Cyprus Funds

Cyprus Funds. Easy, Fast, Affordable

Maybe you have created a great algorithm that is beating the indexes consistently and you want to get funding from investors. That is great but there is a little or rather a very big problem!

Within the EU, you can not trade with other people's money. It is illegal.

If you are currently investing other people's money and you are not licensed, please stop it immediately. If for some reason you are currently tricking your bank by providing false information to receive money from investors, rest assured that you are misrepresenting your activities to the bank and effectively the owner of the account which is a criminal offense. In other words, if you are using other people's money in your bank account to trade you are committing a crime.

The Solution

A self-employed person is an individual who contacts any business directly; i.e. without using a company.

A self-employed person can be and effectively must be:

• VAT Registered
• Income Tax Registered
• An employer
• Do what the company does
• And many more.

So why isn’t everyone trading as a self-employed person? For two main reasons:

• Legal Protection
• Tax Purposes

To fully understand these two reasons, we must first understand what the company stands for.

Detailed Analysis:

Create a Fund where you can collect investors' money legitimately, and transparently and start earning your investors the returns you have promised them. Cyprus offers affordable and fast solutions worthwhile for Assets Under Management of more than Euro 5 million (to be worthwhile).

Don't be intimidated by the cost of setting up a fund or running a Fund. Cyprus' cost is less than Luxembourg, Holland, or the UK when it comes to setting up a fully licensed EU-regulated fund.

With appr. Euro 35,000 one-off Set Up costs, Euro 45,000 for Annual Fees, and Euro 35,000 for Administration Fees you can have your Cyprus Fund Incorporated in less than three months.

With appr. Euro 35k one-off Set Up costs, Euro 45 k Annual Fees & Administration Fees Euro 30k you can have your Cyprus Fund Incorporated in less than three months.

Why is setting up a Cyprus Fund is Cheaper than other Jurisdictions?

Externally Managed Funds vs Internally Managed Funds

Setting up a Cyprus fund comes cheap as Cyprus offers promoters (persons who want to create the fund) the ability to have their fund externally managed; i.e to be hosted (regulatory) under a fully-fledged investment firm. This means that office overheads including minimum personnel for compliance purposes are not required resulting in an instant minimum saving of the app. Euro 250,000 per annum.

Saving a Minimum Euro 250,000 when starting over is a significant incentive for the promoter

Therefore if you choose to have your fund externally managed (under a host) you are left with the following fees to worry about.

Why is more cost efficient to create a fund in Cyprus

1. Set up fees at the beginning of the fund creation

Set up fees are app Euro 35,0000 and can be amortized against the NAV of the fund in the first 12 months (hence these costs are not your costs). These are one-off fees.

2. Annual Fees

Annual fees amount to Euro 45,000 and represent costs to third party providers to comply with the EU regulation and provide full transparency to your investors as well as the administration costs which are the costs of reporting monthly, quarterly, and annually to the regulators the fund host. Third parties include 2 non-executive directors, audit fees, legal fees, and depository fees amongst others.

3. Administration Fees

Administration fees app Euro 25,000 and are about reporting requirements of the local regulator, NAV Calculation and reporting as well as ad hoc compliance/reporting requirements.

4. Performance Fees

Performance fees are variable as they depend on the host and the portfolio manager or risk manager (which could be a third party) as well as the Assets Under Management. Usually, they are scaled with minimum annual fees at the class of Euro 50,000 per annum.

Become an Internally Managed Fund if Cyprus is the right fit for you.

You can either manage your fund internally or externally. External management will be great in the beginning where you start small. Afterwards you can have your premises in Cyprus, server systems, systems, and controls to comply with local regulator (CySEC) minimum organizational set up as well as hiring external advisers for the provision of external audit, internal audit, legal compliance and MiFID ii requirements.

This is because being internally managed also means that now your fund is directly responsible to the regulator. To mitigate this exposure funds and investment firms outsource core functions such as internal audit, external audit, and reporting to CySEC (the admin cost in an internally managed fund) to service providers like CYAUSE Audit Services which would ensure compliance with the latest laws and regulations.

Advantages of Externally Managed Funds

• Cheaper as explained above.
• Not responsible against the regulator; the umbrella host will be responsible. You are responsible for your host who will be performing your due diligence.
• Not responsible for portfolio management or risk management; unless a member of your team is eligible to perform either function by attending CySEC advanced exams.
• Not responsible for Know Your Clients and its reporting against the regulator. Your host will be responsible and in turn, it will be scrutinizing your KYC procedures, etc to mitigate its exposure.

This is because the host of the fund, which is usually an AIF, is responsible for all of the above and assumes the risk of your actions. In addition, this means that your host will be responsible for the quality of the KYC information, asset management, and risk management directly to your investors and the Cyprus regulator. Since your host assumes this responsibility it will, in turn, ensure that your fund and procedures comply with the EU regulation which is responsible for and will be reviewing and scrutinizing the compliance of your funds with the EU Laws and Regulations.

• Each fund type has multiple combinations to meet your needs
• Each fund type and solution has multiple combinations that can be provided and which suit different needs such as assets under management, number of investors, type of investors, initial capital requirement and so. All these will be explained in a different article.

Why is Cyprus Attractive for Funds?

• Low set up costs: Cyprus Euro 35,000 vs Luxembourg 100,000; rule of thumb Cyprus costs 1/3 of the fees.
• Maintenance Costs: Run it on average for Cyprus Euro 70,000 vs Luxembourg Euro 150,000 to run it; rule of thumb Cyprus costs 1/2 of the fees.
• Law: Common law - Anglo-Saxon, case by case. You know what to expect.
• Legislation - EU legislation vs (Cayman, BVI, etc other jurisdictions - offshore)
• Tax benefits - the majority of funds operate almost tax-free as trading of securities is exempt from tax!
• Regulator - less strict than jurisdictions such as Luxembourg, Holland, and Ireland.
• Fast - 2- 3 months capability depending on the type of fund
• Cyprus is a European Union Country - Offshore destinations can not be trusted by or used by well-informed investors
• Strong Local Calibre - lots of high-quality accountants, and legal staff who are working hard and are very knowledgeable
• Marketability
• Flexibility - there are types of funds that allow you to use them for any underline principal

Taxation

Most fund types produce exempt forms of income like trading in securities therefore the only taxable income is interest income which is usually covered by the overhead costs enabling the fund to be 100% tax-free.

In addition, Corporation Tax is Only 12.5 %, there is notional interest income on capital introduced, a plethora of double tax treaties with other countries, disposal of securities is tax-free, dividends are tax-free, and many more.