Cyprus Table Of Statutes
This
is a non-exhaustive list of the main Cyprus
statutes affecting offshore business. The statutes
are listed in alphabetical order, and for each
one there is a brief description of its relevant
content if it is not obvious from the title
– click on the statute for a fuller description
of the statute or the legal regime it forms
part of.
Banking Business (Temporary Restrictions)
Law of 1939 (banking licences)
Banking Law 1997 (secrecy, confidentiality, offshore banking)
Capital Gains Tax (Amendment) Law No. N119(I) of 2002
Central Bank of Cyprus Law 37 of 1975 (secrecy)
Companies Law Chapter 113 (types of company)
Companies (Amendment) Law of 2000 (Law 2(I)/2000)
Companies (Amendment) (No. 3) Law of 2000 (151(I)/2000)
Companies (Amendment) Law of 2001, Law 76(I)
of 2001
Customs and Excise Duties
Law 34 of 1975
The Cyprus Mutual Fund Law 2002
Cyprus Trustee Law Chapter 193
Exchange Control Law Chapter 199
Income Tax (Amendment) Law 15 of 1977 (set up offshore
regime)
Income Tax Law No. 118(I) of 2002
Insurance Companies Laws 1984-1990 (deals with
captives)
Insurance Regulation 1995 (deals with captives)
International Collective Investment Schemes Law No.
47 (1)/99
International Trusts Law 69(I) of 1992
Legal Framework for Electronic Signatures and for Relevant
Matters Law (N.188(I)/2004)
Liberalisation of Investment Laws 1997
Merchant Shipping (Registration of Ships, Sales
and Mortgages) Law 45 of 1963
Merchant Shipping (Fees and Taxing Provisions) Law
38(I) of 1992
Partnership and Business Names Law Chapter 116
Prevention and Suppression of Money Laundering Law 1996
Regulation of Electronic Communications and Posts Law
(112(I)/2004)
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Cyprus Trust Law
Cyprus
trust law began with the Cyprus Trustee Law
Chapter 193, based on the English Trustee Act
1925, but the island's trust regime was brought
into line with normal international practice
with the International Trusts Law 69(I) of 1992.
The result is that there are three types of
trust available, of which only the last will
normally be of interest to the international
settlor:
Local
Trusts are governed by English common law and
the original Trustee Law. The settlor and beneficiaries
are normally residents of Cyprus, and the trust
and its property are subject to exchange controls.
Offshore
Trusts are equally outside the International
Trusts legislation, and are the same as Local
Trusts except that their beneficiaries must
be non-resident and all the trust's activities
must be outside Cyprus.
International
Trusts are the normal form of Cyprus Trust used
by foreign settlors. International Trusts have
the following key characteristics:
- the
settlor must be non-resident
- the
beneficiaries must also be non-resident (except
for local charities)
- one
of the Trustees must be Cypriot (individual
or corporate)
- the
trust period may be up to 100 years (longer
for charitable trusts)
- confidentiality
is protected in the law, and foreign judgements
are specifically non-recognized
- there
is no registration requirement
- trust
documents are in English
- trust
assets may not include immovable property
in Cyprus
- creditors
have to prove intent and must claim within
two years
- there
is Stamp Duty of CYP250
- broadly
speaking, the income and assets of International
Trusts are not taxable in Cyprus
It is
often possible to combine Cyprus International
Trusts with the island's network of double-tax treaties to create very advantageous
results.
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Cyprus
Banking Law
Click
Offshore Banking Units for details of
their formation and taxation.
For
the offshore investor, Cyprus banking law provides
a reasonable but not outstanding level of non-disclosure.
Offshore
entities must disclose beneficial ownership
to the Central Bank on formation, but Central
Bank employees are bound to secrecy by Section
3 of the Central Bank Law 37 of 1975. Offshore
entities also have to disclose this information
to their local agent, but he can only be forced
to divulge it with a Court Order.
Trustees
do not have to register the beneficiaries of
a trust, but a trustee opening a bank account
must disclose beneficial ownership. Confidentiality
on the part of commercial banks is covered by
the Banking Law 1997. Normally speaking, local
banks apply about the same standards of confidentiality
as apply in English law. In December, 2003,
the Government announced plans to breach banking
confidentiality, allowing the tax authorities
access to residents' bank accounts. It is not
yet clear whether these plans will go ahead.
