The Alternative Investment Funds Law of 2014 (the "AIF Law") was enacted by the Cyprus parliament on 10 July 2014 and entered into force fat the end of July. The AIF Law replaces and repeals the International Collective Investment Schemes Law (the "ICIS Law"), which has been in place since 1999.

Under the ICIS Law, International Collective Investment Schemes ("ICIS") were regulated and supervised by the Central Bank of Cyprus. The AIF Law gives the Cyprus Securities and Exchange Commission ("CySEC") responsibility regulation and supervision of alternative investment funds ("AIFs"), bringing all investment products, asset managers and investment firms under a single regulatory body.

The AIF Law updates the funds regime in Cyprus and aligns it with the latest EU directives on asset management, with a focus on transparency and investor protection. It sets out rules for the authorisation, ongoing operations, transparency requirements and supervision of AIFs in Cyprus and regulates the role and responsibilities of their directors, custodians and external managers.

The AIF Law defines an AIF as a collective investment undertaking that raises external capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and that has not been authorised as a UCITS.

Holding companies, schemes covered by the Social Insurance Law or the law regulating Insurance Business, occupational benefit and retirement schemes, employee participation schemes or employee savings schemes, securitisation special purpose entities and approved investment companies listed on the Cyprus Stock Exchange are outside the scope of the AIF Law.

The AIF Law provides for two classes of AIF, namely AIFs available to an unlimited number of investors ("unlimited") and those available to 75 investors or fewer ("restricted"). The former may be marketed to all investors, including retail investors. The latter may be marketed only to well-informed or professional investors. The definition of a professional investor follows the Markets in Financial Instruments Directive 2004/39/EC. A well-informed investor is an investor not considered to be a professional investor who confirms in writing that he is a well-informed investor and has been notified of the risks associated with investing in the AIF in question, and invests at least €125,000 in the AIF or has been evaluated by a bank or regulated investment business as a well - informed investor possessing the appropriate expertise and knowledge to assess the suitability of the investment.

AIFs may be structured as variable or fixed capital companies or as limited partnerships, In addition, unlimited AIFs may be structured as a mutual fund. The unit trust structure provided for by the ICIS Law is no longer available.

The AIF Law introduces new structuring options which were not available under the previous legislative framework, such as umbrella structures with multiple investment compartments, which allow the management of different pools of assets with distinct investment policies, with the each such pool of assets being ring-fenced, and common contractual funds, which are commonly used in other jurisdictions, where investors participate as co-owners of the assets of the AIF.

The AIF Law also enables public offerings of shares of AIFs to take place, in contrast to the position under the ICIS Law, where only private placements were allowed. Securities issued by AIFs may also be listed, which increases liquidity, marketability and transparency and widens the potential investor base.

Under the AIF Law the role of depositary is no longer reserved to credit or banking institutions and may, subject to specified conditions be undertaken by other entities. This may be more convenient for AIFs not investing in financial and money market instruments, such as private equity and real estate funds.

The enactment of the new AIF Law marks a long-awaited modernisation of Cyprus's investment funds regime. Combined with the island's stable and transparent political legal and commercial infrastructure, its reliable and familiar common-law legal system and the excellent professional and financial services available at a competitive cost, it should transform Cyprus into a major force in the international funds market. Cyprus's tax regime is particularly beneficial, offering a corporate income tax rate of 12½%, among the lowest in the EU, full exemption from tax on gains from trading in securities and a generous participation exemption regime on foreign dividends in conjunction with an extensive network of double tax treaties for international tax planning.

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