|
Table
Of Statutes
This
is a non-exhaustive list of the main Cyprus statutes affecting
offshore business. The statutes are listed in alphabetical
order, and for each one there is a brief description of its
relevant content if it is not obvious from the title –
click on the statute for a fuller description of the statute
or the legal regime it forms part of.
Banking
Business (Temporary Restrictions) Law of 1939 (banking licences)
Banking Law 1997 (secrecy, confidentiality,
offshore banking)
Capital Gains Tax (Amendment) Law No.
N119(I) of 2002
Central Bank of Cyprus Law 37 of 1975 (secrecy)
Companies Law Chapter 113 (types of
company)
Companies (Amendment) Law of 2000 (Law 2(I)/2000)
Companies (Amendment) (No. 3) Law of 2000 (151(I)/2000)
Companies (Amendment) Law of 2001, Law 76(I) of 2001
Customs and Excise Duties Law 34 of
1975
The Cyprus Mutual Fund Law 2002
Cyprus Trustee Law Chapter 193
Exchange Control Law Chapter 199
Income Tax (Amendment) Law 15 of 1977
(set up offshore regime)
Income Tax Law No. 118(I) of 2002
Insurance Companies Laws 1984-1990
(deals with captives)
Insurance Regulation 1995
(deals with captives)
International Collective Investment
Schemes Law No. 47 (1)/99
International Trusts Law 69(I) of 1992
Legal
Framework for Electronic Signatures and for Relevant Matters
Law (N.188(I)/2004)
Liberalisation of Investment Laws 1997
Merchant Shipping (Registration
of Ships, Sales and Mortgages) Law 45 of 1963
Merchant Shipping (Fees and Taxing
Provisions) Law 38(I) of 1992
Partnership and Business Names Law Chapter
116
Prevention and Suppression of Money Laundering
Law 1996
Regulation of Electronic Communications
and Posts Law (112(I)/2004)
BACK
TO TOP
Trust
Law
Cyprus
trust law began with the Cyprus Trustee Law Chapter 193, based
on the English Trustee Act 1925, but the island's trust regime
was brought into line with normal international practice with
the International Trusts Law 69(I) of 1992. The result is
that there are three types of trust available, of which only
the last will normally be of interest to the international
settlor:
Local Trusts are governed by English common law and the original
Trustee Law. The settlor and beneficiaries are normally residents
of Cyprus, and the trust and its property are subject to exchange
controls.
Offshore
Trusts are equally outside the International Trusts legislation,
and are the same as Local Trusts except that their beneficiaries
must be non-resident and all the trust's activities must be
outside Cyprus.
International
Trusts are the normal form of Cyprus Trust used by foreign
settlors. International Trusts have the following key characteristics:
- the settlor
must be non-resident
- the beneficiaries
must also be non-resident (except for local charities)
- one of the
Trustees must be Cypriot (individual or corporate)
- the trust
period may be up to 100 years (longer for charitable trusts)
- confidentiality
is protected in the law, and foreign judgements are specifically
non-recognized
- there is
no registration requirement
- trust documents
are in English
- trust assets
may not include immovable property in Cyprus
- creditors
have to prove intent and must claim within two years
- there is
Stamp Duty of CYŁ250
- broadly speaking,
the income and assets of International Trusts are not taxable
in Cyprus
It is often
possible to combine Cyprus International Trusts with the island's
network of double-tax treaties
to create very advantageous results.
BACK
TO TOP
Banking
Law
Click
Offshore Banking Units
for details of their formation and taxation.
For the offshore investor, Cyprus banking law provides a reasonable
but not outstanding level of non-disclosure.
Offshore
entities must disclose beneficial ownership to the Central
Bank on formation, but Central Bank employees are bound to
secrecy by Section 3 of the Central Bank Law 37 of 1975. Offshore
entities also have to disclose this information to their local
agent, but he can only be forced to divulge it with a Court
Order.
Trustees
do not have to register the beneficiaries of a trust, but
a trustee opening a bank account must disclose beneficial
ownership. Confidentiality on the part of commercial banks
is covered by the Banking Law 1997. Normally speaking, local
banks apply about the same standards of confidentiality as
apply in English law. In December, 2003, the Government announced
plans to breach banking confidentiality, allowing the tax
authorities access to residents' bank accounts. It is not
yet clear whether these plans will go ahead.
