Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]
On March 2012 the Cypriot parliament voted the reform of the International Trust Law of 1992, a reform that the professionals and investors were longing for since the general view has been for the past few years that the particular legislation was in need of an update and modernisation.
The new Law clarifies grey areas and removes restrictions and limitations of the previous Law while the foundations of the latter remained intact. The amendments are presented in detail below.
Changes from previous Law (International Trust Law of 1992)
The first and very important change is the re-definition of the International Trust, whereby the Settlor and Beneficiary are defined as being non-residents of Cyprus in the year before the creation of the Trust. The
The second most important change is that it is now possible to include immovable property in Cyprus in the fund of an International Trust, whereas it was not allowed before.
Moreover, another very important change is that there is no limit on the duration of the Trust now since the 100 years provision for the duration was deleted. Therefore, perpetuity will prevail any legal doctrine or rule there is contrary to it.
With regards to taxation, provisions have been made for the taxation of the immovable property and other assets in Cyprus. Specifically, the income/profits of the International Trust deriving from sources within and outside the Republic are subject to any taxation which applies in the Republic, in the case where the beneficiary is a resident of the Republic. In the case where the beneficiary is not a resident of the Republic, the income/profit of the International Trust deriving from sources within the Republic only, are subject to any taxation that applies in the Republic.
Furthermore, the definition of Trustees is redefined to mean legal or physical entities which hold or it is implied that they hold a trust fund for the benefit of beneficiaries, regardless of whether the Trustee is a beneficiary of the Trust as well, and/ or for any purpose, not exclusively for the benefit of the Trustee. Also, the Trustees are now responsible to comply with and apply all provisions of the relevant Anti Money Laundering and related regulations.
Another interesting new provision is in Art. 11 relating to the confidentiality of the Trusts, whereby the Trustee has the power to deny revealing documents related to the Trust fund to the Settlor, if he/she thinks it is not necessary and it is not to the best interest of the Trust. Also, the Trustee may now apply to the Court for discretion/advice with regards to how he/she should act upon any specific matter relevant to the International Trust, and the Court may issue an order to this end.
A big part of the new legislation is dedicated to provisions establishing the Trustís validity. All matters that arise related to the Trust or the settlement of any property to the Trust fund are determined by the Cyprus Law without any reference to the Law of any other jurisdiction. More specifically, any heir-ship rules that apply either in Cyprus or in any other country do not and cannot affect in any way a Trust or a settlement of any property. The notion is not different from before, however through the new provisions added in the new Law it is further enriched and strengthened.
Regarding the irrevocability of the Trust, the general principal remains the same. Even if it is not expressly provided for in the instrument of Trust, the Trust is presumed to be irrevocable by the settlor or his legal representatives, even though it was created voluntarily. Furthermore, irrespective of any provisions of any other Law or Regulation, the preservation or allotment to a settlor of a trust of any right or benefit to the Trust property whether they are preserved or allotted to the settlor in his capacity as a protector or supervisor of application of Trust or other, the validity of the Trust is not affected in any way nor is it possible to delay its execution.
The new Law introduces the Protector for the first time although it was extensively used even before the amendment. This is a person other than the Trustee to whom powers of any kind are assigned to by the document creating or proving the Trust, including the power to advise the Trustee with relevance to the exercise of his powers or with relevance to the right of the Trustee for approval or for veto and includes the power of appointment or cancellation of the appointment of the Trustee. It also introduces the Supervisor of application of Trusts, who is a person whose duty is to make sure of the execution of the International Trust with regards to non charitable Trusts according to article 7(3), whereby, the supervisor can execute a Trust which was created as a purpose Trust but without having perpetuity, even if the supervisor is not a beneficiary.
Another important provision is where it is stipulated that the powers and authorisations assigned by the provisions of the Law to the Trustee, the protector, the settlor and the supervisor of application of Trust respectively, are additional to the powers and authorisations that have been assigned by the International Trust and come in force only to the extent that there is no intention to the contrary expressed in the Terms of the Trust and are applied abide the Terms of the Trust and are subject to the terms of same.
There were some changes and/ or additions made with regards to the law that governs a Trust, which is not by default Cyprus Law. The Settlor of an International Trust may choose the law that will govern the Trust. The choice must be clearly stipulated or implied by the Terms of the Trust document, which is construed, in the case where necessary, in accordance with the facts of each case. The stipulated or implied choice is final, valid and effective, regardless of the circumstances. Furthermore, where there is no stipulated or implied choice, the Trust is governed by the law that has the closest relationship with the Trust. The factors taken into consideration are the country where the management of the Trust takes place, the country where the property resides, the country of residence of the Trustee and the purposes of the Trust and the countries where these need to be realised. Once the choice is designated, this choice is final, effective and valid regardless of the circumstances.
With regards to international jurisdiction, for the recognition and execution of civil/ commercial cases, the Cyprus Courts have jurisdiction, in addition to where the Governing Law is Cyprus or where the Trust clearly stipulates referral to Cyprus Courts, also when i) the Trustee is a resident of the Republic, ii) the Trustee is a company acting as a fiduciary company incorporated in the Republic, iii) any part of the property is in Cyprus, when the management of any Trust is in Cyprus and iv) when the parties accept the Law of Cyprus. Such jurisdiction is exclusive unless otherwise provided in the Trust document. Also, where the jurisdiction choice is stipulated to be of the Republic, the provisions of the Law apply regardless of any other provision related to conflict of laws that apply in the Republic and constitute a fundamental rule, the observance of which is a matter of public order. On the other hand, foreign Trusts are governed by the law of the country that governs it, and it is not enforceable in the Republic where the Court finds that this is contrary to public interest.
In addition to the above, the new Law also makes some changes to the provisions regarding Charitable Trusts, where these Trusts now have a much wider choice of purposes available, which widens the definition of such Trusts.
As a final point, the new Law is enforceable from the date it was passed onwards, however it is suggested that at some length the Law does have retrospective effects, even though the Laws that apply for the Trusts prior to the present law are still in effect, unless they contradict with the present Law or have been amended by it. The Laws and Regulations that have been applicable for investments within the Republic by non-residents of the Republic are applicable for any investments of an International Trust in the Republic. The present amendment Law is applicable for all International Trusts regardless of the time of creation, and its clauses do not affect the validity of any pre-existing valid distribution or transfer.
Although the Law of 1992 established a premium regime for international trusts and placed Cyprus very high on the ranking of beneficial Trust jurisdictions, developments in the international and local economy and business practices rendered some changes in the existing legislation absolutely necessary. The amended law will modernise the legal framework for international trusts and is expected to boost investment in Cyprus.
Fiducenter has extensive expertise and experience in setting up and administering Cyprus International Trusts. Furthermore, Fiducenter offers preferential rates for structures, which include a Cyprus International Trust and a Cyprus and/or Luxembourg company acting as consolidation vehicle/s as long as all entities in the structure are managed by our respective offices. We are at your entire disposal to discuss any case you have in mind.
Phone: 357 25 50 40 00 Fax: 357 25 50 41 00
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