The Legal 500

South Africa has excellent and long standing bilateral relations with Cyprus . These strong ties are further cemented with the help of the large and influential Cypriot (and Greek) community in South Africa , numbering about 60,000. The Cypriot Community also serves as a link between the two countries, both politically and economically.

THE LEGAL FRAMEWORK FOR CYPRIOT COMPANIES AND HOW THESE COMPANIES ARE USED IN THE CORPORATE FINANCE TRANSACTIONS

The long-awaited reform of the Cyprus International; Trust Law, a much needed initiative, has finally become reality with the passing by the House of representatives of the International Trust (Amending) Law of 2011.

Parliament has approved a number of changes to the laws relating to income tax and the special defence contribution (SDC) tax aimed at stimulating the economy and attracting investment from overseas. The changes will come into force when the amending laws are published in the Official Gazette, and will have retrospective effect from January 1 2012.

The critical role that letters of credit have played in the growth of international trade is widely acknowledged.

Following the enactment in April 2011 of Law 72(I) of 2011, which made it illegal to charge interest above a specified rate (currently 12.57%) on loans, the Penal Code, Cap 154, has been further amended to introduce an exemption for corporate financial arrangements, namely:

The Cyprus Securities and Exchange Commission ("CYSEC") has recently issued Directive DI144-2007-11 of 2011 on "Supplementary Supervision of Investment Firms in a Financial Conglomerate". The  Directive sets out the provisions for the supplementary supervision of an investment firm which has been granted an authorisation by CYSEC and which is part of a financial conglomerate.

The financial upheavals undergone by the Cyprus economy in the first half of 2011 and the tragic explosion at Mari which destroyed half the island's electricity generating capacity and left the government in disarray have added to a risk of a new recession.

The Ministry of Interior and the Ministry of Finance have approved new terms and financial criteria in October 2011, regarding the eligibility of foreign high net worth individuals in connection with the acquisition of Cyprus Citizenship.

At a time when politicians in the world's large economies are stigmatising legitimate tax mitigation measures and denouncing financial centres such as Cyprus as tax havens which promote secrecy and concealment of income, a recent independent study shows a different picture.

The Settlement Finality in Payment and Securities Settlements Systems Law (Amendment) Law, 99 of 2011 and the Banking Business and Securities Transfer (Amendment) Law, 103 of 2011 align Cyprus domestic banking legislation with Directive 2009/44/EC of the European Parliament and of the Council amending Directives 98/26/EC on settlement finality in payment and securities settlement systems and 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims.

Following the enactment of the Covered Securities Law, 130(I) of 2010, which establishes the legal framework for issuance of covered securities in Cyprus, a number of consequential amendments have been made to other legislation.

And the China Banking Regulatory Commission

The Central Bank of Cyprus has announced the signing on 15 July 2011 of a Memorandum of Understanding with the China Banking Regulatory Commission. The Memorandum of Understanding follows the basic principles of cooperation between supervisory authorities, as formulated by the Basel Committee on Banking Supervision.

The Central Bank of Cyprus is the banking regulator and supervisor of banks incorporated in the Republic of Cyprus. The authority of the Central Bank of Cyprus stems from the Banking Law 66 (I) 1997 as amended , (hereafter to be referred to as the ‘Banking Law’) which empowers it to supervise banks and to issue directives and practices to regulate their conduct; it also establishes the legal framework within which banking business can be pursued.

The Central Bank of Cyprus has issued a Directive under article 20 of the Central Bank of Cyprus Laws of 2002 to 2007 regarding the implementation of the European Central Bank's Decision dated 16 September 2010 on the authenticity and fitness checking and recirculation of euro banknote

Giving Cyprus an international trusts law for the twenty-first century

Throughout the firm's existence Andreas Neocleous & Co LLC has helped shape Cyprus's transparent and robust legal system, and promote the island as a leading international business centre offering the highest standards of integrity with smart regulation.

