Cyprus International Trust Law – Upcoming Legislation

The Cyprus Securities and Exchange Commission (“CySEC”) announced on the 8th of August 2013 that the Law regulating Companies providing Administrative Services and Related Matters of 2012 (”the ASP Law”), is in the process of being amended following discussions between Troika, the Ministry of Finance and all three Competent Authorities – being the Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus (ICPAC) and CySEC.

The proposed bill is expected to be set before the Cyprus Parliament for consideration early September –so as to meet the Memorandum’s deadlines. Along with the proposed amendments in the ASP Law there is a proposed amendment of the International Trust Law which is directly associated with the ASP Law.

The suggested amendments over the ASP Law and the International Trust Law provide and introduce the registration of Trusts whereas currently this is not legally required. In particular, the proposed bill provides for “Trust Registers” meaning the trust registers established and maintained by CySec , the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC) (“the Competent Authorities”). The Cyprus Bar Association establishes and the ICPAC shall maintain a Register of Trusts with respect to each trust governed by Cyprus law and where one of its trustees is an exempted person resident of Cyprus who is supervised by the Cyprus Bar Association and the ICPAC respectively in their capacity as Competent Authorities. CySEC will establish a Register of Trusts with respect to every trust governed by Cyprus law which does not fall in the category of exempted persons (lawyers, accountants) under the ASP Law.

According to the proposed bill any person providing these services must identify and verify the identity of the beneficial owners of the trust. This should include accurate and updated information regarding the following categories, where and if these are applicable: Trustees, Settlors, Beneficiaries or information on the class of beneficiaries including the beneficiaries to whom any distributions have been made pursuant to the trust, the Protector (if applicable), Fund manager, accountant, tax consultant (if applicable), the activities of the trust and any other person who exercises effective control over the trust. The person providing trust services must have this information available in the Republic of Cyprus for disclosure to and inspection by the relevant Competent Authority at all times. The proposed bill provides further that the Competent Authorities may exchange information with each other for the purpose of carrying out their duties under the ASP Law and the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing Law. A trust shall be kept in the Register of Trusts for as long as it is governed by Cyprus Law. A level of confidentiality is promised to be achieved since the Registers of Trusts: (a) Will not be available to the public but shall be available for inspection by the Competent Authorities. (b) Contain the following information: (i) the name of the trust, (ii) the name and full address of every trustee at all relevant times, (iii) the date of establishment of the trust, (iv) the date of any change in the law governing the trust to or from Cyprus law and (ν) the date of termination of the trust. The proposed bill provides also that each trustee, resident of Cyprus, of a trust governed by Cyprus law should, within fifteen days from the creation of the trust or the adoption of Cyprus law as the applicable law governing the trust, as applicable, notify the Competent Authority that maintains the relevant Register of Trust of the information specified above. With respect to trusts governed by Cyprus law which exist at the date that the proposed bill will be transformed to law a deadline of six months is provided for the trustees to comply with the registration requirements. Violation of the above is proposed to be punishable, in the event of conviction, by a term of imprisonment not exceeding five (5) years or by a fine, not exceeding three hundred and fifty thousand euro (€350.000) or both.

Our Firm’s Comment: Pending ratification of the proposed bill by the Cyprus Parliament and reviewing the final wording of the legal text for purposes of statutory specificity, when it comes to trusts we would like to note that planning is important. Trust planners and clients strive for certainty, for structuring their business and financial affairs, though absolute certainty never exists. The Cyprus International Trust Law 1992 was amended extensively in March 2012 to become more attractive whereas now the registration requirement is a substantial change. At the heart of the trust lies the idea of confidentiality of a private settlement. Registration and gathering information requirements exactly touch upon the issue of what is the legitimate boundary of privacy and confidentiality of a person’s financial affairs. Policy makers and legislators holding the flag of transparency favour state’s supervision. The proposed use of trust registers is not even the product of a sincere dialogue, besides Troika is known for the opposite. As the proposed bill stands now the boundaries of privacy are to be pushed back.

For further information on this topic please contact Dr. Pavlos Neofytou Kourtellos at P. N. KOURTELLOS & ASSOCIATES LLC, by telephone: +357 25 745575 or by fax: +357 25 755525 or by e-mail: pnk@kourtelaw.com.

Disclaimer This publication has been prepared only as a general guide and for information purposes. It does not constitute or should not be read as a legal advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.