Cyprus first modernised its fund framework by enacting the Alternative Investment Funds (AIF) law in July 2014. This legislation aligned the country’s legal and regulatory structure with EU directives on asset management, aiming to improve transparency and investor protection. Following on-going efforts to modernise, Cyprus introduced a new law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers. AIFs established under domestic Cypriot fund legislation can be marketed through private placement or to professional investors across the EU, utilising the Alternative Investment Fund Managers Directive (AIFMD) passport.

In July 2018, Cyprus further upgraded its legislative framework with a new AIF regime, replacing the 2014 law, reflecting the latest market demands and introducing a new product called the Registered Alternative Investment Fund (RAIF).

RAIFs are treated as alternative investment funds in law but do not require authorisation by the Cyprus Securities and Exchange Commission (CySEC); instead, they are merely registered in the official RAIF register. This light‑touch approach allows promoters to launch a fund quickly and cost‑effectively. Oversight is still ensured because a RAIF must be externally managed by a regulated fund manager (AIFM) whose licensing and supervision indirectly cover the fund. A RAIF must always appoint an external manager. Acceptable managers include a full‑scope Alternative Investment Fund Manager (AIFM) authorised in Cyprus or another EU member state and, once passporting becomes available, a third‑country AIFM. Other eligible managers are Cyprus‑authorised sub‑threshold AIFMs (known as ‘Mini Managers’), MiFID investment firms, and UCITS management companies – provided the RAIF is structured as a closed‑ended limited partnership investing primarily in illiquid assets. RAIF units can only be marketed to professional or well‑informed investors. Through its authorised AIFM, a RAIF can use the EU marketing passport to offer units to professional investors in other member states without additional local authorisation.

RAIFs may be constituted as a variable or fixed‑capital investment company, a limited partnership (with or without legal personality) or a common fund. They can be open‑ended or closed‑ended and are permitted to operate as an umbrella fund with multiple compartments. Each compartment is ring‑fenced, allowing separate investment strategies and investor profiles. Additional compartments can be added over time and may be dissolved independently of the rest of the fund. RAIFs must appoint a depositary to monitor cash flows, safeguard assets, and carry out oversight duties. RAIFs can invest in any type of asset, there are no investment concentration limits other than those imposed by the AIFM’s risk management policy. However, they cannot be established as money market funds or fund of funds, and loan origination strategies are permitted only under specific conditions. CySEC does not directly monitor RAIFs, instead it relies on the regulated status of the external manager to ensure compliance with applicable laws and risk-management standards.

A sub-threshold AIFM can manage the following: AIFs with limited or unlimited number of persons, Registered AIFs taking the form of a limited partnership, and non-Cypriot AIFs (subject to the discretion of competent authorities in the other jurisdiction). The total assets under management of the Mini Managers shall not exceed the threshold of €100 million, with the use of leverage, or €500 million when unleveraged with a lock up of five years. This regime will appeal to fund managers who need a cost-effective vehicle that will undertake limited investment or to those fund managers who may wish to use it as a first step before committing to a more complex set-up. These developments have been a long-awaited and welcome evolution offering expanded structuring possibilities for fund promoters and has further enhanced Cyprus’ status as an attractive jurisdiction and a rising contender amongst European fund and asset management hubs.

AIF Legal Forms 

An AIF can take the following legal forms and may be established with limited or unlimited duration:

• FCIC: Fixed Capital Investment Company
• VCIC: Variable Capital Investment Company
• LP: Limited Partnership*
• CF: Common Fund**

*Amendments to the current AIF Law will permit an external manager to act in that capacity without also being the general partner (GP) in the case of a limited partnership without separate legal personality.

