With over 30 years’ experience as a member of KPMG’s Tax network, Angelos Gregoriades has participated in numerous merger, acquisition and corporate structuring and restructuring operations at both national and international level and has written many articles and presented seminars of the role of Cyprus as a regional financial and commercial centre. We have the pleasure of speaking with Mr. Gregoriades, who reveals why Cyprus is the country to invest, their plans to improve their international financial stance, and the opportunities Brexit will present.
When was the Cyprus Investment Funds Association (CIFA) established and what were its main objectives?
The Cyprus Investment Funds Association (CIFA) was established in 2013 to promote Cyprus as an investment funds jurisdiction. Its primary goal is to promote the Cyprus funds industry together with the rendering of Cyprus as a competitive investment fund and asset management jurisdiction of choice. In this regard, CIFA’s mission includes at local level to assist its members by utilising related international trends and developments, as well as the encouragement of professionalism and best-in-class standards in the services offered by industry professionals.
In addition, CIFA has been and will continue to work closely with the government and regulatory authorities in shaping the related legal and regulatory framework, by contributing to and promoting the enactment of relevant legislation when necessary in light of developments in the EU, as well as for improving the competitiveness of Cyprus. CIFA has made it a priority to create and maintain a strong legal, tax and regulatory framework in order to offer an attractive product competitive to that of other established jurisdictions and, to this end, it works closely with the government and regulatory authorities in shaping regulations.
Can you please outline the current status of the Cyprus economy and more specifically of the professional services sector?
The Cypriot economy has moved into a macroeconomic stability, thus confidence has been restored and we are once again on a path of recovery and growth. Cyprus is operating with an essentially balanced budget and with a good primary surplus; our budgetary planning for the period 2017-2019 remains safely within the margins of a balanced budget, ensuring that the public debt as a % of GDP will start decreasing.
Our banking sector is completely reformed and restructured. Capital adequacy and solvency have been enhanced significantly. Cyprus systemic banks now operate under the supervision of the European Central Bank, and there is a strong presence of new foreign investors.
Cyprus financial services sector continued to expand in terms of size, reputation and attractiveness, backed by a resilient regulatory framework, prudential supervision, consumer protection, and strong money laundering prevention mechanisms. The robustness of the sector is reflected in healthy capital and liquidity levels held by banks and continued registration of new companies and of funds and investment vehicles providing employment opportunities both within the direct financial intermediation segment and other related professional services activities.
Can you please provide us with a general description of the legal framework of funds in Cyprus?
An investment fund may be set up in Cyprus as either an Alternative Investment Fund (AIF) or an Undertaking for Collective Investment in Transferable Securities (UCITS).
Cyprus’ legal framework is all-encompassing and, at the same time, attractive enough to establish investment funds, which can meet diverse investor requirements and can accommodate a number of investment objectives including: Private Equity, Infrastructure, Real Estate, Venture Capital, Funds of Funds, Debt and/or Equity Securities. Loan origination funds are also permitted when targeting well informed/professional investors. Cyprus AIFs may be set up using a corporate or contractual structure (i.e. limited partnerships or investment companies with fixed or variable capital or common funds).
The enactment of the Alternative Investment Funds Law (AIF Law) in July 2014 revealed the need for significant modernisation of the related legal framework and offers a comprehensive tool box and new structuring options competitive to those of other established jurisdictions.
What are the benefits for Fund Managers when using Cyprus? Are there any incentives?
We offer one of the most attractive fund tax regimes in Europe; both at the level of the Fund Manager and the investors, as well as at the level of the Fund. Worth highlighting is the already introduced provisions that exempt non-domiciled fund managers from taxation of their investment income and the 15% tax exception of their earned income, if their remunerated more than hundred thousand euros per year. We do not impose withholding taxes on investors and no VAT law ensures that no VAT is charged on services in respects to investment management, administration and marketing services supplied to Funds carrying on business in Cyprus.
