The law regulating Companies Providing Administrative Services and Related Matters 2012 (the Law) was enacted by the Cyprus parliament in December 2012. It transposes the Third Anti-Money Laundering Directive (2005/60/EC) into national law and provides long-awaited regulation of the provision of fiduciary services in Cyprus.
The Law addresses potential abuse in the services sector by requiring that all persons offering trustee, nominee, administration or related services be either licensed by the Cyprus Securities and Exchange Commission (CySEC) or exempt from licensing requirements. Exempt persons are those already regulated by their industry supervisors, and include registered lawyers and accountants, companies controlled by them, and Cyprus investment firms and credit institutions. Exempt persons must comply with provisions of the Law relating to good practice and may opt in to the CySEC licensing regime.
Scope of application
The fiduciary services falling under the scope of the Law include trust services, defined as the administration of trusts including, without limitation, the assumption of duties or provision of services such as trustee or protector of trusts (protector services are excluded where the protector is one of the beneficiaries, is the settlor or is a relative of the settlor up to the third degree of kinship). The Law also covers corporate services – including directorships, alternative directors, acting as secretary or assistant secretary, acting as nominee or registered shareholder – and provision of services on behalf of clients, including managing the registered office address, opening or managing bank accounts and holding financial instruments (as defined in the Investment Services and Regulated Markets Law, Third Schedule, Part II, para 1).
The fiduciary services falling under the scope of the Law include trust services, corporate services and provision of services on behalf of clients
Provided they are not advertised or used to attract clients, administrative services provided by physical persons are excluded from the scope of the Law in the following cases:
- A director in a company whose securities are admitted to trading on a regulated market; which is subject to regulatory control by another regulatory authority, in accordance with the regulatory framework of which it is obliged to appoint independent non-executive directors; or in which the Republic of Cyprus or any public body, authority or organisation holds most of the shares.
- A director or secretary in a company at least 25 per cent owned by the person providing the relevant services and/or their spouse or family members up to fourth degree of relation; in a company or companies wholly owned by the relevant person and/or their spouse or family members up to fourth degree of relation; or of a trust of which the relevant person and/or their spouse or family members up to the fourth degree of relation are the sole beneficiaries.
- A director or secretary in a company that is the sole employer of the person providing the services, or which offers the relevant services to another company that belongs to a group of companies of which the person’s employer is also a member.
- A director in a company that is a subsidiary of a company described in (2) or (3) above.
- Acting as trustee when the person providing the trustee services is a settlor or where all the beneficiaries of the trust are the relevant person and their spouse or family members up to the fourth degree of relation.
- Acting as trustee in a trust created under a will of a physical person.
- Being a director in fewer than ten companies, not including companies referred to in (1), (2) or (3) above, provided that the relevant person does not control the board of directors of the company.
Register of licence holders and supervisory powers of CySEC
According to the Law, regulated services may be offered only by exempt persons (as defined above) and persons who are legal entities holding a licence from CySEC. CySEC will maintain a register of licence holders and licences are issued under CySEC’s terms and conditions.
For a licence to be granted to a service provider, the following criteria must be fulfilled:
- the head office must be based in Cyprus;
- the ultimate owners of the company must be fully disclosed and must pass a fit and proper test;
- the service provider must be represented, administered and managed in Cyprus by at least two qualified persons who have appropriate credentials to manage it prudently;
- the service provider must employ an in-house lawyer or maintain a professional relationship with an external lawyer;
- the service provider must employ or engage a CySEC-approved compliance officer; and
- the service provider must employ appropriate internal control procedures to ensure it has accurate and updated information at all times.
Persons providing trustee services must obtain and maintain information and documentary evidence on the identity of the settlor, the trustees, the beneficiaries (or the class of beneficiaries, including beneficiaries to whom any distributions have been made) and others associated with the trust (such as investment advisors), as well as information on the activities of the trust. This information must be available for inspection by the relevant supervisory authority upon request.
CySEC may at any time ask a licence holder to provide any information or documentation reasonably required for conducting its supervisory role. If the licence holder does not cooperate, CySEC can seize and hold any registers, accounts, books, documentation or electronic devices used for the transmission of data for up to 45 days.
Violation of the Law is a criminal offence punishable on conviction by imprisonment of up to five years, a fine of up to EUR350,000, or both. If the offense is committed by a legal entity, any of its directors, managers or auditors may be personally liable if it is proven that they agreed or assisted in the commission of the offence. CySEC may also impose an administrative fine of up to EUR500,000 (or up to EUR1 million for repeat offences), depending on the severity of the offence.
Register of trusts
On 5 September 2013 the Cyprus parliament enacted legislation that aimed to supplement the Law and the International Trusts Law 69/92 (as amended). The main change involves the creation of a register of trusts. Under this new legislation, CySEC, the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus must, as supervisory authorities under the Law, maintain a register of trusts covering their respective regulated service providers. The following information must be included:
- the name of the trust;
- the name and full address of every trustee at all relevant times;
- the date of establishment of the trust;
- the date of any change in the law governing the trust to or from Cyprus law; and
- the date of termination of the trust.
A Cyprus-resident trustee of a trust governed by Cyprus law must communicate the above information to its respective supervisory authority within 15 days of the creation of the trust or the adoption of Cyprus law (as the law governing the trust), as applicable. Notification also needs to be given, within 15 days, of any subsequent changes, such as a termination of the trust.
Trustees of existing trusts must provide the relevant information to their respective supervisory authority within six months of the Law entering force.
The trust registers held by each of the supervisory authorities are not open to the public, but are available for inspection by the competent authorities. This allows the competent authorities to better conduct their duties under the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing. Information on the identity of the settlor and beneficiaries is not included on the register, maintaining confidentiality even at the level of cross-supervision, whereby a request must still be made to the relevant licensed or exempt service provider to ascertain such sensitive information.
The regulation of corporate and trustee services in Cyprus is a welcome development that is expected to enhance Cyprus’ services reputation and instil investor confidence in a jurisdiction that already benefits from many tax and regulatory advantages. With a corporate tax rate of 12.5 per cent, a generous participation exemption on incoming dividends, no capital gains other than on the disposal of Cyprus immovable property, no withholding tax on outgoing dividends, a wide network of double-taxation treaties and a patent box regime on intellectual property comparable to the most favourable in the world, Cyprus is expected to retain its holding jurisdiction lead despite the banking troubles that saw it suffer a confidence blow earlier in 2013.
There is still room for improvement in the law as it has, at points, arguably gone beyond the requirements of the EU Directive. Redress should be available to maintain a balance between prudent regulation and undue fettering of the Cyprus fiduciary industry, so that the latter remains competitive and at a regulatory par with comparable holding jurisdictions. The most important points to be addressed in the future include the introduction of a private trust company exemption so that trustee companies that meet certain criteria, such as the exclusive conduct of ‘unremunerated’ or ‘related’ trust business and the non-solicitation of business from members of the public, can be permitted to operate without a licence, as well as the exclusion of protectorship services from licensing requirements. These issues are expected to be addressed in forthcoming consultations.
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