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Setting Up Funds in Cyprus

August 13, 2014

Undertakings for Collective Investment in Transferable Securities

UCITS is a pan-European Fund product which when established in one EU country can be sold cross boarder within the EU under a harmonised legislative framework without any requirement for additional authorisation. UCITS is the result of the evolution of mutual fund legislation to ensure better investor protection.

In June 2012 the Cyprus House of Representatives enacted the Open-Ended Undertakings for Collective Investment Law of 2012 (UCI Law of 2012). Under these laws UCITS are considered to be a fund of collective capital that is comprised of investments in transferable securities, money market instruments, deposits and other investments and whose operation is based on the principle of risk diversification and whose units can be liquidated by the unit holder on request using the assets of the organisation. It has no legal standing and the investors are represented by the Fund Management Company.

Therefore the following under the law are not considered UCITS:

  • UCITS which are not open-ended
  • UCITS that do not market to the public in Cyprus or other EU member countries
  • UCITS that are based on their fund rules or constitutional documents and only make their units available to the public in other countries except Cyprus
  • UCITS which, due to their investment and borrowing policy, do not fall within the rules of the UCI Law

Cyprus Securities and Exchange Commission (CySEC) is the regulatory and supervisory authority for the operation of the Collective Investment Schemes. The intense regulation by the Cyprus Securities and Exchange Commission (CySEC) therefore affects the following:

  • Eligible legal form of a UCITS
  • Relationship between a UCITS and its investors
  • The location of service providers and their duties
  • Eligible assets and investment limits
  • Valuation and calculation of the Net Asset Value (NAV)


A local UCITS may take the following legal forms:

  • Mutual Funds
  • Variable Capital Investment Companies (VCIC)

Main provisions for the UCITS Fund are as follows:

  • The fund can take the form of a Mutual Fund or Variable Capital Investment Company (VCIC)
  • The minimum capital for a new fund is:
  • 125,000.00 – if Management Company’s sole purpose is management of UCITS
  • 200,000.00 – if UCITS appoints an external manager (per sub fund if applicable)
  • 300,000.00 – if UCITS is a self managed VCIC (per sub fund if applicable)
  • The fund has to appoint a custodian which should be a local institution (usually a local bank)
  • Both the Mutual Fund and the Variable Capital Investment Company may be set up as single funds or as an umbrella fund consisting of multiple compartments, each with different share classes, depending on the needs of the investors to whom the fund is distributed.

It is possible to form funds in Cyprus and manage them from an approved institution outside Cyprus (in another EU country). In addition cross boarder marketing provisions are now simplified to a regulator notification which permits a UCITS to be marketed in another member state within 10 days after receipt of notification letter with the key investor information in order to be able to assess the risks associated with the specific UCITS.

Procedure of establishment and operation of Mutual Funds in Cyprus:

A Mutual Fund focuses on establishing a pool of transferable securities and other liquid financial assets which either separately or jointly belong to unit holders and whose operations are governed by the Common Fund Regulation.

A Management Company is required to be appointed in order to apply for and obtain the license to operate by CySEC due to the fact that the Mutual Fund is not a legal person. The application has to meet the following criteria:

  • Both the Fund Manager and the Custodian (which must be independent of each other) of the Mutual Fund need to meet the criteria set out by CySEC and need to have sufficient internal controls to protect the unit holders.
  • The Fund Manager needs to be a CySEC licensed institution, which has sufficient reserves and appropriately trained staff in addition to the required technical and constitutional infrastructure to manage the assets of the Mutual Fund.
  • The Custodian must be a local bank or a company based in Cyprus which has been approved by CySEC. The Custodian may subcontract certain duties such as the custody of foreign securities to a foreign licensed custodian. The custodian needs to make sure that all activities are undertaken within the requirements set out in the law, regulations and the fund rules.
  • Fund rules need to be approved by CySEC and should include the following; the name of the fund, fund manager, custodian, the investment targets of the fund and the borrowing and investment policy, types of permitted transferable securities, management fees payable by unit holders on purchase and redemption of units, any costs paid by the fund to the fund manager and custodian and the permitted expenses that can be deducted from the assets of the fund.
  • The name and information memorandum of the fund requires approval from CySEC.

