Alternative Investment Funds address substance and transparency issues
The establishment of an Alternative Investment Fund (AIF) will allow for more transparency in the ownership structure and in certain cases may result in tax optimization. The benefits of a more transparent structure may include ease of establishing banking relationships, confirmation or substance for tax authorities, eligibility for various incentives offered to collective investment schemes and protection of asset ownership.
The issue of substance, which is open to interpretation in the case of Holding Company structures is resolved given that effective management of the AIF is carried out by an EU approved and licensed AIF Management company such as SCSS Fund Management Ltd, an EU based and authorized Alternative Investment Fund Manager (AIFM), regulated by Cyprus Securities & Exchange Commission (CySEC).
Cyprus is home to thousands of Holding company structures that own or control thousands of companies in Russia, Ukraine, India and other EU member states. In the majority of cases, the same Cypriot Holding companies are owned in turn by offshore companies, whose only objective is to drain the profits out of Cyprus to offshore zones in order to avoid paying any taxes.
Tax authorities from Russia to Romania, Ukraine to UK and India to other jurisdictions are flatly rejecting such structures, which is why the only alternative is the establishment of an AIF, managed by an AIFM which will take over the Cypriot holding company and remove all the middle-buffer subsidiaries and offshore companies from its Group structure and become transparent.
Taxes will need to be paid by the Cyprus based AIF, but after the deduction of expenses and once all the offshore companies have been removed from the structure.
Such a transparent and regulated structure will also be more acceptable for bank compliance and when dealing with other regulators or authorities and be in a much stronger position to pass its transactions.
The previous practice whereby a Cyprus holding company was established with majority of board members based in Cyprus according to which such a structure would claim that effective management is carried out from Cyprus is nowadays flatly rejected by tax authorities in Russia, Ukraine and other jurisdictions.
Such tax authorities correctly understand that inexperienced directors with limited experience and knowledge of the underlying assets are not the effective managers of the venture and it is obvious that effective management is carried out on location of assets in Russia, Ukraine, India and other countries.
With the establishment of an AIF in Cyprus and the appointment of a regulated AIFM such as SCSS Fund Management Ltd., as the management company of the AIF, the issue of substance is immediately addressed, since management is now carried out from Cyprus by a regulated AIF management company.
SCSS Fund Management Ltd., is entitled to outsource some of the management functions to investment advisors or managers on location where the asset is based but subject to notification and consent of the CySEC under whose supervision both the AIFM and the AIF operate.
About SCSS Fund Management Ltd
SCSS, the acronym of success, is an independent Alternative Investment Fund Manager (AIFM) regulated by CySEC, license number (AIFM04/56/13) based in Cyprus.
SCSS (www.scssfunds.com) specializes in managing AIFs and has received authorization from CySEC to manage Private Equity, Real Estate and Fixed Income AIFs.
SCSS offers customized solutions to clients who wish to set-up or re-domicile existing funds from other jurisdictions and exploit the benefits of EU domiciled AIFs.