Exploring Crypto Funds in Cyprus
In recent years, the digital asset landscape has seen remarkable growth, with cryptocurrencies and blockchain-based projects gaining traction as viable investment opportunities. As investors seek to diversify their portfolios and tap into the potential of these emerging assets, the need for regulated investment vehicles becomes increasingly apparent. In this regard, Cyprus stands out as a jurisdiction offering a conducive environment for crypto funds, providing investors with security, transparency, and favourable regulatory frameworks.
Regulatory Landscape
At the forefront of this regulatory framework is the Cyprus Securities and Exchange Commission (CySEC), which oversees the operation of crypto funds in the country. Under the Alternative Investment Funds Law (Law 124(I)/2018), crypto funds, also known as Alternative Investment Funds (AIFs) within the context of cryptocurrencies, are recognized as collective investment vehicles. These funds pool capital from multiple investors with the aim of investing it in accordance with a defined investment policy.
Types of Crypto Funds
Crypto funds in Cyprus can take various legal forms, offering flexibility to investors and fund managers alike. These may include:
- AIFs with Unlimited Number of Persons (AIFUNP)
- AIFs with Limited Number of Persons (AIFLNP), with a maximum number of investors capped at 50.
Furthermore, these funds may be structured as mutual/common funds, fixed or variable capital investment companies, or limited partnerships registered under the General and Limited Partnership and Business Names Law.
Management and Eligibility
One notable aspect of crypto funds in Cyprus is their self-management by their board of directors, ensuring internal oversight and governance. In terms of investor eligibility, these funds primarily cater to well-informed and/or professional investors, who possess the requisite experience and expertise to make informed investment decisions.
Capital Requirements and Assets Under Management
Internally managed crypto funds must adhere to minimum capital requirements stipulated by CySEC. For AIFLNP, the minimum capital requirement stands at EUR 50,000, while for AIFUNP, it is EUR 125,000. Additionally, AIFUNP must raise capital of at least €500,000 within 12 months from authorization or registration, while AIFLNP must secure €250,000 within the same period.
Marketing and Tax Benefits
Marketing of crypto funds to investors in other EU Member States or third countries necessitates compliance with regulatory requirements and notification procedures. Cyprus offers favorable tax treatment for both crypto funds and investors, including exemptions from capital gains tax on securities sales, tax-free dividends, and a corporate tax rate of 12.5%.
Conclusion
In conclusion, the establishment of the Cyprus Alternative Investment Funds Law of 2018 has paved the way for investors to access regulated crypto funds in a secure and transparent manner. With robust regulatory oversight, flexible fund structures, and attractive tax benefits, Cyprus emerges as a promising jurisdiction for investors looking to capitalize on the opportunities presented by digital assets.
If you require any further information or advice please do not hesitate to contact Mr. Theo Antoniou, Founding Partner at Spencer West Cyprus.