Procedure of establishment and operation of Variable Capital Investment Companies:

A Variable Capital Company is a limited liability company with share holdings which have been registered under the UCITS Law 220 (I) 2004. The share capital of the company is determined upon registration of the company but the shares do not have a nominal value since their value will vary according to the net asset value of the assets divided by the total number of shares issued. These companies have the exclusive purpose of investment of their pooled assets in transferable securities, money market instruments and cash (in the form of bank deposits). The company can manage its own assets but not the assets of other companies. The assets of the company are kept under a custodian.

Comparison Table:

Legal Form of UCITSMutual FundVariable Capital Investment Companies CIC)Regulatory AuthorityCyprus Securities & Exchange Commission (CySEC)Cyprus Securities & Exchange Commission (CySEC)Capital Requirements:EUR 200,000For umbrella funds minimum capital requirement is applied at the sub fund levelEUR 200,000EUR 300,000 if self managed. For umbrella funds minimum capital requirement is applied at the sub fund levelRequirements:Management Company required Custodian – required Administrator – must be Cyprus BasedCan appoint a Management Company or be self managed through it’s Board of Directors Custodian – required Administrator – must be Cyprus BasedStipulations on location of operation:Must have a place of business within the Republic of Cyprus.Must have a place of business within the Republic of Cyprus.Statutory Application Fee:EUR 1,800 EUR 200 – 400 per sub-fundEUR 1,800 EUR 2,500 for self managed EUR 200 – 400 per sub-fundAnnual Regulatory Fee:EUR 1,800 EUR 200 – 400 per sub-fundEUR 1,800 EUR 2,500 for self managed EUR 200 – 400 per sub-fundReporting RequirementsAudited Annual ReportUnaudited semi-annual report. Quarterly summarized statements of assets and expensesApproximate timescale for formation:Approx. 2 months from application filingCan take up to 6 months for a VCIC that is self managed.

*Individual quotation provided based upon requirements.


UCITS are subject to taxation like any other Cyprus entity. This means the following:

  • Unified corporate tax rate of 10%
  • Adoption of residency basis rather than source basis as the criteria for taxation
  • Exemption of profits from the disposal of securities
  • Dividend income is exempt from taxation
  • No withholding tax on payments of dividend, interest and royalties to non-residents

The following are the most significant in relation to UCITS:

  • Exemption from tax on foreign dividends
  • Exemption from tax on profit from the sale of securities
  • No withholding tax on income repatriation by UCITS

Eltoma Corporate Services can provide the following services in relation to UCITS:

Fund Administration Services:

  • Consultation on designing the scheme structure based on specific requirements
  • Drafting all required documentation and completion of application forms required to be submitted to CySEC
  • Locating qualified personnel
  • Assisting to open custodian accounts

Eltoma Corporate Services and its Partners can assist with the daily operations and perform general administrative tasks including:

  • Dealing with UCITS correspondence
  • Processing subscriptions
  • Processing redemptions and withdrawals
  • Computing Net Asset Values
  • Maintaining books and records
  • Disbursing payments
  • Establishing and maintaining accounts on behalf of UCITS and any matters associated with the administration of an UCITS

Ancillary Services:

  • Full Audit services (in association with KPMG) at a competitive price
  • Full legal support and advice
  • Ongoing regulatory reporting

Please contact Eltoma Corporate Services for a consultation.

Cyprus international investment schemes (ICIS)

The primary objective of an International Collective Investment Scheme (ICIS) is the collective investment of funds. A combination of favourable factors have lead to Cyprus becoming the one of the most popular and attractive jurisdictions in which to set up an ICIS.

Cyprus is an established, reputable international financial centre with full EU membership. Through its advantageous taxation system, excellent infrastructure and banking system and the existence of an extensive double tax treaty network Cyprus is an ideal and effective location for the establishment of an ICIS.

A crucial aspect in the success of ICIS is the competitive tax regime. Just like any other Cypriot Entity an ICIS is subject to a flat 10% Corporate Tax Rate on annual net profits earned worldwide.