 **Only when established as an AIF with unlimited number of persons 

AIF Regime Highlights

• Flexible Fund Structures and Categories: Cyprus offers three main AIF vehicles – AIFs with unlimited investors, AIFs with a limited number of persons (AIFLNPs), and Registered AIFs (RAIFs). These funds can be established as variable‑ or fixed‑capital investment companies, limited partnerships (with or without legal personality), or common funds, and may be open‑ or closed‑ended.
• Regulatory Flexibility: The Registered Alternative Investment Fund (RAIF) is a special structure that is not subject to direct authorisation from the Cyprus Securities and Exchange Commission (CySEC) itself. This streamlined process allows for a much faster, more cost-effective setup.
• Diverse Fund Structures: Cyprus law allows AIFs to be structured in various legal forms. All structures can operate as umbrella funds with multiple segregated investment compartments (sub-funds), allowing for different strategies under one legal entity.
• Broad Investment Scope: Cyprus AIFs generally offer high flexibility with no investment restrictions on the asset classes they can invest in. AIFs can accommodate a wide range of alternative investments, including financial instruments, private equity, real estate, shipping, and venture capital.
• EU Passporting for Marketing: Cyprus funds managed by an authorised AIFM can benefit from the EU passport. This permits the fund’s units to be marketed to professional investors across all EU member states via a simple regulator-to-regulator notification.
• Investor Safeguards: All AIFs must appoint a depositary to monitor cash flows, safeguard assets, and perform oversight duties. Authorised AIFs also face periodic reporting and disclosure requirements, while RAIFs are indirectly supervised through their AIFM.
• Mini Manager: Introduction of the Mini Manager regime in June 2020, which governs a new type of fund manager and allows for the provision of fund management services for fund managers under the AIFMD thresholds.
• AIFMD II Amendments: AIFMD II, adopted in 2024, aims to harmonise EU rules on liquidity management, loan origination, and delegation. It introduces mandatory liquidity‑management tools for open‑ended AIFs and sets leverage caps and diversification rules for loan‑originating funds. The directive also tightens substance and delegation requirements for AIFMs. In Cyprus, the Ministry of Finance launched a public consultation in June 2025 on how to exercise the member‑state discretions under the amending directive; that consultation closed in August 2025, and the market is now awaiting draft legislation to amend the AIFM and UCI laws.
• Tax Law Amendments: Cyprus continues to modernise its tax framework to stay competitive and align fully with evolving international standards. In December 2024, the government enacted legislation to implement the OECD’s Pillar II global minimum tax in line with the EU’s Minimum Tax Directive: a qualified income inclusion rule applies from 1 January 2024, while an undertaxed profits rule and domestic top‑up tax take effect from 1 January 2025 for multinational groups with consolidated revenues of at least €750 million. These measures show that Cyprus remains committed to transparency and compliance, yet its overall cost base and business‑friendly environment continue to undercut many other EU fund hubs. Together, the updated tax rules and lower operating costs ensure Cyprus remains a compelling, future‑proof platform for fund sponsors.

Types of AIFs 

Alternative Investment Fund with Unlimited Number of Persons (AIF-UNP): 

• Investor Base: Units may be marketed to retail, well-informed, and/or professional investors.
• Transferability: Investor shares/units are freely transferable.
• Depositary Requirement: An AIF-UNP must always appoint a depositary/custodian. The depositary may be a credit institution, an investment firm, or another company subject to prudential supervision, established in Cyprus, the EU, or a third country with which CySEC has a cooperation agreement.
• Listing: Units can be listed on a recognised stock exchange, and AIFs marketed to retail investors can be traded.
• Management Structure: The AIF-UNP may be managed internally (by its board of directors, subject to CySEC approval) or externally (by an AIFM or a Mini AIFM).
• Minimum Capital (Self-Managed): The minimum capital requirement for a self-managed AIF-UNP is €125,000. If the fund is externally managed, no minimum share capital is required.
• Minimum Assets Under Management (AUM): The AIF-UNP must raise a minimum of €500,000 in investor capital within 12 months of authorisation.
• Investment Restrictions: AIFs addressed to well-informed and professional investors are generally not subject to investment restrictions, except if the AIF is specifically established as a loan origination fund, money market fund, venture capital fund, or fund of funds.

