Cyprus as a modern alternative fund jurisdiction Haris Kakoullis Partner KPMG Cyprus
Exchange of Information and Reporting Global Forum on Transparency and Exchange of Information - OECD Largely Compliant, same rating as UK, Luxembourg and Malta OECD Common Reporting Standard (CRS) - Early Adopter Decree issued May 2016 First Exchange of Information has taken place in September 2017 for all balances as at 31 December 2016 FATCA Compliant Model I IGA signed in 2014 Decree issued August 2015 and reissued July 2016 First Exchange of Information took place in September 2016 for period up to December 2015 2
Tax Considerations - Companies Corporation tax at 12,5% on profits Excluded from tax: Dividends received Profits on sale of securities Capital gains arising from sale of property abroad Access to EU Directives Access to Double Tax Treaty Network 3
Tax Considerations - Funds Exemption from Tax on gains from sales of securities Effective tax of interest received can go as low as 2,5% Non-resident investors are not subject to any withholding taxes No VAT is charged on services in respect of investment management, administration and marketing services 4
Tax Considerations - Individuals Non-domiciled individuals including Fund Managers are: exempted from special defense contribution for a period of 17 years from the year they take on tax residency on: Dividends Interest Rents Entitled to 50% exemption of income earned for a ten-year period from date of first employment in Cyprus (if salary is over EUR100.000) Carried interest for physical persons expected to be taxed at a rate of 8%. 5
Cyprus Legal Framework AIFs/UCITS Two broad types of investment funds in Cyprus / One regulator Registered AIFS 6
Investment Structuring Through Cyprus Distribution opportunities: USA Europ e Russi a Dubai China India Egypt Cyprus Fund May take the form of an Investment Company / Limited Partnership or Common Fund Investments: Marketable Securities Private Equity Real Estate Commodities Distressed assets Infrastructure, Reconstruction & Development 0% Tax 7
A New Addition to the Funds Toolkit : The Registered AIFs Regime Expected to be adopted by the Cyprus parliament by the end of 2017 Could be established in a limited partnership, corporate or contractual form (including compartmentalized structures) Will not be subject to approval by CySEC, but fall within EU s AIFM Directive, and must be managed by a full scope AIFM established in Cyprus or any other EU Member State May be brought to market quickly and efficiently. Targeting professional, institutional and well informed investors (which are deemed to include any investor investing at least 125,000 into the Registered AIF) Eligible to be marketed under the AIFM Directive passport regime 8
Changes to the Limited Partnership structure Legal personality for the Limited Partnership The general partner will be able to elect upon establishment of the limited partnership to have separate legal personality; while the Limited Partnership will maintain its tax transparency status. This is a key consideration for structuring funds of funds and also establishing internally managed Limited Partnerships. Non-Management safe harbours for the Limited Partners Introduction of a list of non-management safe harbours for limited partners. This should give confidence and legal certainty to investors being admitted to a Cyprus limited partnership for the first time. 9
Distribution for US Fund Managers Targeting Europe Uncertainty as to the possible extension of the AIFMD marketing passport to third countries Country-by-country strategy and reliance on National Private Placement Regimes (NPPR); however, a short-term option, as it is anticipated that NPPR are not expected to continue to exist indefinitely Set up of own AIFM entity in Europe Use of a third party AIFM/UCITS compliant platform in the EU 10
Typical Organisational Structure of the AIFM May be outsourced IT Function Valuation Board of Directors (Governing Body) 2 Executives & 2 non- Executives Auditors Legal Advisors Required function; must be separate and independent Secretary Internal Audit Senior Management (4-eye principle) Compliance Required function; must be separate and independent Functionally and hierarchically separate May be performed by 3 rd party service providers Core Functions Risk Management Portfolio Management Administration Marketing Additional Functions Internal Operations 3 rd party service provider Cannot be supervised by the persons responsible for Portfolio Management 11
Co-Investment feeder structure/fund Hosting Service US Manager Delegated Portfolio Management (regulated Investment Manager ) AIFM Platform US Investors Cayman Fund In charge of local regulator compliance, fund reporting, risk & portfolio oversight & management SPV Join Venture/ Master fund Cyprus Fund EU Investors Assets 12
Proposed Amendment - Introduce a Sub- Threshold AIFM (Mini-Manager) Currently, there is no general regulation of the management of AIFs apart the AIFM Law. Introduction of a sub-threshold AIFM authorization and supervision regime. Such mini-manager could manage both Cypriot and non-cypriot AIFs (subject to the discretion of such competent authority in the other jurisdiction) with a lower level of regulatory requirements as compared to the AIFMD requirements. Such development is in line with the European regulatory focus shifting regulation from the fund to the managers thereof. 13
Cyprus as a modern AIFs jurisdiction Business language is English Strategic geographic location (Europe-Asia- Africa) Financial reporting system based on IFRS Open market economy with a highly educated workforce Why Cyprus Favourable Tax and Legal Framework for Investment Funds EU/ Eurozone Member State The legal system is essentially based on English Law 14
2016 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à- 16 vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Thank you Haris Kakoullis Partner hkakoullis@kpmg.com 15