Level playing field
On 8 March, the Cyprus House of Representatives passed the eagerly awaited Amendment to the Cyprus International Trusts Law 2012, placing the Island on the same playing field as the world’s most attractive trust jurisdictions.
An overwhelming majority passed the amendment, which addresses a series of crippling shortcomings in the Cyprus International Trusts Law 1992 that had remained unaltered since its enactment. The changes take into account the realities of the Cyprus economy today and are in compliance with EU law and directives.
The amendment tackles and improves areas such as jurisdictional protection, the residency status of settlors and beneficiaries, and the outmoded statutory prohibition of a Cyprus international trust (CIT) holding immovable property in Cyprus. It introduces clearer definitions and addresses issues of confidentiality, trustee responsibilities, trust duration and applying foreign jurisdictional laws, and extends the list of charitable purposes.
Trusts created from the date of the amendment may remain in force indefinitely
Most importantly, the amended law applies to all international trusts irrespective of their time of incorporation, meaning existing trusts can now hold property in Cyprus. At the same time, settlors and beneficiaries of an existing CIT may now become Cyprus residents.
The amending law replaces the existing definition of a CIT and addresses important residency issues. The amending law means settlor and beneficiaries (other than charitable institutions) must not be residents of Cyprus during the calendar year preceding the year in which the trust was set up, but may take up residency in Cyprus at any time following its creation.
Furthermore, previously prohibitions on ownership of immovable property in Cyprus are abolished. The amending law enables trustees to invest in movable and immovable property in Cyprus and abroad, including shares in Cyprus companies.
Moreover, there’s a new provision. It expressly provides that any issues in relation to the CIT, including, but not limited to, those in connection with the validity, interpretation or administration of, or disposition to, a CIT and the powers and duties of the trustees, protectors or enforcers shall be determined by the laws of Cyprus without reference to the law of any other jurisdiction. The laws of Cyprus or the law of any other jurisdiction in relation to inheritance or succession shall not affect the validity of the trust or any transfers or dispositions to it. This exclusive jurisdiction of Cyprus laws over CITs addresses asset protection concerns.
A new section enables the settlor of a trust to reserve powers to themselves, to retain rights over, or interest in, the trust property and to act as a protector or enforcer of the trust without these affecting the validity of the trust. A settlor may now reserve the power to revoke, vary or amend the terms of the trust, as well as to act as a director of a company belonging to the trust. They may give binding directions to the trustee in connection with the trust property and appoint or remove any trustee, enforcer, protector or beneficiary.
The 1992 CIT law provided for a maximum duration of 100 years from the date of the trust’s creation, with the exemption of charitable and purpose trusts. Now, trusts that are created from the effective date of the amendment onwards, and subject to the terms of the trust, may remain in force indefinitely.
The amendment also brings in wider trustee investment powers, enabling them to act as the absolute owners of the trust property. It protects CITs from unsubstantiated foreign legal claims, provided they include a choice- of-law clause in favour of Cyprus law.
Essentially, the amended law is protected by itself and for itself. It provides that the worldwide income and gains of a CIT shall be taxed in Cyprus to the extent that the beneficiary is a Cyprus tax resident. Furthermore, a non-resident beneficiary shall only be subject to Cyprus tax on Cyprus-sourced income. In line with this, a CIT with non-Cyprus resident beneficiaries and income from non-Cyprus sources continues to be exempt from Cyprus tax.
The CIT law amendment is aligned with the best interests of Cyprus and foreign investors, and will help fortify and develop the Island’s reputation as an international business centre. The trust business is a multibillion dollar industry in which Cyprus may now become an even stronger and more formidable player.
Peter G Economides is speaking at the STEP Cyprus Conference 2012 on 10–11 May in Limassol.
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