Cyprus Funds made easy! Alterations in the legal framework regulating the Cyprus Funds Industry.

16 July 2018

After ratification from the House of Representatives’ plenary session on Tuesday on the 10th of July, the legal and regulatory framework for collective investment funds is remodelled and upgraded, while investors’ rights are protected at the same time. More specifically, the new bills regarding alternative investment funds will boost the fund industry in Cyprus, as new ways for registration of different kind and types of funds in Cyprus which did not exist so far is introduced now providing investors a range of options.

The new legislative framework regulates the formation and functioning of Alternative Investment Funds (AIFs), including self-managed AIF’s with limited number of persons (AIFLNP) and Registered Alternative Investment Funds (RAIF’s), taking into account the best practices of other countries with a tradition in the field of investment funds, particularly within the European area.

The new provisions of the law aiming to render the AIF institutional framework more appealing, strict and secure include:

With the Special Contribution for the Defense of the Republic (Amendment) Law of 2018 the special rate for taxation for distribution of dividends is abolished, with a view to achieve uniform tax treatment between such organizations and any other persons who are or are deemed to receive dividends from companies.

Under the previously applicable law, taxpayers that were residents of Cyprus and recipients of dividends from collective investment undertakings or other collective investment funds were subjected to a special contribution of 3% of the dividends. Under the new amended legislative framework, persons who receive or are deemed to receive dividends from such organisations are subject to a special contribution of 17%. Thus, such persons will be handled in the same way as other persons that receive company dividends.

By the enforcement of Income Tax (Amending) Law of 2018, the investment of non-Cyprus residents in mutual funds or cooperatives created under the provisions of the Open-ended Undertakings for Collective Investment (UCITS) Law or the Alternative Investment Funds Law is not considered as a permanent establishment in the Republic and the income that these persons acquire from these investments are taxed in their tax domicile. At the same time, it is mentioned that there is a newly introduced, specific method of taxation of the variable remuneration of persons employed in the Republic by an Alternative Investment Fund Manager (AIFM) or by a company in which the AIFM entrusts portfolio management duties or AIF operations or a self-managed AIF which participates in the creation of carried interest of the AIF.

In particular, the amendment of the above legislation encourages the creation of AIF and UCITS in Cyprus with the ultimate goal to attract investments to these organizations. Simultaneously, the new law is expected to attract top executives (such as CEOs etc.) employed by AIFMs and UCITS to Cyprus, in order to become Cyprus tax residents, something which is expected to bring benefits to the economy.

How will this be done? Under the new arrangements no permanent establishment will be attributed to non-resident investors for their investment in mutual funds or cooperatives operating under applicable national law and the remunerations paid to individuals for their employment with an AIFM in Cyprus or a company in which the AIFM entrusts the management of the organization or a self-managed AIF which is a participant in the creation of carried interest for the organization. They  will be subject to a tax rate of 8%, with a minimum Amount paid tax of € 10.000 per year if certain conditions are met.


The above amendments to the legal and regulatory framework in connection to funds are extremely promising in terms of taking the Cyprus funds industry to the next level, equivalent if not superior to other prevailing fund jurisdictions in Europe.  Interesting times lie ahead as we are now excited to see how these charges will be implemented and what impact these changes will have in terms of attracting investors and other stakeholders of the Cyprus Funds Industry.


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This article is for information purposes only and does not consitute advice.