Cyprus: Amendments To The Cyprus International Trusts Law Of 1992

Last Updated: 4 December 2012
Article by Emily Yiolitis

Introduction

On 9 March 2012 the House of Representatives passed an amendment to the 1992 Cyprus International Trusts Law (the "Law") modernising the legal framework for the set up and operation of Cyprus International Trusts ("CITs"). The 1992 Law was a benchmark piece of legislation for Cyprus, introducing the international trust concept and earning the island the reputation of a professional and respected trust centre. However the passage of two decades has necessitated the update and clarification of the Law to keep Cyprus at the forefront of trust jurisdictions. The amendments introduce a new and improved state of affairs for settlors who choose Cyprus to settle their assets while enhancing trustee protection and clarifying previously ambiguous provisions of the Law. Importantly, the ban on investments in immoveable property in Cyprus has now been lifted, the settlor residency requirements have been amended to provide for settlors (and beneficiaries) who decide to take up residence in Cyprus subsequent to establishing a CIT, and trustees' powers of investment have been extended. There continue to be no registration or filing requirements for CITs. The key amendments can be summarised as follows:

Residency

The 1992 Law restricted the settlement of International Trusts to settlors who were non Cyprus resident. This created a state of confusion for persons who met this criterion at the time of setting up the trust but subsequently considered relocation to Cyprus with the result that such persons were dissuaded from becoming residents of Cyprus. The amendments provide that a settlor may be a resident of Cyprus provided that at the time of creation of the trust and for a year thereafter, such settlor was a non Cyprus resident. A time limit to the restriction has therefore been introduced, allowing the free establishment in Cyprus, after the lapse of a year from the creation of the trust. The same rule has been extended to cover beneficiaries, who under the previous regime, were similarly dissuaded from taking up residence in Cyprus. Moreover, to remove ambiguity, the definition of residence has been expressly aligned with the definition contained in the income tax laws. In accordance with this definition, a resident individual will be a person residing in Cyprus for over 183 days in a given tax year, while a resident company will be a company which is "managed and controlled" in Cyprus.

Settlor Reserved Powers

A new section 4A permits a settlor to reserve powers, to retain a beneficial interest in the trust property and to act as protector or enforcer of the trust. The list of powers which may be reserved are extensive and include, inter alia, the power to revoke, vary or amend the terms of the CIT, to be appointed as a director of an underlying company wholly or partly owned by the trust, to give binding directions to the trustee in connection with the trust property, to change the governing law of the CIT and to appoint or remove any trustee, enforcer, protector or beneficiary. Furthermore, the settlor may require that the trustees' powers be exercisable only with the previous consent of the settlor or that of any other person specified by the CIT.

These amendments were introduced specifically to address the concerns of settlors, particularly from civil law jurisdictions, who are accustomed to exerting full control over their assets and for whom the creation of a trust involves a considerable leap of faith. They follow suit to the amendments of other trust jurisdictions, notable Jersey and the BVI. Article 2 of the Hague Trusts Convention1, provides that "the reservation by the settlor of certain rights and powers is not necessarily inconsistent with the existence of a trust" however it should be pointed out that a settlor of a CIT should be cautious and should not reserve extensive powers to himself. A conservative approach is recommended to ensure asset protection, tax optimisation, and to support a finding for the intention to create a genuine trust in the first place.

Governing Law

The amended choice of law clause provides that any disputes arising with relation to a CIT shall be determined in accordance with the applicable laws of Cyprus, excluding therefore the laws of any other jurisdiction. Importantly, the Law clarifies that the inheritance laws of any other country will not be enforceable in the Cyprus courts providing that succession laws of other jurisdictions will not invalidate the provisions of a CIT. Note that the choice of law clause, while highly recommended, is not necessarily conclusive on the issue of either succession or jurisdiction particularly in multi jurisdictional structures where the interests of multiethnic parties are concerned and careful advice should be taken in all the pertinent jurisdictions so as to ensure that succession objectives are met.

Duration of CITs

With the express exception of charitable trusts and purpose trusts which were allowed to exist in perpetuity, the 1992 Law contained a cap of 100 years for the duration of a CIT. The newly introduced amendments remove this cap by providing that henceforth, and subject to the terms of the CIT, there will be no time limit restricting the validity and enforceability of a CIT, and that the rule against perpetuities or remoteness of vesting will not apply to a CIT or to any advancement, appointment, payment or application of property from a CIT.

Investment Powers of Trustees

The amendments to the 1992 Law consolidate and extend the powers of investment of the trustees empowering them for the first time to invest in immoveable property situated in Cyprus.

Charitable Purposes

The definition of charitable purposes has been aligned with the UK public benefit test by clarifying that CITs will be deemed to be charitable where their main objective consists in achieving one or more of the following purposes:

a. The prevention or alleviation of poverty;

b. The promotion of education;

c. The promotion of religion;

d. The promotion of health or salvation of life;

e. The promotion of the development of citizens and of the community;

f. The promotion of art, culture, heritage or science;

g. The promotion of amateur sports;

h. The promotion of human rights, dispute settlement or reconciliation or the promotion of religious or national harmony or equality and individuality;

i. The promotion of the protection or development of the environment;

j. The relief requirements of young or advanced age, ill health, disability, economic hardship or other disadvantage;

k. The promotion of welfare and protection of animals; and

l. Any other reason for the benefit of the general public or which is consistent with paragraphs (a) - (k) above.

In keeping with the 1992 legislation, it is not a requirement that beneficiaries of charitable CITs be non Cyprus resident.

Conclusion

The recent amendments to the 1992 Law retain the attractive features of the existing legislation, such as asset protection, while taking an extra step to enhance flexibility and adapt to the modern requirements of investors. Restrictions and limitations contained in the 1992 legislation have been abolished and settlors and trustes are granted wide ranging powers to settle and invest respectively, as they see fit. While the changes are welcome and are expected to boost the popularity of Cyprus as a modern and investor friendly jurisdiction, caution should be exercised in the formulation and administration of a CIT. This is to ensure not only the validity and enforceability of such provisions particularly in the jurisdiction of residence or domicile of the settlor or beneficiaries (where this is not Cyprus) but also to ensure the favourable tax treatment of the CIT which is one of the primary reasons CITs have gained worldwide popularity in the first place. Clarification of the taxation implications of these amendments is expected to follow through circulars of the tax authorities and where necessary, through alignment of the relevant sections of the Cyprus tax legislation. In the meantime great care should be taken not to abuse the facilitative provisions of the new amendments so as to jeopardize the use of a CIT for tax, succession and asset protection purposes.

Footnote

1 The Hague Convention on the Law Applicable to Trusts and on Their Recognition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.