The
rules for exchange of information with foreign
states are a complex mixture of the local taxation
laws, the network of double-tax treaties, and
international agreements for mutual legal assistance
and the exchange of information to which Cyprus
is a signatory, now further complicated by the
EU acquis communitaire which substantially worsens
the position of individuals and corporations
as regards secrecy. However Cyprus law does
provide for normal judicial appeal procedures
against treaty requests for information and
cooperation.
The
Cyprus Government has taken strong measures
to prevent the use of the island for money laundering,
partly in response to an influx of doubtful
money and unwanted organizations from Russia
and other CIS countries in the early nineties.
The Prevention and Suppression of Money Laundering
Law of 1996 has been largely successful: in
April 1998 a Select Committee of Experts from
the Council of Europe reported enthusiastically
about the island's measures to control money
laundering.
In
July 2001 a delegation from the European Union's
Peer committee began an inspection of Cyprus's
financial sector to determine if Cyprus had
sufficiently aligned its laws with EU directives
governing banking, the stock exchange, offshore
institutions, the insurance industry and co-operative
credit institutions. Giorgos Vassiliou, head
of the Cypriot EU negotiating team, said not
only must Cyprus enact all the relevant legislation
in the financial sector, its supervisory systems
must also be up to scratch in order to enforce
those laws. The investigation included the banks'
ability to impose the legislation, confidentiality,
credit risk controls, depositor protection,
money-laundering, and the supervision of co-operative
entities.
In
August the International Monetary Fund visited
Cyprus to undertake the first in a series of
planned reviews of offshore financial centres
(OFCs). Starting with Cyprus an IMF staff assessment
programme, designed to help strengthen financial
supervision of OFCs and to promote greater cooperation
among supervisory authorities, reviewed and
analysed the extent to which the Island's OFC
met international banking, securities, and insurance
standards, and to determine if further action
was required for those standards to be met.
The
IMF's report: 'Cyprus - Assessment of Implementation
of the Basel Core Principles for Effective Banking
Supervision in Respect of the Offshore Sector
- July 30, 2001', was an informal review of
the supervision of the Cypriot banking sector
which indicated that supervision was 'generally
effective and thorough.'
However,
the review pointed to a level of supervision
that was 'less than desirable' due to the scarcity
of some resources. And although Cyprus's impending
accession to the European Union had led the
authorities to implement a vast amount of legislative
change, said the review, the Island had authorized
some institutions that were regarded by other
supervisory bodies as 'high-risk'. The review
stated: 'while customers do not appear to have
experienced significant losses, such an environment
will require continued vigilance and a high
standard of supervision.'
In
addition the review highlighted the fact that
regulators and financial institutions depended,
to a degree, on accounting and legal firms which
were not regulated by any external authorities.
'It is clear that the provision of company services
through limited liability companies owned and
managed by accounting and law firms is not effectively
regulated,' stated the review.
After
the terrorist attacks of 11th September, the
government of Cyprus responded swiftly and angrily
to allegations made by the former head of the
CIA, James Woosley, that Cyprus was used by
the Saudi dissident Ossama Bin Laden to launder
funds later used for terrorist activities.
Mr
Woosley had launched a vitriolic attack on the
offshore jurisdiction, advising EU member countries
to tell Cyprus: 'You will enter the European
Union, but not before 3-4,000 years have elapsed,
unless you immediately provide full information
about Bin Laden's money.' Mr Woosley went on
to add that although there were other countries
which he saw as being reluctant to cooperate
in the American effort to discover the whereabouts
of Bin Laden's assets, Cyprus was one of the
worst offenders. The US embassy in Nicosia was
swift to issue a statement making it clear that
the views of Mr Woolsey did not represent the
official views of the US government.
The
country's Foreign Minister, Ioannis Kasoulides,
asked ambassadors from the USA, UK, France,
Germany, Italy, Spain, Greece, the EU, and Switzerland
to request that their governments send any evidence
that they had regarding the possible involvement
of Cyyprus in terrorist activities to the government
in order that it may be fully investigated,
both internally and internationally.
