Elias Christou Legal Services-CYLEX Ltd

Open-Ended Undertaking for Collective Investments in Transferable Securities (UCITS)

The UCITS Law 200(I)/2004 which implements the EU directives provides the legal framework for the registration, regulation and marketing of local and foreign funds in Cyprus.

Under this law UCITS is considered to be an undertaking the sole object of which is to collectively invest publicly collected capital in transferable securities and money market instruments via stock markets, banking deposits and any other investments. Its operation is based on the principle of risk-spreading and its units can be redeemed directly or indirectly upon the unit holder’s request using the undertaking’s assets.

To set up a UCITS the permission of the Cyprus Exchange and Securities Commission (CySEC) is required.

The Law clarifies that the following are NOT considered to be UCITS within the meaning of the Law

  • UCITS, which are closed-ended;
  • UCITS that raise capital without promoting their units to the public in Cyprus or to any other EU member state;
  • UCITS that based on their fund rules or Memorandum and Articles only sell their units to the public of third countries;
  • UCITS which are in conflict with the investment and borrowing policy set out in the law 200(I)/2004; and
  • Investment companies the assets of which are invested through subsidiary companies otherwise than in transferable securities.

Setting up and operating a Mutual Fund in Cyprus

To set up and operate a mutual fund in Cyprus the permission of the Cyprus Securities and Exchange Commission (CySEC) is required. Once the application is submitted CySEC will communicate its decision within 6 months. The management Company is entitled to issue or redeem fund units through representatives who may only be Banks, Investment Firms and co-operative credit institutions.


The application needs to meet certain criteria, such as:
  • Fund regulations need to be approved by the CySEC;
  • The name and prospectuses of the fund needs to be approved by the CySEC;
  • The minimum initial asset value of the fund must be at least EURO 1.700.000,00 (Euro One Million and Seven Hundred Thousand), which must be deposited within three months of the granting of the licence;
  • The minimum share capital of the Management Company must be at least EURO 765.000,00 (Euro Seven Hundred and Sixty Five Thousand) to be paid in full with the granting of the operation license;
  • The Management Company must have shareholders with the know-how, must be duly organized and staffed and must have the technical infrastructure and financial means to operate.

Setting up and operating a Variable Capital Investment Company in Cyprus

To set up and operate a Variable Capital Investment Company the permission of the CySEC is required. A Variable Capital Investment Company can only manage its own assets and cannot undertake the management of third party assets.


The application needs to meet criteria similar to those required for a Mutual Fund and in addition:
  • The Investment Company must have a minimum fully paid share capital of EURO 1,700,000,00 (Euro One Million and Seven Hundred Thousand);
  • The administration of the Investment Company must be assigned to a Management Company unless the CySEC grants an exemption;
  • There are special rules for the Memorandum and Articles of the Investment Company that the CySEC must approve;
  • Custody of the assets is normally assigned to an approved custodian.

Cross Border Provision of Services

A UCITS that has received an operation license from another Member State which adopts the EU Directive 85/611/EEC may be established and carry on its activities in Cyprus. The CySEC requires that a notification is given to CySEC by the home Member State’s authorities including all relevant information concerning the fund including its regulations.

Also, a UCITS established and licensed in a third country or a UCITS not applying the EU Directive 85/611/EEC that wishes to market its units of shares in Cyprus is subject to a prior authorization by the CySEC. However, these types of UCITS may sell their units in Cyprus, but not market without being approved by the CySEC provided that the sale is realised only by legal entities acting as representatives in Cyprus already approved by the CySEC.

Taxation of Local UCITS in Cyprus

UCITS are subject to tax like any other entity.

Generally, UCITS are exempt from taxation on dividend income and are also exempt from tax on the profit from the disposal of securities. In addition, there are no withholding taxes when dividends are paid by UCITS to non-Cypriot resident recipients.

Alternative Investments Funds Law (2014)

Cyprus has implemented in its legal system the Alternative Investment Funds Law of 2014 (the “AIF Law”) in mid July 2014.

The AIF Law replaces and repeals the International Collective Investment Schemes Law (the “ICIS Law”), which governed the international investment funds since 1999 in Cyprus.

According to the AIF Law the supervisory body for the regulations and supervision of Alternative Investments Funds (“AIF”) is the Cyprus Securities and Exchange Commission (“CySec”) instead of the Central Bank of Cyprus, which was the regulatory authority according to the ICIS Law.

The AIF Law adopts the relevant European Union Directives on asset management and protection and updates the funds regime in Cyprus in an effort to focus on transparency and investors protection. The relevant rules for the authorization, operating conditions, transparency requirements and management of AIFs as well as the roles of their directors, custodians and managers are now standardized under the AIF Law.



