Cyprus: Law of Offshore
Visit Offshore Banking Units for details of their formation and taxation. For the offshore investor, Cypriot banking law provides a reasonable but not outstanding level of non-disclosure.
When formed, offshore entities must disclose beneficial ownership to the Central Bank. They must also disclose this information to their local agent, though he can only be forced to divulge it with a court order. Central Bank employees are bound to secrecy for life by Section 29 (1) of the Banking Law.
Trustees do not have to register the trust’s beneficiaries, though when opening a bank account, they must disclose beneficial ownership. Confidentiality on the part of commercial banks is covered by the Banking Law 66 (1) of 1997. Normally speaking, local banks apply about the same standards of confidentiality as 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 targeting those with undeclared bank accounts.
Since 1997, a special Unit for Combating Money Laundering (MOKAS) 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.
The rules for exchange of information with foreign states are a complex mixture of 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. This is now further complicated by the EU acquis communautaire which substantially regulates secrecy more strictly. However Cypriot law does provide for normal judicial appeal procedures against treaty requests for information and cooperation.
The Cypriot Government has taken robust measures to prevent the island from being used for money laundering, partly in response to an influx of dubious 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 13 December 2007, the Cypriot 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 1 January 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). Further amendments were made in 2010 and 2012.
These laws designate the Central Bank of Cyprus as the supervisory authority for persons engaged in banking activities and money transfer business. Under this framework, the Central Bank of Cyprus (with the assistance of MOKAS) supervises and monitors the compliance of banks and money transfer businesses to prevent the financial system being used for money laundering and terrorist financing activities.
On 14 April 2011, legislation was enacted to introduce a special bank levy under which financial institutions operating in Cyprus will be required to pay 0.095% on the total amount of deposits held at the end of each calendar year. See Cyprus Domestic Corporate Taxation for more details on the bank levy.