAV in accordance with internal rules of the Fund, reconcile asset and cash positions, calculate management and performance fee and report to the Investment Manager and Board of Directors.
  • • Middle Office services: We interact with the Prime Broker, Depository and the Regulator if necessary.
  • • Transfer Agency services: We perform KYC/AML checks on Investors, maintain the Register and process any requests for transfers, subscriptions and redemptions.
  • • Regulatory Reporting and Compliance: We assist in the preparation of Regulatory reports and perform ongoing monitoring, ensuring the fund is administered within the terms of the Prospectus and Regulator’s requirements.

CRS and FATCA Compliance Services

  • • Initial Analysis: We analyze the Regulatory requirements under CRS/FATCA and their impact and assess the action that needs to be taken to comply.
  • • Classifications of Investors : We assist with an initial analysis in order to determine the classification of each Investor and identify the relevant implications arising from such classification.
  • • Reporting: We assist with the completion of self-certification forms, registration with local and foreign authorities and voluntary disclosure of accounts to the Tax Department.

Direct and Indirect Tax Services

Tax effectiveness: We provide a comprehensive set of Direct and Indirect Tax compliance and advisory services. This ensures that the fund is set up in a tax efficient manner and is compliant with all tax requirements in Cyprus and abroad. Our services cover both corporate and individual taxes.

Internal Audit Services

  • • Assessments: We carry out a high-level risk assessment and agree an internal audit plan that could be followed in the execution of the internal audit work.
  • • Internal Audit Plan: We prepare an annual internal audit plan to be approved by the Fund’s Board of Directors.
  • • Preparation of Audit Programs and Controls: Prepare internal audit programs for guiding the execution of the internal audit work.
  • • Implementation of Audit Programs and identification of weaknesses : Implement the internal audit programs and identify weaknesses in the internal controls.

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