For Cyprus the following apply:
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
Investment Company Law
Cyprus Private Investment Funds, known as private International Collective Investment Schemes (ICIS), are private funds that can be formed under the laws of Cyprus. The
Central Bank of Cyprus is the regulatory and supervisory authority for ICIS under the International Collective Schemes Law 47 (I) 1999 (the ICIS Law).
A private ICIS fund can have up to 100 investors, also known as unit-holders. The purpose of a private ICIS fund is the collective investment of funds injected in such schemes by the unit-holders. It provides an arrangement that enables a number of investors to add collectively their assets, have these professionally managed and invested by independent managers and extract their profits in a tax efficient manner.
Under the legislation, therefore, a Scheme may take one of the following forms:
International Fixed Capital Company (IFCC): Incorporated under the Companies Law and recognised to operate as an international fixed capital company by the ICIS Law. Its assets and unit holders are non-Cypriot residents and the share capital cannot vary, it remains fixed. The initial minimum capital required to set up an IFCC is USD100,000. If the IFCC is a private ICIS then it is exempted from this capital requirement. A private ICIS is one that has 100 or less investors.
International Variable Capital Company (IVCC): Incorporated under the Companies Law and operates as an international variable capital company by the ICIS Law. Its assets and unit holders are non-Cypriot residents and the share capital varies according to the participating investors at any given time. The share capital of the company is equal to the net asset value (NAV) of the shares of the company at any time.
International Unit Trust Scheme (IUTS): An international trust created under the International Trust Law and recognised to operate as an International Unit Trust Scheme under the ICIS Law. (See Cyprus International Trusts). The assets are owned by the Schemes Trust in fiduciary for the trust beneficiaries
International Investment Limited Partnership (IILP): A limited partnership registered under the Partnerships Law and recognised to operate as an international investment limited partnership under the ICIS Law. As with all limited partnerships (see Partnerships), there must be a general partner appointed who manages the fund and is responsible for the assets and liabilities of the fund. The limited partner will also be a member of the scheme. A general partnership can also have companies as partners.
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, the Central 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 Central 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.
Cyprus Investment Firms
Cyprus Investment Firms (CIF) are companies established in Cyprus and licensed by CySEC to provide one or more investment services to third parties or/and perform one or more investment activities under the applicable laws and regulations. Accordingly, an Investment Firm licensed in Cyprus, can be used for the provision of investment services from Cyprus in all EU markets by simply passporting its license, while it can also offer investment services to third countries. CIFs are governed by Law 144(I)/2007, which replaced the Investment Firm Law of 2002.
The services can be offered on a cross-border basis or by establishing a physical presence in the jurisdiction into which the services will be provided. Cyprus Investment Firms, extensively used for forex trading, brokerage services, investment
portfolio management and investment advice, benefit from Cyprus’s 10% corporate tax rate.
Investment Services subject to authorization by CySEC consist of the following services:
Reception and transmission of orders in relation to one or more financial instruments;
Execution of orders on behalf of clients;
Dealing on own account;
Portfolio management;
Investment advice;
Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
Placing of financial instruments without a firm commitment basis; and
Operation of Multilateral Trading Facility.
Ancillary (non-core) Services subject to authorization by CySEC consist of the following services:
Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as
cash/collateral management;
Grant credits or
loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction;
Provide advice to undertakings or capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings;
Provide foreign exchange services where these are connected to the provision of investment services;
Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments;
Services related to underwriting; and
Safe custody services.
However, it must be noted that a licence cannot be granted for the provision of non-core services alone.
Law 144(I)/2007 was published in the Cyprus Gazette on November 26, 2007. 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.
As a result of the legislation, 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 law stipulates that investment advisers must be suitably 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.
Taxation of Collective Investment Schemes
In 2009, the The Cyprus
Income Tax Law N.118(I)/2002 was amended to clarify that interest income earned by a collective investment scheme (CIS) is subject only to income tax (less any allowable expenses) and exempt from the Special Defence Contribution. This amendment was made in a bid to attract more investment schemes to set up and operate from Cyprus and to improve taxation for companies holding interests in Cypriot and non-Cypriot CISs.
In addition, the changes mean that the redemption of a unitholding in a collective investment scheme will not be considered as a reduction in capital under the Special Defence Law, therefore there will be
no tax obligations on the distribution arising from the redemption.
Furthermore, the Special Contribution for Defence Law was amended in order to abolish the minimum participation requirement of 1% when it relates to
dividends received from abroad by a Cyprus tax resident company. This makes it easier for portfolio investors to benefit from the dividend participation exemption.
The result of the amendment is that interest earned by a Cypriot company is now reduced to a maximum rate of 10% in all cases, whereas prior to the change, interest income could be taxed at 15%. The amendment was approved by parliament on October 22, 2009 and came into immediate force.