The Banking (Amendment) Law 2011 (Law 27(I) of 2011) came into effect in March 2011.  It harmonises legislation in the banking sector with EU legislation including:

with strategic anti-money laundering deficiencies

The Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit held in Paris in 1989. It was given responsibility for examining money laundering techniques and trends, reviewing actions which had already been taken at a national or international level, and setting out the measures that needed to be taken to combat money laundering.

Limited liability partnerships (LLPs) are a form of hybrid entity which combines the advantages of a partnership and a limited company and are widely used for doing business around the world. India enacted legislation in 2009 allowing for LLPs to be formed. However, foreign investment in LLPs was not permitted.

illustrates the need for careful planning and documentation of transactions.

Details are now available of the levy to be imposed from 2011 onwards on credit institutions in Cyprus. As noted in our earlier news item, credit institutions operating in Cyprus will be required to pay a levy of 0.095% on their customer deposits. For the first two years, seven-twelfths of the amounts raised by the levy will be used to reduce the government deficit and the remaining five-twelfths will be used to fund a financial stability fund. From 1 January 2013, the entire amount raised by the levy will be credited to the financial stability fund.

Cyprus has enacted a new law regulating personal loans and limiting the maximum rate of interest which may be charged on them. The interest rate ceiling is calculated using a formula based on half the average bank lending rate of the previous year plus a margin of between 5 and 10 percentage points, which varies according to various risk factors. The current maximum rate under the formula is 17.4%.

The law establishing the financial stability fund and associated bank levy, described in our news item of 29 March was enacted by the Cyprus Parliament on 14 April 2011. The Parliament approved a levy on banks to be calculated at the rate of 0.095 per cent on aggregate deposits held by each bank. This is expected to raise approximately 70 million euros over two years in state revenues and a further 50 million euros that will flow to a depositor protection fund in 2013.

The Central Bank of Cyprus has announced that it is drafting regulations to create a financial stability fund, which should be in place within six months.

GEORG Y.YIANGOU & CO IS CELEBRATING 30 YEARS OF SUCCESS

This year George Y.Yiangou & co are celebrating 30 years of success and growth in the business sector as a law firm offering corporate and commercial services. International Debt Collection, Accounting and International Tax Planning Services.

The presentation of a “Pact of Competitiveness” at the EU summit on 4 February by Germany and France was the plan for the Eurozone Member States to agree on a closer economic convergence in order to restore competitiveness to the euro area.

MiFID – General Overview : The Markets in Financial Instruments Directive (MiFID) 2004/39/EC forms part of the E. U. Financial Services Action Plan (FSAP), which was developed in furtherance of the E. U. single market vision and the abolition of market barriers.

As a general rule, a charge created by a Cyprus company conferring security on the company’s property or undertaking constitutes a charge registrable under Section 90 of the Companies Law CAP 113. Following the enactment of Law N99(I)/2009 a pledge of shares of a Cyprus company is no longer required to be registered under CAP 113 for perfection purposes.

There is no easy solution, to the problem, which follows from the principle of majority rule, in Company law, that of protecting the minority shareholders from violation of their rights.

The Cyprus Parliament has approved the budget for 2011, which includes measures aimed at reducing the government deficit to 4 per cent of gross domestic product, in the context of a requirement under the EU excessive deficit procedure to bring it below the Eurozone limit of 3 per cent of gross domestic product by 2012.

The anxiety of the law is to strike the optimum balance between the principle of the majority rule on the one hand and safeguarding minority shareholders against abuses of the power, on the other.

What are the most common forms of security granted in relation to immovable and movable property? Are any specific formalities required for their creation and perfection (that is, made valid and enforceable)?

What are the relevant statutes and regulations governing securities offerings? Which regulatory authority is primarily responsible for the administration of those rules?

The Amending Law 100(Ι) of 2009 makes a number of important changes to Cyprus’s Banking Law.