In addition the following tax advantages exist:

  • Exemption from tax on profits from the sale of shares and other financial instruments
  • Exemption from tax on foreign dividends received
  • No withholding on interest and dividend payments made from Cyprus to abroad.
  • No withholding tax on income repatriation
  • Exemption on profits on disposal of securities
  • Network of Double Taxation Treaties, currently standing at more than 40 companies worldwide therefore securing tax incentives and encouraging the channeling of funds into other countries with without or with reduced additional taxation.


The establishment and regulation of International Collective Investment Schemes are governed by the International Collective Investment Schemes Law 47(1)/1999. Under this Law the Central Bank of Cyprus is the Regulatory Authority for Schemes. Other laws which are applicable to the ICIS are the Cyprus Companies Law, the Business Names Law and the International Trust Law. Under the current legislation a Scheme may take one of the following forms:

  • International Variable Capital Company (IVCC) This is the most commonly used legal form of company for an ICIS and the structure is much the same as a Cyprus International Business Company. An IVCC is incorporated under the Cyprus Companies Law and operates as a international variable capital company. Its assets and unit holders are non-Cypriot residents and the share capital varies according to the investors participating at any one time. The share capital of the company is equal to the net asset value (NAV) of the shares of the company at any time.
  • International Fixed Capital Company (IFCC) Incorporated under the Cyprus Companies Law and recognized to operate as an international fixed capital company. The assets and unit holders are non-Cypriot residents and the share capital remains fixed, it does not vary. The initial capital requirement (issued and fully paid-up capital) to form an IFCC is USD 100,000 for ICIS marketed to the public or experienced investors. Fixed capital companies which are Private International Collective Investment Schemes are exempt from any minimal capital requirement.
  • International Unit Trust Schemes (IUTS): An International Trust is created under the International Trusts Law and is recognized as operating as an International Unit Trust Scheme under the ICIS Law. IUTS’s must always have a manager and trustee, which must act independently of each other. The assets are owned by the Schemes Trust in fiduciary for the trust beneficiaries.
  • International Investment Limited Partnership (IILP): A Limited Partnership is registered under the Partnerships Law and is recognized to operate as an international investment limited partnership under ICIS Law. There must be a general partner appointed (as with all limited partnerships) which manage the fund and is responsible for the assets and liabilities of the fund. The limited partner will also be a member of the scheme. A general partnership can also have corporate entities as partners.

All of the above may be established with limited or unlimited duration however the structure must provide adequate protection for the unit holders.


An ICIS may be designated as one of the following:

  1. An ICIS marketed to the general public
  2. An ICIS marketed solely to experienced investors
  3. A Private International Collective Investment Scheme – this is the most common type of ICIS used

ICIS marketed to the General PublicICIS marketed to the experienced investorsPrivate international collective investment schemeDescriptionServices can be provided to the general public.Must contain in its constitutional documentation and offering memorandum clearly defined rules and procedures in order to ensure the marketing is restricted to experienced investors. Experienced investors are legal / physical person who provide financial services or frequently enter into investment transactions.Its constitutional documentation restricts the right to transfer its units and limits the number of unit holders to 100. A Private ICIS is prohibited from marketing directly to the public.Regulating AuthorityRegulated by the Central Bank however any ICIS which is intended to be offered to the public requires clearance by the Cyprus Securities and Exchange Commission.Regulated by the Central BankRegulated by the Central BankMinimum Capital Requirements:USD 200,000.00 but must be approved by the Central BankUSD 50,000.00No minimum capital requirementRequirements:Must appoint a manager who must be approved by the Central Bank.Must Appoint a Trustee to hold the assets of the scheme.Must appoint a manager who must be approved by the Central Bank.Must Appoint a Trustee to hold the assets of the scheme.A bank regards a private ICIS as a private arrangement and therefore because it needs less regulation is not obliged to appoint a manager or trustee.Stipulations on location of operation:Must have a place of business within the Republic of Cyprus.Must have a place of business within the Republic of Cyprus.Must have a place of business within the Republic of Cyprus.Bearer UnitsMay issue bearer units but require the prior approval of the Central Bank.Prohibited from issuing bearer unitsProhibited from issuing bearer unitsStatutory Application Fee:USD 1,500.00USD 1,000.00USD 500.00Statutory Inspection Fee:USD 1,500.00USD 1,000.00USD 500.00Reporting Requirements:All ICIS’s must prepare and submit the following: Annual Report– Financial Statements, information on borrowing, portfolio information, Trustee Report (where applicable) Audit Report. Half Yearly Report – Balance sheet, Income & expenditure account, Statement of the sources from which the total ICIS has been generated, Statement of duties, charges and fees paid out, Statement of income distribution or allocation.Approximate timescale for formation:Approx. 12 weeksApprox. 8 weeksApprox. 8 weeks

