alternative_investment_funds - Cyprus International Institute of

Report
Alternative Investment Fund (AIF)
An attractive structure
4th June 2014
Andreas Yiasemides
Director, Treppides Fund Services
Table of Contents
1. Cyprus Framework for Funds
2. Current Framework - ICIS
3. Alternative Investment Funds (AIFs) – New
Framework
2
Cyprus Framework for Funds
 Alternative Investment Fund (AIF)
 Private Equity Funds
 Hedge Funds
 Real Estate Funds
 Other Funds
 Legislation per country (domestic) –
no EU Directive for the operation of this category
of funds across EU
3
Cyprus Framework for Funds
 EU Directive 61 – transposed into local legislation
in Cyprus
 It provides general principles governing the
organization and operation of Alternative
Investment Fund Managers (AIFM), including rules
for the authorization and supervision
 In Cyprus, International Collective Investment
Schemes (ICIS) – only type of AIF for the time being
 New law has been drafted regarding AIF – under
legal review
4
ICIS - Introduction
 In May 1999, Cyprus introduced legislation
enabling the establishment and regulation of
International Collective Investment Schemes
(‘ICIS’).
 Under the above legislation, the Central Bank
of Cyprus (‘CBC’) is the regulatory and
supervisory authority for ICIS and may, upon
a
written
application,
recognize
an
International Collective Investment Scheme.
5
ICIS - Introduction
Licensing Requirements
 In order to establish an ICIS, the prior approval of
the CBC has to be obtained. To obtain such
approval, the Bank must be provided with such
information so as to be satisfied as to the
competence of the directors, promoters,
managers or trustees, as the case may be, and
that their probity is such as to render them
suitable to act in their respective capacities.
Expected to move under Cyprus Securities and
Exchange Commission (CySEC)
6
Purpose of ICIS
 The purpose of an ICIS is the collective
investment of the funds injected in such
schemes by the unit holders.
 It allows a number of investors to:
collectively join their investment assets
have these professionally managed and
invested by independent fund managers and
extract their profits in a tax efficient manner
obtain a Cyprus passport
7
Legal form of ICIS
An ICIS can take the following legal forms:
International Fixed Capital Company (‘IFCC’)
International Variable Capital Company (‘IVCC’)
International Unit Trust Scheme (‘IUTS’), and
International Investment Limited Partnership
(‘IILP’)
All four types of ICIS may be established with
limited or unlimited duration.
8
Types of ICIS
An ICIS marketed to the general public
An ICIS marketed solely to experienced
investors; or
A private international collective investment
scheme (only 100 or less investors)
9
Private ICIS
Main characteristics:
 Cannot be offered/ marketed to the general public
 Maximum number of investors <100
 Investors do not have to be experienced
 The right to transfer its units is restricted
 Is not required to apply the investment
restrictions
 There is no minimum subscription amount
10
Typical Structure
The Cyprus ICIS
INVESTORS
INVESTMENT
COMMITTEE
FUND
CUSTODIAN
FUND BOARD
OF
DIRECTORS
ICIS FUND
FUND
ADMINISTRATION
AUDITORS
SPV 1
INVESTMENT 1
EU
INVESTMENT 1
NON-EU
SPV 2
SPV 3
INVESTMENT 2 INVESTMENT 2
EU
NON-EU
DIRECT
INVESTMENT
INVESTMENT 3 INVESTMENT 3
EU
NON-EU
11
Professionals involved
The Cyprus ICIS
4 Types of Professionals
 Custodian
 Administrator
 Auditor
 Investment Manager (not required by ICIS law)
12
Professionals involved
Custodian
The custodian bank has two roles:
 to maintain the bank accounts in the name
of the ICIS where subscriptions are remitted
directly so as to carry out money laundering
tests on the transferred money and to
ensure that withdrawals are in accordance
with the scope and objectives of the ICIS
 to keep in safe custody the titles of
investments made by the ICIS
13
Professionals involved
Administrator
Funds must appoint a company to carry out the
administration work of the scheme.
The said company must be based in Cyprus and
be approved by the CBC.
It will usually provide in respect of the Fund:
Accounting
Calculation of net asset valuation (NAV)
Maintenance of the share registrar
Performance of procedures required
transfer and redemption of units
for
14
Professionals involved
Auditor
 Must be appointed at the incorporation of the
scheme.
 The auditor, who must be a Cypriot based audit
firm, needs to be approved by the CBC
 Its duties include:
Annual audit of the financial statements based
on IFRS
 Review of the activities and the compliance
with the relevant Cypriot laws
 Carrying out specific reporting duties for CBC
15
Professionals involved
Investment Manager
(i) Internally, through the executive Directors
appointed on the Board (where the ICIS takes the
form of a Variable Capital Company) or General
Partner (where the ICIS takes the form of a Limited
Partnership).
(ii) Externally, through a third party company
registered in Cyprus or in any other overseas
jurisdiction where there is adequate supervision of
financial services firms and is approved by them to
act as Investment Manager of the particular Scheme.
16
Registration
The Cyprus ICIS
Procedures
‘Proper and fit’ test for directors and managers:
Professional qualifications
Experience
Reputation and capital resources
Education

17
Registration
The Cyprus ICIS
Procedures
Documentation
Questionnaire to be completed by the Directors,
controlling shareholders accompanied by CV, police
clearance certificate, passport copy, and references.