Cyprus tax legislation does not contain specific provisions relating to the thin capitalization of companies, such as limits on debt-to-equity ratios. Therefore, a Cyprus holding company may be financed by loans without the risk of interest that is paid at arm's length to its parent company being disallowed for tax. However, in order to demonstrate that interest is charged on an arm's-length basis, it is important to have an adequate margin between the rate charged to the recipients of the funds on the one hand and the rate paid to the provider of the finance on the other.

The European Commission has approved the Cyprus government’s plan to use special government bonds to reinforce stability in financial markets and mitigate the effects of the current financial downturn under EC Treaty state aid rules. The Commission found the measure to be in line with its Guidance Communication on state aid.

Statutes and regulations governing securities offerings The main statutes governing securities offerings are: the Public Offer and Prospectus Law, 114(I) of 2005 that implemented Directive 2003/71/EC on the contents of prospectuses when securities are offered to the public or admitted to trading (the Prospectus Directive), the Insider Dealing and Market Manipulation (Market Abuse) Law, No. 116(I) of 2005, implementing the EU Market Abuse Directive (2003/6/EU), the Cyprus Securities and Stock Exchange Law, 14(I) of 1993 and The Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law, number 64(I) of 2001; but also the Regulations made under the Cyprus Securities and Stock Exchange Law, and in particular the 1995 Regulations as amended. To the extent

The Republic of Cyprus and the Russian Federation have signed a Protocol on Economic Cooperation to enhance cooperation and to further the existing ties of friendship between the two countries.

The latest edition of the “Internal Market Scoreboard” released by the European Commission in February 2009 shows that Cyprus has made progress in reducing its “transposition deficit” – the number of European Directives yet to be transposed into national law. At December 2008 the number of outstanding Directives had been reduced to 27, compared with 29 six months earlier. Furthermore the number of long overdue directives was reduced from three to zero during the second half of 2008.

The Central Bank of Cyprus has given further details of the Memorandum of Understanding it concluded in November with the Qatar Central Bank, regarding the supervision of credit institutions. The Qatar Central Bank is the competent authority for the licensing and supervision of credit institutions operating in Qatar.

Personal bankruptcy is governed by the Bankruptcy Law, Cap 5, and the Bankruptcy Rules, Cap 6. Corporate insolvencies and reorganisations are governed by the Companies Law, Cap 113. Section 203 of the Companies Law provides two methods of winding up, namely: compulsory winding-up by the court; and voluntary winding-up, which may be either a members’ winding up or a creditors’ winding up.

30.12.2008 - The Central Bank of Cyprus (“CBC”) is responsible for the licensing and supervision of banks and for safeguarding the stability of the financial system in Cyprus. In this connection it pursues an active policy of signing Memoranda of Understanding for cooperation in the field of banking supervision and exchange of information with competent overseas authorities, particularly those whose banks operate in Cyprus.

10.12.2008 - The Central Bank of Cyprus has given further details of the Memorandum of Understanding it concluded in November with the Qatar Central Bank, regarding the supervision of credit institutions. The Qatar Central Bank is the competent authority for the licensing and supervision of credit institutions operating in Qatar.

The Cyprus Investment Promotion Agency (CIPA) has announced that Cyprus attracted €1.6 billion in direct foreign investment in 2007, a ten percent increase on the previous year. Approximately sixty percent was from fellow EU member states.

In line with its policy of developing bilateral ties in the domain of supervision of credit institutions the Central Bank of Cyprus has signed a Memorandum of Understanding with the Malta Financial Services Authority, the body responsible for licensing and supervision of credit institutions operating in Malta.

The Central Bank of Cyprus has relaxed the minimum liquidity reserve requirement in foreign currencies for commercial banks operating in Cyprus. A directive issued in August reduces the reserve requirement in foreign currencies from 75% of total foreign deposits to 70%. The minimum liquidity reserve requirement in euro is unchanged at 20%.