The
rules for exchange of information with foreign states are
a complex mixture of the local taxation laws, the network
of double-tax treaties, and international agreements for mutual
legal assistance and the exchange of information to which
Cyprus is a signatory, now further complicated by the EU acquis
communitaire which substantially worsens the position of individuals
and corporations as regards secrecy. However Cyprus law does
provide for normal judicial appeal procedures against treaty
requests for information and cooperation.
The Cyprus Government has taken strong measures to prevent
the use of the island for money laundering, partly in response
to an influx of doubtful money and unwanted organizations
from Russia and other CIS countries in the early nineties.
The Prevention and Suppression of Money Laundering Law of
1996 has been largely successful: in April 1998 a Select Committee
of Experts from the Council of Europe reported enthusiastically
about the island's measures to control money laundering.
In
July 2001 a delegation from the European Union's Peer committee
began an inspection of Cyprus's financial sector to determine
if Cyprus had sufficiently aligned its laws with EU directives
governing banking, the stock exchange, offshore institutions,
the insurance industry and co-operative credit institutions.
Giorgos Vassiliou, head of the Cypriot EU negotiating team,
said not only must Cyprus enact all the relevant legislation
in the financial sector, its supervisory systems must also
be up to scratch in order to enforce those laws. The investigation
included the banks' ability to impose the legislation, confidentiality,
credit risk controls, depositor protection, money-laundering,
and the supervision of co-operative entities.
In
August the International Monetary Fund visited Cyprus to undertake
the first in a series of planned reviews of offshore financial
centres (OFCs). Starting with Cyprus an IMF staff assessment
programme, designed to help strengthen financial supervision
of OFCs and to promote greater cooperation among supervisory
authorities, reviewed and analysed the extent to which the
Island's OFC met international banking, securities, and insurance
standards, and to determine if further action was required
for those standards to be met.
The
IMF's report: 'Cyprus - Assessment of Implementation of the
Basel Core Principles for Effective Banking Supervision in
Respect of the Offshore Sector - July 30, 2001', was an informal
review of the supervision of the Cypriot banking sector which
indicated that supervision was 'generally effective and thorough.'
However,
the review pointed to a level of supervision that was 'less
than desirable' due to the scarcity of some resources. And
although Cyprus's impending accession to the European Union
had led the authorities to implement a vast amount of legislative
change, said the review, the Island had authorized some institutions
that were regarded by other supervisory bodies as 'high-risk'.
The review stated: 'while customers do not appear to have
experienced significant losses, such an environment will require
continued vigilance and a high standard of supervision.'
In
addition the review highlighted the fact that regulators and
financial institutions depended, to a degree, on accounting
and legal firms which were not regulated by any external authorities.
'It is clear that the provision of company services through
limited liability companies owned and managed by accounting
and law firms is not effectively regulated,' stated the review.
After
the terrorist attacks of 11th September, the government of
Cyprus responded swiftly and angrily to allegations made by
the former head of the CIA, James Woosley, that Cyprus was
used by the Saudi dissident Ossama Bin Laden to launder funds
later used for terrorist activities.
Mr Woosley had launched a vitriolic attack on the offshore
jurisdiction, advising EU member countries to tell Cyprus:
'You will enter the European Union, but not before 3-4,000
years have elapsed, unless you immediately provide full information
about Bin Laden's money.' Mr Woosley went on to add that although
there were other countries which he saw as being reluctant
to cooperate in the American effort to discover the whereabouts
of Bin Laden's assets, Cyprus was one of the worst offenders.
The US embassy in Nicosia was swift to issue a statement making
it clear that the views of Mr Woolsey did not represent the
official views of the US government.
The
country's Foreign Minister, Ioannis Kasoulides, asked ambassadors
from the USA, UK, France, Germany, Italy, Spain, Greece, the
EU, and Switzerland to request that their governments send
any evidence that they had regarding the possible involvement
of Cyyprus in terrorist activities to the government in order
that it may be fully investigated, both internally and internationally.
