The law on international trusts in Cyprus has undergone considerable changes this month with the enactment of a new law[1] that amends the International Trusts Law[2]. The amendments have been heralded as positioning Cyprus as the most favorable trust jurisdiction in the European Union and its much-anticipated provisions have been received with considerable praise by investors and professional advisors across the island. The need for greater flexibility, protection and attractiveness to investors has long been felt and the new law is credited with greatly enhancing the reputation of Cyprus as a venue for international business.
So, what has the new law done and how will investors benefit?
Opening the Doors
The new law expands provisions regarding residency of beneficiaries and settlors. Whereas the old law defined an international trust as one in which no settlor or beneficiary could be permanent resident in the Republic, the new law opens the doors to those involved in an international trust by expanding the definition of international trust to mean one in which:
“The settlor, being either a natural or legal person, is not a resident of the Republic during the calendar year immediately preceding the creation of the trust”[3]; and
“No beneficiary, whether a natural or legal person, other than a charitable institution is a resident of the Republicduring the calendar year immediately preceding the year in which the trust was created”[4].
This is a considerable expansion in the definitions of both settlor and beneficiary as the previous law simply stated that a settlor could not be a permanent resident and neither could a beneficiary other than a charitable institution.
Expanded Powers of Investment
The new law expands the type of property that may be held in an international trust, by removing the provision of the old law that stated:
“the trust property [may] not include any immovable property situated in the Republic”[5].
New section 8 (3) clarifies which investments are authorized, by stating:
“The Trustee may hold, retain or invest in any movable property in the Republic and overseas including shares in companies incorporated in the Republic and in immovable property located in the Republic and overseas”[6].
No Limits on Life of Trust
The old law stipulated that “the duration of an international trust may continue until the one hundredth anniversary of the date on which it came into existence and will then terminate unless terminated sooner pursuant to a relevant direction which is included in the [trust instrument]”[7].
Section 6 of the new law replaces this section, stating that there will be no time limit on the period for which a trust will continue to be valid and enforceable.
Power of the Settlor
The Settlor is given flexibility regarding the trust and the reservation or grant to the settlor of a right or interest to the trust property shall not invalidate the trust[8]. Most particularly the settlor shall have the power:
- to revoke or amend terms of a trust;
- to advance, distribute pay or otherwise apply income or capital of the trust property;
- to act as a director or officer of a company wholly or partly owned by the trust;
- to issue directions to the trustee as to the manner in which he deals with trust property;
- to appoint or remove any trustee, enforcer, protector or beneficiary;
- to appoint or remove an investment manager or investment advisor;
- to change the governing law or forum of the trust;
- to limit the power of trustees by requiring the consent of the settlor or another person.
Cypriot Law Given Precedence
The new law makes it clear that “all matters arising in respect of an international trust or any disposition of property under such trust…shall be determined in accordance with the laws in force in the Republic, without reference to the laws in force in any other jurisdiction”[9].
This is expressly stated to include: matters concerning the validity, interpretation or effect of a trust; the validity or effect of a transfer or other disposition of trust property: the management of a trust: the existence and extent of operations in relation to the trust; and the powers, obligations and duties of trustees.
Furthermore an international trust or a disposition of property under such, may not be voidable by reason that the laws of a jurisdiction prohibit or do not recognize the concept of trust, that the trust or disposition conflicts with the law of another jurisdiction by way of a right to inheritance for instance or it is contrary to any law of any other jurisdiction[10].
Finally “an express or implied choice of law of the Republic as the governing law of the trust is valid…irrespective of circumstances”[11]
Conclusion
The reform of the Cyprus International Trusts Law is a considerable step forward in the modernization of Cypriot Trusts law. It effectively removes and eliminates many of the restrictions and limitations that have, over time, proved to stand in the way of trusts administered under the previous law. The new provisions firmly place Cyprus as a leading trusts center within the EU and furthermore cements Cyprus’ position as a key player in the world trusts market.
[1] Law 20 (1) 2012
[2] International Trusts Law, Law No. 69/1992
[3] Section 2 (a) (a) of Law 20(I) of 2012
[4] Section 2 (a) (c) of Law 20(I) of 2012
[5] Section 2 (d) of International Trusts Law 1992
[6] Section 8 (b) of Law 20 (I) of 2012
[7] Section 5 (1) of International Trusts Law 1992
[8] Section 5 of Law 20 (I) of 2012
[9] Section 3 (1A) of Law 20 (I) of 2012
[10] Section 3 (4) of Law 20 (I) of 2012
[11] Section 12 A (2) of Law 20 (I) of 2012
