Cyprus to Modernise Antiquated Trust Law

Cyprus is gearing up to amend its antiquated international trusts law in an effort to further boost its competitiveness and remain on the same playing field with regional and global competitive jurisdictions.

The relevant amendment to the law is already in the hands of the Parliamentary Committee on Financial and Budgetary Affairs, the members of which recently pledged to unanimously pass it, pending an Attorney-General ruling over its EU compliance, hopefully at the beginning of 2012.

Trusts on the island are governed by the Cyprus International Trusts Law (CIT), which was enacted in 1992 and has remained unaltered ever since. The International Trusts Law of 1992 complements the Trustee Law CAP193, which is based on the English Trustee Act 1925. Until 1992, trusts on the island were virtually non-existent, while Cyprus International Trusts became popular after the enactment of the CIT Law.

The proposed changes to the trust law include, inter alia, the introduction of efficient ‘firewall’ provisions and modern jurisdictional protection clauses that address the security concerns expressed by existing and new foreign investors. In particular, the proposed firewall provisions, seek to achieve two principal targets, namely to limit the circumstances under which any foreign law or foreign court can affect a Cypriot international trust and to clarify and limit the circumstances under which an attack can be made on a Cypriot international trust.

The aim, of course, is to provide very strong protection for settlors who have properly settled assets on trust as a matter of the law of the Republic.

The amendment also introduces a definition of residency and proposes the revision of the definition of an international trust whereby (i) the settlor is not resident of Cyprus in the calendar year preceding the year in which the trust is established, (ii) at least one of the trustees is a Cyprus resident throughout the trust period, and (iii) none of the beneficiaries (with the exemption of a charitable foundation) are residents of Cyprus in the calendar year preceding the year in which the trust is established.  The amended law will also clarify that the settlor is allowed to take up residency with his family in Cyprus following the establishment of a CIT.

Equally important, the amendment further proposes that the prohibition of a Cyprus international trust holding immovable property on the island be lifted.

The last part is particularly important since it is expected to contribute to the revival of the Cyprus real estate sector given that the outmoded statutory prohibition of investments into the Cyprus property market, which still exists two decades later, is finally being abolished. The importance of the abolition is self-evident, given that these trusts hold billions of euro, which are immediately available for investment but are statutorily blocked from being channelled into the Cyprus market, thereby depriving Cyprus of substantial foreign investments that could prove vital for the economy.

The amendment also addresses issues of confidentiality, trust duration, the application of foreign jurisdictional laws and more.

The proposals take into account the realities of the Cyprus economy today and are in compliance with EU law and directives.

The trust business is a multi-billion dollar industry in which Cyprus can become an even stronger player and obtain a huge piece of the action. The proposed bill is perfectly aligned with the best interests of Cyprus and its economy and will help fortify and further develop the island’s reputation as an international business centre.

Regulation of Fiduciary Services Providers Bill of 2010

In a separate development, the long-discussed and deliberated upon Fiduciary Service Providers Bill of 2010 has resurfaced and is scheduled to be tabled before the House of Representatives soon.

The Bill focuses on regulating corporate service providers and trustees in an effort to harmonise Cyprus with the relevant EU directives.  The responsibility for this law and related regulation of fiduciary service providers is now vested with the Cyprus Securities and Exchange Commission (CySec).