Expanding on the advantages of the Funds, the buying-selling securities are tax exempt and interest income is reduced by a deem deduction on funds invested within the Fund, reducing the effective tax on interest to 2.5% taxation. Furthermore, a new provision is to be introduced for carried interest taxation not to exceed 7%, and the categorisation of Islamic Fund instruments as securities and exempted from tax on any gains realised.
The main components to transform Cyprus into a regional fund centre of excellence are its strategic location, its stable and transparent political infrastructure, its modern legal system based on common law, its full compliance with EU and OECD standards for anti-money laundering and insider dealing, and its expert professional and financial services offered at a competitive cost.
CIFA has recently announced the implementation of an action plan for the promotion of Cyprus as a financial services and investment funds centre. Can you please provide us with some more information on this matter and the forthcoming changes in the legislation?
Cyprus is currently taking further measures to optimise the regulatory, legal and tax framework and become an attractive jurisdiction in particular for private equity funds and a true competitor to other popular jurisdictions for funds and asset management.
In brief the changes expected to be passed into law mid 2017 relate to the following:
Enhancement of the Limited Partnership Vehicle
Cyprus aims, similar to the limited partnerships of Guernsey and Jersey, to allow the general partner to elect upon establishment for a limited partnership to have separate legal personality, while maintaining tax transparency status. This is a key consideration for structuring funds and also establishing internally managed Limited Partnerships.
Moreover, Cyprus is proposing to introduce a list of non-management safe harbours for limited partners, which should help give confidence and legal certainty to investors being admitted to a Cyprus limited partnership for the first time. This measure has already arguably assisted the Luxembourg Special Limited Partnership (SCSp) and, prior to this, the Guernsey, Jersey and Cayman limited partnerships, in gaining traction as common investment vehicles.
A New Product: The Registered AIF
Aside from focusing on the limited partnership vehicle, of particular note is Cyprus’ introduction of a regime for “registered”, but not authorised, Alternative Investment Funds, to facilitate quick and cost efficient fund launch. Similar to the Luxembourg [Reserved] RAIF, the Cyprus Registered AIF will be able to market to professional investors and/or well-informed investors and will be managed by a full scope Cyprus or EU Alternative Investment Fund Manager (AIFM). The regulated external AIFM will be entrusted by the Cyprus Securities and Exchange Commission (CySEC) to provide indirect supervision and ensure compliance.
The Registered AIF may be organised in any legal form available under Cyprus Law (investment company with fixed or variable capital, limited partnership or common fund), it can be open or closed-ended and it can follow any strategy and invest in any type of assets (except it cannot be established as a Money Market and Loan origination fund).
Introducing A Licensing Regime for Sub AIFMD Thresholds Asset Managers
As it relates to the asset management legal framework, Cyprus has aligned its national regime by closely mirroring the regimes established under the UCITS, AIFM and MiFID Directives. It has been decided to introduce a licensing requirement and supervision regime for the Cyprus sub threshold AIFM (a so called “Mini-Manager”) the aim being to provide a reasonable and proportionate sub threshold Manager.
What are the opportunities that Brexit creates for Cyprus?
CIFA is closely monitoring the developments in the European Union and especially the discussions with Brexit which presents a huge challenge for UK based UCITS or AIFMs in accessing EU investors post-Brexit. Cyprus is a reliable member of the EU and Eurozone, but also a country with a broader outlook and thus be a strategic partner for the UK. UK asset managers, when considering how to structure their business going forward may, in order to maintain access to EU clients, work with a third-party EU based management company which will delegate the portfolio management back to the UK manager.
The platform solution provides investment managers with a fully compliant UCITS/AIFM entity and thus a European passport to market their funds within the EU, without the need to establish their own fund and/or management company substance in an EU Member State. The managers benefit from the efficiencies provided by the pre-existing structure of the platform in terms of sharing of costs, existing middle and back office operating models, tried and tested systems and quick time to market. In this respect, Cyprus offers a growing number of platform providers.