Memorandum and Articles of Association,
Partnership Agreement or Trust Deed and all third
party service provider’s agreements.

Private Offering Memorandum (not required by
the Law but recommended)

18
Cyprus ICIS
Operation
 Registration
Opening
of cash account for the fund in the
custodian bank
Subscription of investors for the units of the fund
through administrator
Investments made by the fund utilising investors’
money
Redemptions of units by the investors at
specified dates and at a specified percentage
through the administrator
19
Cyprus AIFS
AIFS – New Framework
 New
law has been drafted regarding AIFS –
under legal review
February 2013, CySEC issued a proposed
legislation entitled Alternative Investment
Fund Law 2013
CySEC expected to become the Regulatory
Authority under the new law (currently is CBC)
for AIFs
20
Legal form of AIFS
An AIF can take the following legal forms:
 Fixed Capital Company (‘FCC’)
Variable Capital Company (‘VCC’)
Limited Partnership (‘LP’) , and
 Common Fund (‘CF’)
All four types of AIFS may be established with
limited or unlimited duration.
21
Types of AIFS
 Alternative Investment Fund with Unlimited Number
of Persons which:
 may be marketed either to well-informed or retail
investors
 have investor shares which are freely transferable
 may be listed, and in the case of AIF marketed to
Retail investors, may be traded
 are subject to minimum capital requirements
equal to EUR 125.000 or EUR 300.000 in the case of
self-managed fund
 are subject to certain investment restrictions for
the purpose of risk spreading and ensuring liquidity
22
Types of AIFS
Alternative Investment Fund with Limited Number of
Persons which:
 may not exceed the total number of 75 investors
 may be marketed only to well-informed investors
 are not externally managed by an AIFMD
authorised manager and/or their assets under
management do not exceed the AIFMD thresholds,
being (i) EUR 100mm (incl. leverage) or (ii) EUR
500mm
 have investor shares which are freely transferable
only if their transfer does not result in the AIF having
more than 75 investors
23
Investor Classification
Two classifications of investors:
(i) Well-informed Investor


A Professional Client, as such term is defined in the MiFID; OR
One that meets the following two requirements:
i. Confirms in writing that he/she is a qualified investor and
that he/she is aware of the risks involved with an
investment in the relevant AIF; and
ii. (1) investment made in AIF is at least EUR 125.000 OR
(2) expertise, experience and knowledge in evaluating an
investment opportunity properly, have been certified by a
licensed bank/credit institution, an authorised investment
firm or an authorised Management Company
(ii) Retail Investor

An investor, other than well-informed, i.e. which does not
meet the requirements above
24
Benefits of AIF
The Cyprus AIF
Five Key Benefits

Flexibility: Any asset can be included in the investment strategy of
the AIF (under certain conditions)

Transparency: Annual audited and half yearly reports to be sent
to the CySEC and the investors (contain financial statements,
information on borrowing, portfolio information, NAV)

Tax Incentives: Cyprus AIF benefit from significant tax incentives /
Establishment for taxation purposes can very difficulty be
challenged

Regulation: EU directives / business friendly jurisdiction (no
onerous reporting requirements)

Low set-up and operational costs: Easy and cost efficient to set
up and maintain Cyprus funds
25
Benefits of AIF
The Cyprus AIF
Tax Incentives
Cyprus AIF enjoy significant tax incentives:
 No subscription tax on the net assets of the fund;
 An AIF is treated identically as any other Cypriot entity, hence enjoys
12.5% flat corporation tax on annual net profits earned worldwide.
 Exemption from tax on profits from sale of shares and other
instruments.
 No withholding tax on income repatriation (dividends paid to
unitholders).
 No capital gains tax on disposal of shares/units by the holders.
 Capital gains from the sale of immovable property situated outside
Cyprus is tax exempt.
 A wide network of Double Tax Treaties in place with more than 50
countries worldwide.
26
QUESTIONS?
THANK YOU
Our Cyprus Office:
Treppides Fund Services Ltd,
9 Kafkasou Street,
Treppides Tower, Aglantzia,
2112 Nicosia, Cyprus
Tel : +357 22 678944
Fax: +357 22 681887
www.treppidesfs.com
[email protected]
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