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)
Banking Laws 1997 to 2009
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
Investment
Services and Activities and Regulated Markets
Law 2007 (Law 144(I)/2007)
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
Merchant
Shipping (Fees and Taxing Provisions) Law
2010
Partnership and Business Names Law Chapter 116
Prevention and Suppression of Money Laundering Law 1996
Prevention and Suppression of Money Laundering Law 2008
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
(now Section 29 of the Banking Laws 1997 to
2009). 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. This made it possible for the government
to run a tax amnesty scheme targetting those
with undeclared bank accounts.
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.
On
December 13, 2007, the House of Representatives
enacted an updated Prevention and Suppression
of Money Laundering Activities Law, which
consolidated, revised and repealed the 1996
law. Under the current Law, which came into
force on January 1, 2008, the Cyprus legislation
has been harmonised with the Third European
Union Directive on the prevention of the use
of the financial system for the purpose of
money laundering and terrorist financing (Directive
2005/60/C).
The
present Law, as the previous one, designates
the Central Bank of Cyprus as the competent
supervisory authority for persons engaged
in banking activities and money transfer business.
Under this framework, the Central Bank of
Cyprus has the responsibility of supervising
and monitoring the compliance of banks and
money transfer businesses with the provisions
of the Law for the purpose of preventing the
use of the financial system for money laundering
and terrorist financing activities.
Since
1997 and by virtue of the powers vested to
it under the Law, the Central Bank of Cyprus
issued several Directives to banks and money
transfer businesses which determine the practice
and procedures that should be implemented
by those entities for the effective prevention
of money laundering and terrorist financing
so as to achieve full compliance with the
requirements of the Law.
In
April 2008, the Central Bank of Cyprus has
issued a revised Directive to the banks, in
accordance with the provisions of the Law
of 2007, requiring the introduction of new
revised policies and procedures, as well as
the upgrading and enhancement of the measures
and systems for the effective prevention of
money laundering and terrorist financing in
line with the FATF standards and the Directives
of the European Union in this sector. It is
emphasized that the Law explicitly states
that Central Bank of Cyprus’ Directives
are binding and compulsory to all persons
to whom they are addressed.
Since
1997, a special Unit for Combating Money Laundering
has been set up at the Attorney General’s
Office which is responsible for the receipt
and analysis of suspicious transaction reports
and money laundering investigations. In the
course of money laundering investigations,
this Unit may apply to the Court and obtain
an order for the disclosure of information
addressed to any person, including banks,
who may be in possession of information related
to the investigation as well as orders for
the freezing and confiscation of funds and
property suspected to be derived from money
laundering.
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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 was decided
by the SEC that prospectuses could be written
in English, though rules required 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 was to provide
transparency in the market place. All funds
must 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 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.
On
November 26, 2007, the Investment Services
and Activities and Regulated Markets Law 2007
(Law 144(I)/2007) was published in the Cyprus
Gazette. This legislation, effective November
1, 2007, brought Cypriot investment law into
compliance with the European Union Markets
in Financial Instruments Directive (MiFID).
MiFID is a European Union instrument which
provides a harmonized regulatory regime for
investment services across the 30 member states
of the European Economic Area (the 27 Member
States of the European Union plus Iceland,
Norway and Liechtenstein). The main objectives
of the Directive are to increase competition
and consumer protection in investment services.
MiFID retained the principles of the EU ‘passport’
introduced by the Investment Services Directive
(ISD) but introduced the concept of ‘maximum
harmonization’ which places more emphasis
on home state supervision.
Law
144(I)/2007 replaced
the Investment Firm Law of 2002. As a result
of the new legislation, Cyprus Investment
Firms (CIFs) are required to classify their
clients as retail clients, professional clients
or an eligible counterparty as follows:
- Retail Client: a
client who is neither a professional client
nor an eligible counterparty and who receives
the highest level of protection under (Law
144(I)/2007 Sections 36, 38 and 39.
- Professional Client:
a client who possesses the experience, knowledge
and expertise to make their own investment
decisions and properly assess the risks
that they incur.
- Eligible Counterparty:
any of the following entities which a CIF
is authorized to receive and transmit orders,
and/or to execute orders on behalf of clients,
and/or deal on own account: CIFS, credit
institutions, insurance undertakings, UCITS,
pension funds, and other financial institutions
authorized by an EU member state or regulated
under community law.
The new law stipulates
that investment advisers must be suitable
qualified. It is a criminal offence to accept
payment for investment services without a
licence under the law. Those found guilty
of an offence under the law face fines, imprisonment,
or a ban from providing investment services
for up to five years.
An investment company
must satisfy the following requirements before
a licence will be granted under Law 144(I)/2007:
- Initial share capital:
- for reception,
transmission, execution, portfolio management
and investment advice: EUR200,000
- For reception,
transmission, investment advice without
handling any clients’ funds/instruments:
EUR80,000
- for professional
indemnity insurance with coverage in
all member state countries for at least
EUR1m for each loss and a total of 1.5m
annually for all losses due to negligence:
EUR40,000
- for own account,
underwriting and operation of Multilateral
Trading Facilities: EUR1m
- for reception,
transmission, investment advice without
handling client funds/instruments and
insurance intermediary: EUR40,000
- for professional
indemnity insurance with coverage for
all member states for at least 500,000
for each loss and 750,000 for all losses
for each year: EUR20,000
- The memorandum of
association of an investment company must
state that it is operating as an investment
company and provides the services provided
in their license, which was granted to them
by the Cyprus Securities and Exchange Commission.
- Company directors
must have good standards of integrity and
experience, and the company must be managed
by at least two such people. Similarly,
the employees of the investment company
must have sufficient integrity, skills,
knowledge and expertise so as to be able
to carry out their duties properly.
- The names of the
shareholders or beneficial owners of the
investment company must be disclosed.
- The head office
of the investment company must be located
in Cyprus.
- The investment company
must be a member of the investors compensation
fund.
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