A new and improved fund framework is set to bring Cyprus on par with other top EU fund jurisdictions.
Established in 1985, K. Treppides & Co is one of the pioneers providing financial advisory services to international companies in Cyprus. The firm has remained at the forefront of the market and is further expanding with Treppides Fund Services offering turnkey solutions for funds and fund managers.
Cyprus’ new law for Alternative Investment Funds (AIFs) has now been passed, why was a new law drafted for AIFs?
The new framework provides more options and advantages for investors and will bring Cyprus on par with other European fund jurisdictions. It introduces three types of funds: AIFs for professional investors, AIFs for retail investors and AIFs for a limited number of investors. This is essentially the evolution of the International Collective Investment Schemes (ICIS), which were previously the only type of Alternative Investment Fund available in Cyprus. I am convinced there will be increased interest in Cyprus funds now that the new and improved framework is in place, making us more competitive and attractive.
What types of funds do you see as the most viable and successful for Cyprus and what countries are you seeing interest from?
Lately we have seen interest in setting up funds in renewable energy and oil and gas as well as real estate, bonds and shares. With the current lack of liquidity and the challenging economic climate in Cyprus, funds offer an ideal and secure way to invest. In addition, there has been increasing interest in obtaining Cyprus citizenship, which can also be acquired through investment in funds. For example, if you invest €2 million in units of a fund you can also obtain a Cyprus passport. We have been seeing interest from Russia, China and the Middle East, more specifically from Dubai, Lebanon and Israel. Most recently and especially following US Vice President Joe Biden’s visit to Cyprus, there has been a surge of interest from the US. Biden’s remarks on Cyprus being a strategic alliance for the US have boosted our exposure. The US is a mature market where funds are very liquid now and they are looking for places to invest. Many see great potential in Cyprus at the moment and a good probability of a high return on their investments.
What are the key advantages of Cyprus AIFs?
One key advantage is our tax incentives, as there is no tax on the disposal of units and no tax on dividends. Another advantage is the flexibility, as any asset can be included in the investment strategy of the AIF. Cyprus is also a transparent, business friendly jurisdiction fully harmonised with EU directives. Perhaps the most significant factor is that Cyprus has low set-up and operational costs compared to other fund jurisdictions, making Cyprus funds very attractive to investors. Cost is a crucial aspect in order to maximise profits, especially when we are talking about smaller funds. Also with more international businesses transferring on-shore, expense is an important factor. The low set up and operational fees are an important marketing tool for Cyprus and really set us apart from other jurisdictions.
Cyprus’ fund management industry is still in an elementary stage compared to many jurisdictions and this could be seen as an opportunity to develop something new. How do you think the Cyprus fund sector should be developed?
There is no need to reinvent the wheel, just like various other jurisdictions we can look at other established fund centres to see what works and adopt these aspects to improve the offering of Cyprus. If something works well, I see no problem in replicating it. We are in the EU and should focus on products that are harmonised with EU legislation and are successful within Europe. We need to also look at the current trend of off-shore business wanting to enter and domicile in the EU to become on-shore. We must have similar structures as other European fund centres if we also want to attract these types of funds. We are working hard to develop the sector and are determined to put Cyprus among the list of preferred EU locations.
Following Cyprus’ bailout, the image of the banking sector has been severely damaged leading to concerns about local custodians. How can Cyprus restore confidence and attract more foreign custodians to set up on the island?
In order to succeed in establishing a fund industry it is imperative to have strong and global custodians in Cyprus. The bailout and bail-in of Cyprus had devastating effects on our banking sector, but we are well on our way to recovery. The loss of confidence is a very serious challenge that we are facing, which is why we have introduced an exception law until 2017 to allow the use of foreign custodians. This is a positive interim solution to help the fund industry grow and increase business while tiding over this period of restructuring in the Cypriot banking sector. From a local perspective it is obviously not the most ideal solution, but it is the best solution for now to boost business. While we work to restore confidence in Cyprus’ banks, this exception to allow foreign custodians will bring more protection and peace of mind to investors. Once the fund industry grows it will in turn attract more custodian banks to setup in Cyprus. However, this may happen sooner if there are major developments in the oil and gas sector.
Despite its sophisticated and advantageous tax framework, Cyprus is currently the only competing jurisdiction that does not have a specific tax regime for funds. Are there plans to develop one?
Cyprus already has an advantageous tax legislation providing various benefits that can be enjoyed by the fund industry, but to maintain a competitive edge it is essential to have a specific framework for funds. It is crucial to put this regime in place as soon as possible in order to fully capitalise on the interest we are already seeing from investors. Progressive tax rates for asset managers would also increase interest in Cyprus. We are currently working on this and discussing the issue with the relevant authorities.
How do you see the fund sector in Cyprus developing over the next five years? Are you optimistic about the future?
I am optimistic about the future and see vast potential in the fund industry with our new framework in place. Funds are a very important instrument for attracting investors and this is what Cyprus needs right now. There are still many challenges ahead, but we are tackling these head on. To ensure there is maximum confidence and protection for investors, we are also looking at creating a specific certification and licencing process with Cyprus’ regulators for professionals dealing with funds. Cyprus offers an attractive and cost-effective EU location with qualified professionals and a beneficial tax framework and the fact that we are taking our first steps to establish a fund industry in itself provides many interesting possibilities for investors.
Andreas Yiasemides is a director of Treppides Fund Services, a founding board member of the of the Cyprus Investment Fund Association (CIFA), a board member of the Bank of Cyprus Group and Chairman of the Cyprus Investment and Securities Corporation Ltd (CISCO). He has extensive experience in the advisory services of banking institutions, financial services companies and funds. He served in the banking industry for more than a decade and gained expertise providing services in the Balkan and CIS countries. Mr. Yiasemides holds a BA(Econ) in Accounting, Finance and Economics from the University of Manchester in the UK. He is a member of the Institute of Chartered Accountants in England and Wales and the Institute of Certified Public Accountants of Cyprus.