Available types: ICIS marketed to the General public, ICIS marketed to Experienced Investors and Private ICIS
Private ICIS are schemes qualified as private arrangements subject to minimal regulation, which may have up to 100 investors (not including persons who are in the employment of the scheme and not including persons which while in that employment have become unit/ shareholders and have continued to be such after the termination of that employment), while a global prohibition on public offering of shares applies.
I. Possible legal forms of a Cyprus ICIS
A Private ICIS can be constituted as a company incorporated under the Cyprus Companies Law, a trust created under the International Trust Law or a partnership registered under the Partnership and Business Names Law. The vehicles are qualified as International Investment Company (of fixed or variable capital), International Unit Trust Scheme or International Investment Limited Partnership respectively.
The sole purpose of a Private ICIS is the collective investment (>1 investor) of funds raised from unit/ shareholders (up to 100 with omnibus accounts being possible) against the issuance of units/ shares in the Fund. Risk diversification of its investments is not a prerequisite for an investment vehicle to be qualified as a Private ICIS. The units/ shares can be redeemed at the option of the Investors directly out of the assets of the ICIS (closed ended- schemes are not considered to fall into the scope of ICIS Law unless otherwise provided for in the constitutional documents of the Fund). ICIS may be organized as umbrella funds with multiple classes of shares for each compartment, Master or Feeder Funds, Funds for a limited or unlimited period of time or Funds of Funds. Regarding Umbrella Funds, the legislative procedure for introducing the “protected cell company legislation” in Cyprus is in its final stage, while it is still possible to limit liability by having each sub- fund conducting its investment and trading activities through an underlying subsidiary company or by concluding contracts with counterparties on a limited recourse basis.
1. Corporate form as preferred legal vehicle
The corporate form is the preferred legal vehicle for structuring a Private ICIS, because of the possibility of being internally managed. Thus, a Private ICIS of corporate type can be managed by its directors internally, provided the Central Bank of Cyprus is satisfied that the Investment Company has sufficient management resources. Since the regulator considers the Private ICIS as a private arrangement and therefore reduces the standards of regulation, an internally managed ICIS is not subject to asset management authorization requirements, apart from having appointed directors with sufficient professional repute and experience for the intended type of business of the envisaged ICIS. To this effect the regulator will take into account their relevant and educational qualifications, their relevant experience, reputation and their available capital resources.
2. Overseas Feeder- Cyprus Master structure
An overseas Collective Investment Scheme (CIS) which wishes to establish a wholly owned International Investment Company-ICIS in Cyprus, in order to invest its assets in the Cyprus ICIS (“Master- Feeder Funds”) and benefit from the Cyprus Double Tax Treaty network, needs currently no authorization from the regulator.
II. Capital & documentation requirements
An International Fixed or Variable Capital Investment Company operating as Private ICIS is exempted from any minimum capital requirement. Private ICIS may issue only registered shares. In order to preserve the private character of the ICIS a restriction on the transferability of shares is imposed: Only registered shares may be issued, the transfer of which is subject to approval by the Board of Directors, while transfer of management shares is subject to approval by the Central Bank of Cyprus. Units/ shares may not be issued as partly paid.
In order to apply for the Recognition Certificate to the Central Bank of Cyprus the applicant is advisable to prepare the Private Offering Memorandum (“POM”), the Memorandum and Articles of Association if the preferred structure will be in a corporate form and internally managed, together with information as to the non-resident Directors that they are proper and fit persons to manage an ICIS if no Fund Manager will be appointed.
The Central Bank of Cyprus does require that the Fund Manager is appointed, but always depending where the activity of the ICIS will take place. Such foreign jurisdiction may require that the Fund Manager to be appointed in order to achieve zero tax on its profits.
Furthermore, a Fund must have custodian, administrator and an accountant who will carry in addition to the preparation of the Financial Statements the net assets valuation (“NAV”) if the contribution in kind in an ICIS exceeds 10% of the NAV. The auditor has to prepare a report with its opinion on the valuation made, that no material changes have occurred in the value of the assets since the valuation and that the number of units/ shares to be issued is reasonable or not.