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CYPRUS
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TABLE OF STATUTES
TRUST LAW
BANKING LAW
INVESTMENT COMPANY LAW
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Law of Offshore

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)

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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.

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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.

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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.

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