Alternative Investment Fund with Limited Number of Persons (AIF-LNP): 

• Investor Base: Units may be marketed exclusively to well-informed and professional investors.
• Maximum Investors: The number of investors (unitholders) shall not exceed 50 natural persons, applying ‘look-through’ provisions to corporate investors.
• Transferability: Shares/units are freely transferable, provided that the transfer does not result in the AIF exceeding the 50-person limit.
• AUM Thresholds: The AIF-LNP's assets under management must not exceed the AIFMD thresholds of €100 million (including leverage), or €500 million (without leverage, and no redemption rights for at least five years).
• Management Structure: The AIF-LNP may be managed internally (by its board of directors, if structured as a company) or externally.
• Minimum Capital (Self-Managed): The minimum capital requirement for a self-managed AIF-LNP is €50,000 (in cash or assets readily convertible into cash). No minimum capital is required if the fund is externally managed.
• Depositary Exemption (One of Three Conditions): A depositary may not be required in specific, limited circumstances, which include meeting one of the following conditions:

• The AIF-LNP's total assets (including any compartments) do not exceed €5 million.
• The instruments of incorporation limit the number of its unitholders (including compartments) to five natural persons for the duration of the fund's life.
• The fund's portfolio consists of assets where 90% are not subject to custody, and the number of investors is limited to 25 natural persons, with each person having subscribed a minimum of €500,000.

Registered Alternative Investment Fund (RAIF): 

• Investor Base: Units are exclusively addressed to professional and/or well-informed investors.
• Limitation on Investors: There is no limitation on the number of investors.
• Transferability: Investor shares/units are freely transferable.
• Management Structure: The RAIF must always be externally managed by an authorised Alternative Investment Fund Manager (AIFM) based in Cyprus or another EU member state.
• Regulatory Oversight: The RAIF does not require direct authorisation from CySEC (the fund is registered, not licensed). Supervision is ensured indirectly through the mandated external AIFM.
• Minimum Capital: There are no minimum share capital requirements for a RAIF.
• Minimum Assets Under Management (AUM): The RAIF must reach a minimum of €500,000 in investor capital (or currency equivalent) within 12 months of its registration.
• Depositary Requirement: A RAIF must always appoint a depositary.
• Investment Restrictions: A RAIF is subject to no general investment restrictions. However, it cannot be established as a fund of funds, a money market fund, or a loan origination fund.
• Listing: Units may be listed on a recognised stock exchange.

Fund Service Provider Requirements 

The Role and Functions of the Alternative Investment Fund Manager (AIFM)

The Alternative Investment Fund Manager (AIFM) is the central regulated entity responsible for the management and compliance with the Alternative Investment Fund (AIF). Under the Cyprus AIFM Law, which transposed the EU's AIFMD, every AIF must have a single AIFM responsible for ensuring compliance.

The AIFM may be an external manager (a separate legal entity appointed by the AIF) or, if the fund's legal form permits and the governing body chooses not to appoint an external entity, the AIF itself can be internally managed and act as the AIFM. An authorised AIFM benefits from the EU-wide management and marketing passport, allowing it to offer services and market AIFs to professional investors across the EU. The AIFM's duties are structured into core management functions, additional collective management activities, and optional MiFID services.

• Core Management Functions (Mandatory)

An AIFM must, at a minimum, perform the following two core investment management functions for the AIF it manages:

• Portfolio Management: Making investment decisions and managing the fund's assets.
• Risk Management: Implementing risk identification and monitoring systems, conducting stress testing, and maintaining functional and hierarchical separation from the portfolio management function.
  