The
Governor of the Cyprus Central Bank, Afxentis Afxentiou, also
spoke out against the allegations, saying: 'I'm sure that
Bin Laden does not have any money in Cyprus. Two years ago
when we investigated the matter, we did not find any accounts
in the name of Osama Bin Laden, but a number of offshore companies
owned by his brother.' However, he admitted that he could
not confirm whether offshore companies operating in the country
now were being indirectly controlled by the Saudi millionaire.
He added that the Central Bank, in parallel with the government's
efforts, would be asking the US embassy for further clarification.
In
November, the last Yugoslav bank in Cyprus closed. Astra Banka,
formerly known as Karic Banka, was once closely linked with
the disgraced Yugoslavian dictator, Slobodan Milosevic, but
switched sides after his regime collapsed. Along with Beogradska,
formerly the largest Yugoslavian banking unit in Cyprus, it
had earned a reputation as a conduit for dirty money, and
was blamed by many for earning the offshore jurisdiction the
reputation as a centre for money laundering.
Spyros
Stavrinakis, a Cyprus Central Bank official, explained that
the authorities had revoked the bank's operating license:
'after the National Bank of Yugoslavia informed us they were
winding up operations at Astra Banka in Belgrade.'
In
December, the government showed its determination to wage
war against terrorism as President Glafcos Clerides officially
signed the International Convention to Combat the Financing
of Terrorism. Cyprus was the 15th country internationally
to ratify the convention.
BACK
TO TOP
Cyprus
Investment Company Law
In 2001, as part
of preparations to join the EU, Cyprus began to construct
a modernised regime for mutual fund operation. The
Cyprus Mutual Fund Law came into force in March, 2003,
allowing both native and foreign firms to offer mutual funds
to Cypriot residents. It has been decided by the SEC that
prospectuses can be written in English, though rules will
require that a potential purchaser of the fund has a sufficient
enough grasp of the language to understand the implications
of buying into the fund.
The
major objective of the new law is to provide transparency
in the market place. All funds will have to publicise their
bid/offer rates and make clear commissions and costs in their
promotional literature.
The
Central Bank of Cyprus (Bank) which is the regulatory and
supervisory authority for Schemes, their managers and trustees,
may upon a written application, recognise a company incorporated
under the Cyprus Companies Law, a trust created under the
International Trust Law or a partnership registered under
the Partnership and Business Names Law, as an International
Collective Investment Scheme.
Uder
the new legislation, therefore, a Scheme may take one of the
following forms:
- International
Fixed Capital Company (IFCC)
-
International Variable Capital Company (IVCC)
-
International Unit Trust Scheme (IUTS)
-
lnternational Investment Limited Partnership (IILP)
All four legal types of Schemes, can either be of limited
or unlimited duration.
A
Scheme, once recognised, may be designated by the Bank as:
- A
Scheme to be marketed to the general public;or
-
A Scheme to be marketed solely to experienced investors;
or
-
A private international collective investment scheme.
A manager of a Scheme must be approved by the Bank. In this
respect, a manager must on an ongoing basis, satisfy, among
other, the Bank that, having regard to the investment policy
and the particular investment objectives of the Scheme for
which it acts as manager that it has sufficient financial
and operational resources at its disposal to meet its liabilities,
as well as sufficient investment expertise to conduct its
business effectively.
Trustees
of Schemes must also be approved by the Bank. Under the Law,
only the following can act as trustees of Schemes:
- A
Cyprus local or international bank or an overseas bank established
in a jurisdiction which in the opinion of the Bank exercises
adequate banking supervision and which has such minimum
paid-up share capital as the Bank may from time to time
prescribe; or
-
A local or international or an overseas professional trustee
company which is adequately supervised and which has such
minimum paid up share capital as the Bank may from time
to time prescribe; or
A company incorporated in the Republic, which is a subsidiary
of a person referred to at (1) and (2) above, provided that
its liabilities are fully guaranteed by that person.
Every Scheme, its manager and trustee are subject to on-site
inspections by the Central Bank of Cyprus. In addition, the
Bank may, under certain circumstances, apply to the Court
in order to appoint an inspector to investigate the affairs
of the Scheme, its manager or trustee, or any associated undertaking
of any of the aforementioned.
Every
Scheme, its manager and trustee will also be subject to off-site
monitoring and will, therefore, be required to furnish the
Bank with such information and returns concerning the business
of the Scheme, its manager or trustee as the Bank may specify
from time to time.
BACK
TO TOP
|
