Cyprus Government Look to Amend AIF Legislation to Attract Foreign Investment

The Cyprus House finance committee discussed a bill submitted by the government designed to attract foreign investment into the housing market on the island. There have been recent plans to clarify and streamline regulations regarding AIFs (Alternative Investment Funds) which in turn harbour a more competitive environment.

The bill hopes to introduce changes to income tax legislation, so that investments in a mutual fund or a partnership incorporated as per legislation governing Open-Ended Collective Investments or the law on AIFs are no longer considered as a permanent establishment in the Republic.

Once these investments are not considered a permanent establishment in Cyprus, any income arising from such investments would be taxed in the jurisdiction of tax residency.

The term alternative funds are nominated to include all investment funds that are left undefined by the European Directive on Undertakings for collective investment in transferable assets and securities.

Lawmakers state that this extends to the following:

  • Venture capital.
  • Real estate funds.
  • Private equity funds.
  • Hedge funds.
  • Funds of hedge funds.

*Open-ended funds are collective investment schemes that can issue and redeem shares at any time.

Government Officials state that the potential change is a welcome one, and would also proverbially kill two birds with one stone. Cyprus legislation as it stands is somewhat convoluted and filled with ambiguities, leading to confusion in the real estate market. For locals and foreigners alike, a change in legislation will be a great step forward for the island.


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