The Alternative Investment Fund ("AIF") sector in Cyprus has continued its recent growth with the latest figures (for the quarter ended 30 June 2019), released by the Cyprus Securities & Exchange Commission, showing total assets under management reaching EUR 6.8 billion (displaying a 2% increase from the previous quarter). The majority of these (around 70%) are invested outside Cyprus with the main investment sectors being private equity and real estate.
In this article, we discuss how a Cyprus AIF be used by family offices and by multi-family offices.
As wealthy families grow, both in terms of size of wealth and in the number of family members, the need for the for the professional management of their wealth is becoming more and more a prerequisite. This is typically achieved either by the establishment of a family office or by engaging a 3rd party multi-family office.
Thereafter the family office will typically assist wealthy families in: creating the optimal legal/tax structures, reduce dependence on the head of the family, plan for the future, and assist with the management of the family's investments.
The use of a Cyprus AIF in a family office structure can prove a very attractive solution as the AIF can provide some very important benefits, not available in other structures. For example:
- Regulated vehicle – provides investors (i.e. the family members) with transparency, protection and in general "peace of mind" in respect to the legal framework and the rights and obligations of investors.
- Segregated investment compartments (i.e. sub-funds) – the possibility to create various sub-funds below an AIF can allow the family office, for example, to separate assets by type, jurisdiction, investors, etc.
- Investment restrictions – there are no significant restrictions as to the type of assets an AIF may hold and minimal investment diversification rules (assuming all investors qualify as well-informed).
- AIF Taxation – the AIF, if it is setup as an investment company, should qualify as tax resident in Cyprus and as a result be entitled to the benefits offered by the wide network of double tax treaties available in Cyprus. Moreover, the AIFs taxable profits (if any) will be subject to a corporate tax rate of 12.5% (can be reduced to 2.5% via the notional interest deduction).
- Investors – the details of investors are not disclosed to the Registrar of Companies and as a result, a level of anonymity may be maintained. Moreover, investors who are not domiciled and tax resident in Cyprus will not suffer any withholding tax on distributions from the AIF or on any redemptions.
We at Savva & Associates are among the few providers in Cyprus experienced in the establishment and administration of alternative investment funds and the most cost efficient in delivering high level alternative investment fund services in Cyprus. Our dedicated Investment Funds Division has extensive knowledge of financial services, coupled with local legal and tax expertise, ensuring efficiency in establishment, licensing and ongoing management of AIFs.
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.