• Collective Management Activities (Additional Functions)

The AIFM may also be authorised to perform a wide range of additional functions necessary for the collective management of an AIF:

• Fund Administration: Including fund management accounting services and the calculation of the net asset value.
• Valuation and Pricing: Including the preparation of tax returns and ensuring consistency in asset valuation procedures.
• Regulatory Compliance Monitoring: Including submitting necessary regulatory reports to CySEC.
• Marketing Services: Promoting the AIF to investors.
• Investor Services: Handling customer inquiries, maintaining the unit/shareholder register, and processing the distribution of income and the issue/redemption of units.
• Record-keeping and contract settlements.

• Additional Investment Services (MiFID)

Subject to compliance with relevant MiFID rules, an external AIFM may also be authorised to provide the following investment services without requiring separate MiFID authorisation:

• Individual Portfolio Management: Managing portfolios of investments on a discretionary, client-by-client basis for pension funds or other institutions.
• Investment Advice
• Safe-keeping and Administration: Related to shares or units of collective investment undertakings.
• Reception and Transmission of Orders: Related to financial instruments.

• AIFM Delegation and Oversight Responsibility

The AIFM may delegate certain functions to third parties (such as sub-managers or fund administrators) but retains the ultimate and complete liability towards the AIF and its investors. This liability remains unaffected by the delegation arrangement. Key requirements for delegation include:

• The AIFM must justify the delegation structure based on objective reasons.
• The delegation must not prevent the effectiveness of supervision by CySEC.
• The AIFM must demonstrate it is capable of monitoring the delegated activity and withdrawing the delegation immediately if it is in the interest of investors.
• The AIFM must not delegate its functions to the extent that it becomes a ‘letter-box entity’ and can no longer be considered the manager of the AIF.

Recent regulatory emphasis, particularly under AIFMD II, continues to reinforce the need for AIFMs to maintain substance and effective oversight of all delegated functions.

Fund Administrators

The fund administration function for Alternative Investment Funds (AIFs) in Cyprus is now a dedicated, regulated service. The introduction of the Investment Funds Administrators Law (L. 101(I)/2025) marks a significant step, closing a previous regulatory gap, and aligning the Cypriot fund ecosystem with leading EU jurisdictions. This law requires any entity providing fund administration services from or within Cyprus to obtain a formal licence from the Cyprus Securities and Exchange Commission (CySEC). The goal is to ensure professionalism, transparency, and investor protection across the entire operational lifecycle of an AIF.

Key Functions and Requirements of a Cyprus Fund Administrator

• Licensing and Oversight: Any Cyprus‑based firm providing administrative services to funds must be licensed as a fund administrator (ΚΕΔΟΣΕ) and is subject to ongoing supervision by CySEC. The administrator must have its registered office and central administration in Cyprus. Licensed AIFMs established in Cyprus are typically exempt from the separate administrator license, as they are already authorised to perform administration functions.
• Governance and Capital: To obtain and maintain a licence, a fund administrator must demonstrate appropriate board composition, robust internal procedures, and fit‑and‑proper management. It must maintain adequate own funds and hold professional indemnity insurance, and it is designated as an obliged entity under Cyprus’ anti‑money‑laundering framework.
• Mandatory Functions of a Licensed Fund Administrator: The fund administrator is responsible for performing the core ‘back-office’ and accounting services essential to the AIF's operation. These regulated services include:

• Net Asset Value (NAV) Calculation and Pricing: Calculating the fund's NAV and determining the unit/share price, which is the basis for investor transactions.
• Investor Registry and Transfer Agency: Maintenance of the register of investors (unitholders) and processing all subscription, redemption, and transfer orders.
• Fund Accounting and Reporting: Preparation of the fund's financial statements, statutory accounts, and internal records.
• Regulatory Reporting: Preparation and dissemination of investor reports and mandatory reports required by the Regulator (CySEC).
• Compliance and AML Support: Providing legal, compliance, and accounting support, including ensuring compliance with mandatory anti-money laundering (AML) procedures.
• Transaction Processing: Managing contract settlements and ensuring that investor-related money movements are properly matched and verified.

