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Capital Hub: Investing into the Balkans through a Cyprus alternative investment fund

By Anna Philiotis

As a collection of emerging markets with a strong growth potential, the Balkan countries have firmly positioned themselves on the map of attractive investment locations.

Steadily growing numbers of foreign investors have expanded into Albania, Bosnia and Herzegovina, Croatia, Kosovo, North Macedonia, Montenegro and Serbia, drawn primarily by the region’s favourable location, its affordable workforce and creative tax regimes.

Real estate in these countries attracts significant investment as well, mainly due to population growth and increase of purchasing power, which creates substantial opportunities in real estate.

With tax systems that offer a plethora of advantages to foreign investors (corporate income tax rates from 9% to 20%), certain industry sectors provide additional incentives to investors. Tourism and energy are of particular interest in Albania and Montenegro, natural resources exploration and exploitation in Serbia, agriculture in Bosnia, IT in Croatia and Kosovo, and clothing and automotive components in North Macedonia.

Most of the Balkan countries also have a network of Free Zones, where further tax incentives, exemptions and deferrals apply.

One of the approaches to investments into the Balkans from Cyprus is the investment via Cyprus Alternative Investment Funds. AIFs are governed by more flexible regulations as compared to other organisational forms of entities and use a wider range of strategies as compared to traditional funds, making them an attractive investment instrument. AIFs are known and used all over the world and permit the private units’ placement among participants, with the consideration of securities legislation of respective jurisdictions.

Cyprus AIFs are domestic funds recognised abroad, whose units of participation can be disposed of by means of private placement to investors and used for investing into other countries, including countries in the Balkans, subject to the compliance with securities` legislation of respective jurisdictions. Investment can be performed in the form of equity investments, non-listed securities, shares in the charter capital, etc.

AIFs are regulated and licensed by the Cyprus Securities and Exchange Commission (CYSEC). AIFs can be set up as umbrella funds, operating with various investment types, policies, etc, and with the creation of independent sub-funds.

According to AIF Law, there are no specific requirements for the unitholders and investors of AIF, other than the requirement of the unitholders and investors undergoing an extensive “know your customer” procedure and, if the latter is a legal entity, then all relevant information and documents should be provided until a natural person—ultimate beneficial owner is identified, as well as sufficient information as to the origin of the assets.

Continuous alignment of legislation to EU norms is being made, with more work still ahead. And while the region is facing certain challenges—particularly in terms of political instability, bilateral cooperation and infrastructure networks—the common vision of EU membership keeps the Balkan countries firmly on the path of perpetual growth.

For more information, contact: Anna Philiotis, Eurofast Cyprus, Anna.Philiotis@eurofast.eu

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