An AIF is a collective investment undertaking, including its investment compartment, which raises capital from a number of investors which a view to investing it in accordance with a defined investment policy for the benefit of the investors and that has not been authorized as a UCITS. It also has the exclusive purpose of the collective investment of its available capital in assets to ensure for the investors the benefit of the results of the management of their assets.


Classification of AIFs:
  • Unlimited:

AIFs can be made available to an unlimited number of investors, thus being “unlimited”. These can be marketed either to retail and/or to well – informed/professional investors. They have can have investor shares which are freely transferable and may be listed on a Stock Exchange.

Unlimited AIFs are subject to minimum capital requirements equal to EURO 125,000 or EURO 300,000 in cases of self – managed AIF or Alternative Investment Fund Managers.

An unlimited AIF can take the form of a mutual fund.

  • Restricted:

AIFs can take the form of restricted funds as they are marketed to only 75 investors or fewer. The difference is that they are marketed to well – informed/professional investors only. The definition of a well – informed/professional investor follows the MiFid requirements.

Both types of AIFs can be open – ended or closed – ended funds. Whereas AIFs enables public offerings of shares of AIFs and securities issued by AIFs can also be listed, this allows the increase of liquidity, marketability and participation of potential investors.


Structuring options:

The AIF can take the form of a variable capital company or a fixed capital company or a limited partnership.

The innovation of the AIF Law is that it introduces new structuring options which were not available under previous legislative frameworks, i.e. an umbrella structure with multiple investment compartments allowing the management of different pools of assets with distinct investment policies, while each such pool has its safeguarding requirements. It can also be a common contractual fund where investors participate jointly as co-owners of the assets of the AIF.
An Alternative Investment Fund Manager (“AIFM”) can undertake the management of an AIF to act as the internal fund manager of the AIF or an AIF can be managed by external AIFMs. External Managers can be a UCITS Management Company having the authorization to proceed with such undertaking or an Investment Firm also authorized by its competent authority to act as such.



Under the AIF Law the AIFM must ensure that a single depositary is appointed in regards to each individual AIF. The Depositary can now be not only a credit or banking institution but also can be an investment firm or another category of institution subject to eligibility as per the relevant regulations of the depositary requirements and conditions as set by the European Union Member States. This offers mostly convenience to AIFs which do not invest in financial and money market institutions solely but also to private equity and real estate funds.
The new AIF Law brings Cyprus into the 21st century of the investment funds regime. Cyprus will now be able to assist investors in the international funds market in addition to its corporate income tax rate and other tax benefits.

Our Services

Our law firm can assist in the creation of local or foreign UCITS and can prepare and submit the application to the CySEC along with the provision of support and the ongoing regulatory reporting of UCITS in Cyprus.

Also, our law firm can undertake the creation of an AIF by assisting with the setting up, registration and licensing of an AIF by preparing and submitting the application to the Cyprus Securities and Exchange Commission.

European Companies Formation

The European Company (known formally by its Latin word “Societas Europae” (SE)) is a European public limited company which can be formed in any Member State of the European Economic Area.

The concept of the SE was first proposed 30 years ago and is now accepted by all the EU Member States.

The formation and maintenance of an SE is governed by the European Statute which consists of two parts: a Regulation and a Directive on employee involvement which has to be reflected in national legislations of the Member States.

The majority of the countries have already implemented the amendments to the national legislation, including Cyprus.


A European Company can be set up in the following ways:
  • The formation of a holding company by public or private limited companies from two different Member States.
  • The merge of two or more existing public limited companies from at least two different member States.
  • The formation of a subsidiary from at least two different Member States.
  • The conversion of a public limited company, incorporated under national law, having had a subsidiary for at least two years in another Member State.
  • The formation and maintenance of an SE is governed by the European Statute which consists of two parts: a Regulation and a Directive on employee involvement which has to be reflected in national legislations of the Member States.
  • The formation of an SE by the existing European Company.

The European Company must be registered in that country where it has its administrative head office. The incorporated company must be registered in the Registrar of the Member State and its registration must be published in the European Company’s Official Journal.

The restrictions on the choice of the name conformed to SEs are regulated by the legislation of Cyprus.

Regardless of the currency the SE is required to have a minimum amount of share capital of the equivalent of at least EUR 120.000,00 (Euro One Hundred and Twenty Thousand).

The formation of a European Company in Cyprus has a range of advantages. There is the possibility to conduct its activities avoiding the complicated management of the Company governed by the regulations of different national laws. Moreover, the SE can transfer its registered office within the EU without winding up and re-registering in the different Member States.

For tax purposes the SE are treated according to the national tax legislation. The low tax rate of 10% and the presence of an extensive range of double tax treaties make Cyprus a very good choice for the formation of the European Company.