Cyprus AIF Setup 2026 — RAIF vs AIF vs AIF-LNP, CySEC Authorisation, and Fund-Vehicle Selection

1. The legal framework

Cyprus's AIF framework rests on two pillars: the AIFM Law 56(I)/2013 (transposing AIFMD Directive 2011/61/EU) and the Alternative Investment Funds Law 124(I)/2018. Together they provide a complete EU-passportable framework for setting up and managing alternative investment funds.

Cyprus has built a meaningful funds ecosystem since 2014 (the original AIF law was 131(I)/2014, replaced/expanded in 2018). Sub-mid-market managers value Cyprus's combination of (a) EU passporting, (b) competitive cost vs Luxembourg or Ireland, (c) English-language regulatory environment, (d) common-law-aligned corporate vehicle (Cyprus Ltd).

2. The three vehicles compared

3. Tax treatment of Cyprus AIFs

• Cyprus AIF (whether AIF, AIF-LNP, or RAIF): 15% CIT on profits (post-2026 reform).
• Trading-of-titles exemption: profits on disposal of qualifying titles (shares, bonds, debentures) are exempt from CIT under Article 9(1)(g) ITL 118(I)/2002.
• Outbound dividend WHT to foreign investors: 0% — Cyprus does not levy WHT on outbound dividends to any country.
• Outbound interest WHT: 0% under most DTTs.
• VAT: AIF management services performed by a CySEC-authorised AIFM are VAT-exempt under EU VAT Directive Article 135(1)(g).
• Pillar Two: most Cyprus AIFs are sub-€750M and out of scope.

4. AIFM — what triggers the requirement

AIFM Law sets the EU-wide thresholds: appointed external AIFM is REQUIRED if (a) AuM > €100M with leverage or (b) AuM > €500M unleveraged and no redemption rights in the first 5 years. Sub-threshold AIFs can self-manage (internal AIFM) with lighter regulatory burden.

Cyprus has a mature population of authorised external AIFMs available for appointment — both Cyprus-domiciled and EU-passported from other member states. For RAIFs, an authorised external AIFM is mandatory regardless of size.

5. Practical setup timeline

1. 1Pre-application — scope strategy, target investor base, fund vehicle choice, legal structure (umbrella with compartments? Standalone?).
2. 2Drafting — Offering Memorandum, fund rules / Articles, depositary agreement, AIFM agreement, administration agreement.
3. 3CySEC submission (AIF / AIF-LNP only) — application file, fit-and-proper assessments of directors / promoters, business plan.
4. 4CySEC questions + clarifications (typical 1-3 rounds).
5. 5Authorisation decision (90 days statutory, often longer in practice).
6. 6Or for RAIF: register with CySEC (no authorisation), notify-and-launch model — typically 4-8 weeks.
7. 7Service-provider onboarding — depositary, administrator, auditor, AIFM if external.
8. 8First closing — investor subscriptions, AML/KYC, capital call.

6. Common pitfalls

• Underestimating depositary cost — depositary fees scale with AuM and are recurring.
• Inadequate substance — CySEC increasingly probes the actual presence of investment-decision-making in Cyprus.
• Mis-classification of investor type (Retail / Professional / Well-Informed) — Well-Informed has specific tests including net worth + investment experience.
• Cross-border marketing without proper AIFM passport notifications.
• Tax-residency planning for the fund itself (where management & control is exercised).

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Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently. Consult a qualified Cyprus adviser for guidance specific to your situation. The information on this page is general guidance only and does not constitute legal, tax, accounting, immigration or financial advice. Specific advice should be obtained based on the facts of each case.