*Individual quotation provided based upon requirements.


The information and documentation requirements of the Central Bank of Cyprus in support of an application include the following:

  1. A Standard Application Form – This contains the name of the scheme, statement of the nature of the investment objectives etc
  2. Personal Questionnaire – required to be completed by the person acting as Directors of the Company, or the General Partner or / and by controlling shareholders. This must accompanied by CV, police clearance certificate, passport copies and professional references from the last 10 years.
  3. Questionnaire for Legal Persons – to be completed by the shareholders of the Company or the General Partner.
  4. Questionnaire – to be completed by the Manager of the ICIS (if applicable) if different from the controlling shareholder of the ICIS / General Partner.
  5. Relevant Documentation – Copy of the M&AA, Partnership Agreement / Trust Deed and all relevant agreements etc.
  6. Private Offering Memorandum / summary of the Investment Objectives (including any restrictions as well as imposed limits on the type and amount of investments, the body determining the investment strategy and the strategic asset allocation. Investment risks should be analysed)
  7. Application Fee – as stated above

The Central Bank must be satisfied as to the competence of the directors, promoters, managers (where applicable); they must pass the “fit and proper” test as laid down by the Central Bank of Cyprus.

Following the approval of Central Bank the ICIS will be designated as either a scheme to be marketed to the general public, a scheme marketed solely to experienced investors or a private international collective investment scheme.


The setting up of a regulated International Collective Investment Scheme in Cyprus requires professional regulated services. Eltoma Corporate Services, in conjunction with the client, undertakes the provision of all professionals required for an ICIS to become licensed, established and operational. The roles required are summerised below:


Investment Manager:

The scheme may be managed in one of two ways:

  • Internally through the executive directors appointed at the formation of the ICIS. Directors must be approved by the Central Bank with regards to their professional experience.
  • Through a third party, an Investment Firm licensed by a regulating authority to act as Investment Manager of the particular scheme.


A Board of Directors, Trustees or Partners (depending on which type of ICIS is formed) manages the funds affairs and exercises control over its daily business and activity. A funds management must be primarily located in Cyprus where management and control is carried out.



This role is carried out by an established bank (either in Cyprus or another jurisdiction) which is appointed as the custodian to hold and safeguard the assets placed under the ICIS.


Upon the formation of an ICIS Auditors must be appointed and are responsible for the annual audit, bi-annual monitoring and reporting and other compliance functions.

Legal Advisors:

Responsible for drafting various documentation such as the Memorandum and Articles of Association in the case of variable capital company (or Partnership Agreement or Trust Deed) in addition to attending to the legal formation, licensing and regulatory requirements of the ICIS both upon and after formation.


Eltoma Corporate Services provide consultancy services with regards to the formation of ICIS. We assist from commencement of the process at the application stage right through to providing assistance with on-going requirements. Eltoma Corporate Services provide the following services:

  • Advice and application to the Central Bank of Cyprus to obtain approval and incorporating the entity with the Registrar of Companies
  • Drafting the required documentation for submission; the offering memorandum, incorporation and legal documents.
  • Provision of administrative services to the scheme (nominees, office facilities, administration of affairs, accounting services etc)
  • Provision of Audit services
  • Legal Advice

Please contact us for a consultation and quotation.

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