At AGPLAW, we have been at the forefront of Cyprus financial services law for two decades, helping clients understand and explore the complex market of EU-regulated asset management and hedge fund operations. As global fund promoters, high-net-worth individuals, family offices, and institutional managers increasingly look for efficient European bases, Cyprus has established itself as a leading jurisdiction, combining strong legal frameworks, cost-effective structures, and full EU market access.

In this article, we analyse the legal, regulatory, and practical aspects of registering and operating asset management companies and hedge funds in Cyprus, and explain how AGPLAW supports clients every step of the way.

Cyprus: A Gateway to the European Investment Market

Cyprus is part of the European Union and fully aligned with core EU directives such as the Alternative Investment Fund Managers Directive (AIFMD), the Undertakings for Collective Investment in Transferable Securities Directive (UCITS), and MiFID II.

This regulatory alignment grants Cyprus-licensed entities “passporting” rights, enabling them to provide services across the EU without the need for additional national authorizations. For international fund managers, this offers a strategic gateway to the European market, with Cyprus positioned as one of the most cost-efficient, business oriented and accessible fund jurisdictions within the EU.

Yet, setting up an investment fund or management company here is not a mere formality. It requires careful attention to legal structuring, regulatory approvals, and operational substance; areas where AGPLAW provides unmatched expertise for two decades on a row.

Legal Structures: Choosing the Right Vehicle

Cyprus offers a range of fund structures, each suited to different investor types and strategies.

For managers seeking to market to retail investors, the UCITS framework is the most suited standard, offering high levels of regulatory oversight, transparency, and pan-European marketability. UCITS are particularly attractive for firms aiming to distribute widely across the EU under a harmonized regime.

Alternatively, the Alternative Investment Funds (AIFs) framework, including the increasingly popular Registered AIF (RAIF) model, focuses more to professional and well-informed investors. RAIFs do not require direct CySEC authorization prior to launch, provided they are managed by an authorized AIFM, drastically reducing time-to-market while maintaining investor protections through the licensed manager’s oversight.

Selecting the right structure is a legal decision with far-reaching commercial implications. AGPLAW assists clients in assessing their investor base, strategy, and regulatory obligations to design a tailored, future-proof fund structure.

The Licensing Process

The establishment of an asset management company or fund in Cyprus is subject to licensing by the Cyprus Securities and Exchange Commission (CySEC). Our firm guides clients through the preparation and submission of a comprehensive licensing package, which typically includes:

• Detailed business and operational plans
• Drafting of all required policies and manuals
• Proof of minimum capital requirements (ranging from €125,000 to €300,000 depending on the license type)
• Organizational structure and governance arrangements, including local substance and key function holders
• Anti-money laundering (AML) and compliance frameworks, aligned with both EU and Cyprus legislation

The process can take several months, and success depends on careful preparation and clear regulatory engagement. At AGPLAW, through our dedicated FS Regulatory team, we use our longstanding expertise to help our clients anticipate regulatory questions, address potential drawbacks, and accelerate approval timelines wherever possible.

Tax Efficiency

Cyprus’s tax regime offers substantial advantages to asset managers and funds, including:

• A corporate income tax rate of just 12.5%, one of the lowest in the EU
• No withholding tax on dividend, interest, or royalty payments to non-residents
• Full exemption on gains from the disposal of securities, under certain conditions
• VAT exemptions on fund management services under defined rules
• A non-domicile regime offering 0% tax on dividends and interest for qualifying individuals

Combined with an extensive network of double tax treaties, Cyprus’s tax environment allows for highly efficient fund structuring, both at the entity level and for individual managers or investors. AGPLAW tax team, specialising on both domestic and international tax advisory, ensures that our clients’ structures are not only legally compliant but also optimized for tax efficiency.

Meeting the Substance Challenge

In today’s regulatory environment, implementing genuine economic substance in Cyprus is no longer optional. EU and Cypriot authorities expect licensed firms to maintain real operations on the ground, including local employees, decision-making, and infrastructure.

AGPLAW supports clients in designing and implementing substance solutions that meet both legal requirements and commercial realities. From advising on board composition and local governance, to introducing qualified directors ready to take on the role, advising on employment contracts, addressing any immigration matters, guiding service provider arrangements, and assisting with office setup, we provide an all-inclusive approach to ensure our clients are fully prepared to meet their substance obligations.

One key opportunity we help clients leverage is Cyprus’s Business Facilitation Unit (BFU) and BCS (Business Companies of Substance) framework. This government-backed scheme allows eligible companies, including fund managers and asset management firms, to hire and relocate highly skilled non-EU personnel to Cyprus under an expedited immigration track. Through the BCS framework, companies can secure employment permits, work visas, and residence permits for executives, portfolio managers, analysts, compliance officers, and other critical roles, ensuring they have access to a global talent pool.

At AGPLAW we have significant expertise in advising on BCS applications, preparing the required legal and corporate documentation, and guiding clients through the process of bringing non-EU professionals to Cyprus. We combine this with our immigration, corporate and employment law services to ensure integration of international staff into our clients’ Cyprus operations, fully aligned with regulatory substance expectations.

AGPLAW’s Role

Setting up an asset management company or a hedge fund is not just about ticking regulatory boxes, it’s about positioning our clients for long-term success. Our services include:

• Legal structuring and fund formation advice
• Drafting and negotiating fund documentation, including offering memoranda, subscription agreements, and management agreements
• Preparing and filing CySEC license applications
• Representing the applicants before CySEC and addressing any questions from regulator
• Advising on cross-border marketing strategies and EU passporting procedures
• Assisting with tax structuring in collaboration with specialist advisors
• Assisting on recruitments of personnel and headquartering in the island
• Ongoing legal support for operational, compliance, and governance matters
• Ongoing outsourced regulatory compliance support
• Advising on GDPR and data protection compliance, including privacy policies, data processing agreements, and cross-border transfer mechanisms

Whether our client is an international fund promoter, a family office seeking to establish a private investment vehicle, or a manager looking to expand its presence in the EU, at AGPLAW we offer the expertise and local insight needed to support on the Cyprus’s financial market confidently.

Why Cyprus, Why Now?

The global investment industry is evolving rapidly, with investors demanding more flexible, cost-effective, and transparent solutions. Cyprus’s combination of EU-aligned regulation, tax efficiency, skilled workforce, and lower operating costs makes it an ideal jurisdiction for modern asset managers and fund operators.

Contact Us

If you are considering setting up an asset management company or hedge fund in Cyprus, contact us and we are ready to assist with every stage of the process, from initial concept to successful launch and beyond.

The information provided by AGPLAW | A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, the author, publisher, or any related parties make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information. In no event will the author, publisher, or any related parties be liable for any loss or damage, including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this document/article. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.