Article 18 of the Euro Adoption Law of 2007 sets out the provisions for the conversion of companies’ capital from Cyprus pounds into euro following Cyprus’s adoption of the euro as its national currency with effect from 1 January 2008. It requires shareholders in all Cyprus-registered companies to pass a resolution to redenominate the company’s capital at a general meeting, and requires the resolution to be registered with the Department of the Official Receiver and Registrar of Companies

In line with its policy of developing bilateral ties in the domain of supervision of credit institutions the Central Bank of Cyprus has signed a Memorandum of Understanding with the Malta Financial Services Authority, the body responsible for licensing and supervision of credit institutions operating in Malta.

The Central Bank of Cyprus has relaxed the minimum liquidity reserve requirement in foreign currencies for commercial banks operating in Cyprus.

Article 18 of the Euro Adoption Law of 2007 sets out the provisions for the conversion of companies’ capital from Cyprus pounds into euro following Cyprus’s adoption of the euro as its national currency with effect from 1 January 2008. 

For the purpose of harmonizing Cyprus’s legislation with the Third Money Laundering Directive (2005/60/EC) Cyprus recently enacted the relevant internal legislation. This article is an account of the regulatory environment to this area with an eye close to the Cyprus implementing law.

For the purpose of harmonisation with the Directives 2004/39/EC of the European Parliament and of the Council on Markets in Financial Instruments (“the MiFID”), and Directive 2006/31/EC of the European Parliament and of the Council of April 5 2006 Cyprus enacted on November 2007 the Law 144 (I)/2007 (“the Law”), that provides for the Supply of Investment Services, the Exercise of Investment Activities, the Function of Regulated Markets and other related issues”.

This is a chapter regarding restructuring and insolvency in Cyprus and covers areas such as legislation, excluded entities, secured lending and credit, liquidation, reorganisations, bankruptcy processes and much more. This chapter was published as part of Getting the Deal Through - Restructuring and Insolvency 2008 and is reproduced by kind permission of the publishers.

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Cyprus has now passed the necessary legislation to implement Directive 2004/391 and Directive 2006/31.2 Together, these Directives establish a comprehensive regulatory framework for the execution of transactions on behalf of investors by stock markets, alternative trading systems and investment firms, with the objective of protecting investors, developing a single market in investment services across the European Union, and promoting fair and transparent integrated financial markets.

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The prohibition of financial assistance by a Cyprus company to purchase its shares or the shares of its holding company often stands as an obstacle in local and international acquisition finance transactions. However, expert legal advice may assist in providing alternative structures and solutions.

Liability for payment of social insurance contributions in Cyprus is governed by the Social Insurance Laws, which require everyone who is in employment in Cyprus (including the self-employed) to pay a percentage of their gross income to the Department of Social Insurance.

Cyprus has introduced draft legislation to implement Directive 2004/39/EC of the European Parliament and of the Council on Markets in Financial Instruments and Directive 2000/12/EC of the European Parliament.  Together, these establish a comprehensive regulatory framework for the execution of transactions on behalf of investors by stock markets, alternative trading systems and investment firms, with the objective of protecting investors, developing a single market in investment services across the EU, and promoting fair and transparent integrated financial markets.

The Cyprus House of Representatives has approved Cyprus's entry into the Eurozone on 1 January 2008 and has passed the necessary legislation to amend the law on the Central Bank to satisfy EU requirements and to establish the legal framework for the transition to the euro. 

A new government service has been established by the Ministry of Commerce, Industry and Tourism to encourage investment and new business ventures by facilitating the completion of registration formalities for new companies.

Cyprus is an island in the eastern Mediterranean Sea. Situated at the crossroads of Europe, Africa and Asia, it is easily accessible to overseas clients. It is two hours ahead of London, seven hours ahead of New York, and seven hours behind Tokyo. The administrative capital is Nicosia, with most international enterprises based in the island’s second city, Limassol, which is also the financial capital and major port. Reproduced with the kind permission of Tottel Publishing.  Read more . . .

The regulation of trustee and company service providers has long been a topic for debate in Cyprus.  However, membership of the European Union, coupled with the introduction of the third EU anti-money laundering Directive in 2005, has provided the impetus required for legislation to furnish a regulatory framework for suppliers of fiduciary services.  Read more...

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