Cyprus is the third-largest island in the Mediterranean, with an area of 9,251km. It is situated at the crossroads of Europe, Asia, the Middle East and Africa. It is approximately 70 km from Turkey, 120 km from Syria, and 400 km from Egypt.
On account of its location, Cyprus has always played a prominent role in regional politics and trade, and traditionally it has been the gateway to the trade routes linking Western Europe with the Arab world and the Far East. After 80 years as a British colony, Cyprus became an independent sovereign republic in 1960. The new republic's institutions and administration, banking system and business and legal environment were heavily influenced by the British legacy.
The Turkish invasion of 1974, which left more than one-third of the island under Turkish rule, has had no effect on day-to-day life in the Republic of Cyprus, which is a cosmopolitan country with a high quality of life, ranking 33rd in the world in the United Nations Human Development Index.
Cyprus became a member of the European Union in 2004 and adopted the euro as its currency in 2008. In preparation for EU accession, the legal framework was thoroughly reviewed to bring it into line with European norms and as a result Cyprus has a modern, business-friendly legal and tax system which is fully compliant with EU and OECD norms.
There is a democratic system of government with effective separation of powers. The President is head of state; he is elected for a five-year term of office and may be re-elected. The President appoints the Council of Ministers, whose members initiate legislation and perform the administration within their respective ministries. The House of Representatives is the legislative body whose members are elected by universal suffrage within a multi-party system. The judiciary is a separate and independent body.
Cyprus maintains extensive diplomatic relations and is a member of the United Nations, the Council of Europe, the Commonwealth, the World Bank, the International Monetary Fund, and the Non- Aligned Movement. It is also a signatory to numerous international conventions and bilateral co-operation agreements. The population of Cyprus, excluding the area under Turkish occupation, was 1,207,359 at the end of 2020. The official languages are Greek and Turkish, but almost everyone speaks English as a second language. English is the lingua franca of international business in Cyprus.
As a result of the British influence, Cyprus law is based on the principles of English law, modified more recently by the European acquis communautaire. At independence, the strength of the English principles was enforced by s.29 of the Cyprus Courts of Justice Law 14 of 1960, which expressly instructed the courts to adhere to the principles of common law and equity, ''save insofar as other provision has been or shall be made by any law and so long as not inconsistent with the Constitution''. In cases where domestic law has not made a provision for a specific legal point, the courts of the island have held that reliance may be placed on common law or equity.
Trust law in Republic of Cyprus derives from English sources. During the period of British administration, English common law and the principles of equity were introduced to and applied in Republic of Cyprus and the law governing the formation and administration of trusts in Cyprus was in effect English law. In 1955 Cyprus enacted its own statute, the Trustee Law of 1955 (Cap 193) (the ''Trustee Law'') which, with a few changes, reproduced the English Trustee Act 1925. The principles of equity which underlie resulting, constructive and implied trusts and are applied in English cases continue to be applied by the Cyprus courts to such trusts.
As far as the investment powers of trustees are concerned, s.2(2) of the Trustee Law allows the settlor to exercise complete discretion with regard to the powers he wishes to transfer to the trustees. Trustees may invest trust assets either in investments authorised by the trust deed or in those authorised by the law. Power to invest in specific investments may also be authorised by order of a competent court.
On the question of variation of a Cyprus trust, the position closely mirrors that existing in England before the Variation of Trusts Act 1958. Upon application, a Cyprus court may amend the terms of the trust, or the powers of the trustees to manage the trust, if it is satisfied that the proposed amendment is in the interest of the persons on whose behalf the application is made and no substantial prejudice is caused to the interests of any other interested party.
The perpetuity periods of Cyprus trusts are not governed by the English statutory provisions of 1964, as these were enacted after the independence of Cyprus. In the absence of any statutory provision to the contrary the old English equity principles apply, and no trusts other than charitable trusts and Cyprus international trusts may continue in perpetuity. Trusts endure for either the period of the life or lives in being plus 21 years or, where there is no life in being, merely for 21 years. The accumulation period of a trust may be extended to include the entire perpetuity period.
Trusts can currently be established in Republic of Cyprus either as domestic trusts under the Trustee Law or as Cyprus International Trusts constituted under the provisions of the International Trusts Law (Law 69 of 1992) as amended by the International Trust (Amending) Law of 2012 (together ''the ITL''). It should be noted that the ITL is not a self-contained statute but rather a law which builds on the existing statutory base. This has the effect that the general principles of trust law as found in the common law and statutes of Republic of Cyprus continue to apply, unless and to the extent that the existing law is overridden by a specific provision of the ITL. Indeed, as explained below and mentioned above, the 2012 amendments to the ITL include a provision that international trusts may continue in perpetuity.
The Charities Law (Cap 41) (the ''Charities Law'') is the principal legislation governing charities. Section 15 states that all proceedings under that Charities Law shall be determined in accordance with the law relating to charitable trusts for the time being in force in England, which includes the definition of a charitable trust. Charitable trusts in the Republic of Cyprus may continue in perpetuity and a Cyprus international trust may qualify as a charitable trust if it satisfies the test for an ordinary charitable trust.
The International Trusts Law
When it was enacted in 1992, the ITL gave Cyprus a ''state of the art'' international trusts regime, with excellent tax mitigation and asset protection features, and restricted its availability by stipulating that neither the settlor nor any beneficiary could be a permanent resident of the Republic of Cyprus. Over the years, as other jurisdictions modernised their trust regimes, it became apparent that, while the basic structure provided by the ITL remained sound, it required updating to remove a number of outdated restrictions and to meet changed circumstances. A fundamental reform of the law took place in 2012 with the enactment of the International Trust (Amending) Law of 2012.
When the 1992 law was drafted, the availability of international trusts was restricted to non-resident settlors in order to prevent tax avoidance by Cyprus residents. It was not clear whether settlors could relocate to Cyprus after establishing a Cyprus International Trust, and the resultant uncertainty undoubtedly discouraged many of them from doing so. The ITL as amended in 2012 provides only that the settlor may not be a Cyprus tax resident in the year preceding the year of creation of the trust. It also removes the prohibition contained in the 1992 law on resident beneficiaries and on ownership of immovable property in Cyprus, thus avoiding difficulties that might otherwise arise if the settlor or any beneficiary were subsequently to take up residence in Cyprus.
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