The
Governor of the Cyprus Central Bank, Afxentis
Afxentiou, also spoke out against the allegations,
saying: 'I'm sure that Bin Laden does not have
any money in Cyprus. Two years ago when we investigated
the matter, we did not find any accounts in
the name of Osama Bin Laden, but a number of
offshore companies owned by his brother.' However,
he admitted that he could not confirm whether
offshore companies operating in the country
now were being indirectly controlled by the
Saudi millionaire. He added that the Central
Bank, in parallel with the government's efforts,
would be asking the US embassy for further clarification.
In
November, the last Yugoslav bank in Cyprus closed.
Astra Banka, formerly known as Karic Banka,
was once closely linked with the disgraced Yugoslavian
dictator, Slobodan Milosevic, but switched sides
after his regime collapsed. Along with Beogradska,
formerly the largest Yugoslavian banking unit
in Cyprus, it had earned a reputation as a conduit
for dirty money, and was blamed by many for
earning the offshore jurisdiction the reputation
as a centre for money laundering.
Spyros
Stavrinakis, a Cyprus Central Bank official,
explained that the authorities had revoked the
bank's operating license: 'after the National
Bank of Yugoslavia informed us they were winding
up operations at Astra Banka in Belgrade.'
In
December, the government showed its determination
to wage war against terrorism as President Glafcos
Clerides officially signed the International
Convention to Combat the Financing of Terrorism.
Cyprus was the 15th country internationally
to ratify the convention.
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Cyprus Investment
Company Law
In 2001,
as part of preparations to join the EU, Cyprus
began to construct a modernised regime for mutual
fund operation. The Cyprus Mutual
Fund Law came into force in March, 2003, allowing both native and foreign firms to offer mutual
funds to Cypriot residents. It has been decided
by the SEC that prospectuses can be written
in English, though rules will require that a
potential purchaser of the fund has a sufficient
enough grasp of the language to understand the
implications of buying into the fund.
The
major objective of the new law is to provide
transparency in the market place. All funds
will have to publicise their bid/offer rates
and make clear commissions and costs in their
promotional literature.
The
Central Bank of Cyprus (Bank) which is the regulatory
and supervisory authority for Schemes, their
managers and trustees, may upon a written application,
recognise a company incorporated under the Cyprus
Companies Law, a trust created under the International
Trust Law or a partnership registered under
the Partnership and Business Names Law, as an
International Collective Investment Scheme.
Uder
the new legislation, therefore, a Scheme may
take one of the following forms:
- International Fixed Capital Company (IFCC)
- International Variable Capital Company (IVCC)
- International Unit Trust Scheme (IUTS)
- lnternational Investment Limited Partnership (IILP)
All
four legal types of Schemes, can either be of
limited or unlimited duration.
A
Scheme, once recognised, may be designated by
the Bank as:
- A
Scheme to be marketed to the general public;or
- A
Scheme to be marketed solely to experienced
investors; or
- A
private international collective investment
scheme.
A
manager of a Scheme must be approved by the
Bank. In this respect, a manager must on an
ongoing basis, satisfy, among other, the Bank
that, having regard to the investment policy
and the particular investment objectives of
the Scheme for which it acts as manager that
it has sufficient financial and operational
resources at its disposal to meet its liabilities,
as well as sufficient investment expertise to
conduct its business effectively.
Trustees
of Schemes must also be approved by the Bank.
Under the Law, only the following can act as
trustees of Schemes:
- A
Cyprus local or international bank or an overseas
bank established in a jurisdiction which in
the opinion of the Bank exercises adequate
banking supervision and which has such minimum
paid-up share capital as the Bank may from
time to time prescribe; or
- A
local or international or an overseas professional
trustee company which is adequately supervised
and which has such minimum paid up share capital
as the Bank may from time to time prescribe;
or
A company incorporated in the Republic, which
is a subsidiary of a person referred to at
(1) and (2) above, provided that its liabilities
are fully guaranteed by that person.
Every
Scheme, its manager and trustee are subject
to on-site inspections by the Central Bank of
Cyprus. In addition, the Bank may, under certain
circumstances, apply to the Court in order to
appoint an inspector to investigate the affairs
of the Scheme, its manager or trustee, or any
associated undertaking of any of the aforementioned.
Every
Scheme, its manager and trustee will also be
subject to off-site monitoring and will, therefore,
be required to furnish the Bank with such information
and returns concerning the business of the Scheme,
its manager or trustee as the Bank may specify
from time to time.
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