• Delegation and Accountability

• Delegation Permitted: Fund administrators are permitted to delegate specific administrative functions to third parties (such as legal or IT support).
• Ultimate Responsibility: Even if functions are delegated, the fund administrator retains full and ultimate legal responsibility and liability toward the fund and its investors. The regulatory obligation for oversight remains with the licensed administrator.

By clarifying licensing requirements and codifying the permissible services of fund administrators, the Cyprus Investment Funds Administrators Law enhances investor protection, bolsters transparency, and positions Cyprus as a more attractive domicile for alternative investment funds.

Depositary

Under the Alternative Investment Funds Law 124(I)/2018, every Alternative Investment Fund (AIF) in Cyprus must appoint a single, independent depositary to safeguard its assets, monitor cash flows, and ensure compliance with both the fund’s constitutional documents and the applicable legislation. The depositary acts as a cornerstone of investor protection by providing oversight and verifying that the fund manager operates within the agreed parameters. Only in narrow circumstances – typically for AIFs with a limited number of persons (AIF-LNPs) that remain below €5 million in assets or have a very small investor base – can the depositary requirement be waived.

Depositaries must be credit institutions, investment firms, or other prudentially regulated entities. For AIFs subject to the AIFM Law (i.e., most externally or internally managed AIFs and RAIFs), the depositary must be located in Cyprus. AIF-LNPs and funds outside the AIFM Law can appoint a depositary based in another EU member state or a third country, provided CySEC has signed a cooperation agreement with the foreign regulator, and the third‑country institution meets the prudential standards. The depositary's role is based on three fundamental duties that ensure the fund's operational integrity and regulatory compliance.

Key Responsibilities and Rules

• Safekeeping of Assets: The depositary holds financial instruments in segregated accounts in its own books, ensuring they are clearly identified as belonging to the AIF. For assets that cannot be held in custody, it verifies the AIF’s ownership and maintains up‑to‑date records and reconciliations.
• Cash‑Flow Monitoring: It confirms that all subscription payments from investors are received, that all cash belonging to the fund is booked in accounts opened in the name of the AIF or its manager, and that any consideration from transactions involving the AIF's assets is remitted to the AIF within the usual time limits. This monitoring helps prevent misuse of funds and ensures proper segregation.
• Oversight Duties: The oversight function ensures that the AIF operates in compliance with its instruments of incorporation and applicable national law:

• Valuation Verification: Ensuring the Net Asset Value (NAV) of the shares/units is calculated in accordance with the fund's rules and legal valuation principles.
• AIFM Instructions: Carrying out the instructions of the AIFM, unless they conflict with the applicable national law or the AIF's rules.
• Investor Transaction Compliance: Ensuring the sale, issue, repurchase, redemption, and cancellation of the AIF's units/shares are carried out legally.
• Income Application: Ensuring the AIF's income is applied in accordance with the applicable laws and the fund's constitutive documents.

Liability and Delegation

• Delegation: A depositary may only delegate safekeeping duties to a third party (sub-custodian) and must not delegate its cash monitoring or core oversight functions. The depositary must exercise all due skill, care, and diligence in the selection and ongoing monitoring of any delegate.
• Liability: The depositary is subject to near strict liability for the loss of financial instruments held in custody. The depositary is generally liable to the AIF or its investors for losses suffered due to its negligent or intentional failure to properly fulfil its obligations. Crucially, the liability of the depositary is not affected by any delegation arrangements.

AIFS at a Glance

*Amendments to the current AIF Law will permit an external manager to act in that capacity without also being the general partner (GP) in the case of a limited partnership without separate legal personality.

** Additional reporting requirements apply for AIFs with unlimited number of persons which are subject to the AIFM Law and for Registered AIFs, the scope and frequency of which depend among others in the type of AIF managed by the AIFM and the level of AuM

November 2025