The legal framework governing trusts in Cyprus is based on The Trustees Law, Cap. 193, (“The Trustees Law”), which is largely based on the English Trustee Act of 1925 and on The International Trusts Law, No. 69(I)/92, (“The International Trusts Law”), enacted in July 1992 and amended with the International Trusts (Amending) Law, No. 20(I)/2012.

In addition to the above enactments, Cyprus has ratified with the law No. 4(III) / 2017 the Hague Convention on the law applicable to trusts and on their recognition, hereinafter referred to as “The Hague Convention on Trusts” which is a convention related to conflict of laws issues and sets out rules as to the recognition of trusts of one jurisdiction to another.

Common Law  and the Principles of Equity , are also applicable, being one of the sources of the Cyprus legal system as per article 29 (1) (c) of the Courts’ of Justice Law no. 14/60 as amended, provided they do not come in conflict with local statutes.

The main types of trusts that may be established in Cyprus are the Cyprus

“local trust” and the “Cyprus international trust”. A local trust is a trust of which either the settlor or one of the beneficiaries are residents of Cyprus. A Cyprus international trust is a trust which is established under the provisions of The International Trusts Law and meets the conditions mentioned there in and explained further below.

A third type of trust is the foreign or offshore trust which is set up by foreigners for the benefit of foreigners and does not meet the conditions to be classified as local trust or Cyprus international trust but has as chosen proper law applicable to it, Cyprus law.

The Trustees Law, the Common Law and the Principles of Equity, apply to local trusts and to Cyprus international trusts. The provisions of The International Trusts Law apply exclusively to the Cyprus international trust.

In case there is any inconsistency between the provisions of The Trustees Law, Common Law or Equity and the provisions of The International Trusts Law, the provisions of the International Trusts Law prevail as to Cyprus international trusts as being a special law regulating particular type of trusts.

In case of a foreign trust which has chosen as its proper law the law of Cyprus, then what legal environment is applicable to local trusts applies as well to this type of trusts.

With this publication we shall deal initially with the general legal environment on trusts, and then we shall deal extensively with the Cyprus international trust.

The trust is the most important legal concept created by Equity and one of the greatest achievements of English jurisprudence. It has been created by Equity to prevent injustice administered by the rigid application of Common Law or statute.

The gist and magnificence of trusts is that they permit a division in the ownership of the property subject matter of the trust, between the trustee and the beneficiary(ies) in such a way that the trustee is compelled to act to the best interest of the beneficiary(ies) in relation to the use and management of that property.

It is very difficult to construct a comprehensive definition of what a trust is and this is because of the variety of the trusts that can exist and the variety of ways that can be created.

In view of the above-mentioned complications, there is not yet a satisfactory definition in the various laws applicable to trusts as to the meaning of trust.

Having in mind the various attempts, laws and court decisions in place as to what it might be the meaning of trust and taking also into consideration the Common Law and Equity approach, it may be said that a trust is the relationship which arises, expressly, impliedly or constructively, where a person called the trustee, is compelled in Equity by the courts or by the terms of a particular trust deed or will, to hold property, whether real or personal and whether by legal or equitable title,

(i) for the benefit of some persons, the beneficiaries, irrespectively if the trustee is also a beneficiary of the trust; and/or,

(ii) for any purpose, but in such a case of a “purpose trust” not exclusively to the benefit of the trustee but to the beneficiaries or for other objects of the trust.

Also based on the general nature of the trust, a more simple definition may be put forward, that a trust is the relationship by which, a person to whom property is vested is compelled in Equity to hold the property for the benefit of another person or for some purpose other than his own.

There are mainly three principal types of trusts: the express trusts, the resulting trusts and the constructive trusts. All trusts that are not express, may be classified as implied trusts.

Subject to their purpose may be classified as purpose trusts or charitable trusts and subject to the discretion and powers granted to the trustee may be also classified as fixed or discretionary.

Trusts may be created during life time, (inter – vivos), or on death by a will.

Express trusts are those created by the express clear intention of the settlor (intentionally), or the express and clear declaration of the person to whom the property is vested, the trustee, to the benefit of a particular beneficiary or for a purpose.

Resulting trusts are implied by the court – they are not created intentionally by the settlor. In this type of trust the beneficial interest in the property comes back (results) to the person, (settlor), who provided the property or to his estate and for this reason are classified as resulting trusts.

Constructive trusts arise by operation of law. Such trusts are created irrespective of the intention of the parties in order to satisfy the demands of justice. When property is held by a person in such circumstances which constitutes an abuse to hold it or creates injustice, then Equity converts the holder into a constructive trustee for the benefit of the person the property should be.

Charitable trusts are those which are created for a charitable purpose(s). There is though no legal definition of what constitutes a charity as per The Charities Law Cap.41.

Charitable trusts may be created by any deed, will or other document provided it has as its object charitable purposes. Such document is registrable as per the provisions of The Charities Law Cap. 41. The trustees may apply to the Council of Ministers to be registered with the aim to receive legal personality for such charitable institution.

A charitable trust may be set up as well as per the provisions of The International Trusts Law provided, it meets the requirements mentioned therein.

Local charitable trusts established pursuant to the Charities Law Cap. 41, are enforceable by the Attorney General of the Republic on behalf of the state, while charitable trusts formed pursuant to The International Trusts Law are enforceable as per the terms of the trust deed establishing them.

Purpose trusts are those trusts which have no - beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. A charitable trust in effect, is a purpose trust for charitable purposes.

Fixed trusts are those trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor and cannot change. That is, the trustee is bound to make a distribution of the trust property to the beneficiaries in a fixed or predetermined manner, as set out in the trust deed. The fixed entitlement may be a specified fraction or a percentage.

Discretionary trusts are those trusts where the entitlements to the trust fund are not fixed but are determined by the trustee according to relevant criteria set out in the trust deed by the settlor. In effect, the trustee has the discretion as to whether and how much of the trust property to distribute to the beneficiaries. In discretionary trusts the beneficiaries only have contingent rights to the trust property. They cannot claim the trust property at any time. The allocation of the trust property is entirely at the discretion of the trustee. Discretionary trusts can only arise as express trusts. It is not possible for a constructive trust or a resulting trust to arise as a discretionary trust.

In order to create a valid express trust, the settlor, who is transferring the property to the trustee, must be competent to do so, namely, at the time of the transfer he/she must be of age and mentally sound as per the law of the country, he/she is resident.

In principle, there are no formalities, which are required for the creation of an express trust, except where the trust is created by a will, in which case the particular requirements for the creation of a valid will must be adhered to.

The express trusts and charitable trusts though, must satisfy, in addition to the above, the requirements of the so called, three certainties:

(i) Certainty of intention;

(ii) Certainty of subject matter; and

(iii) Certainty of objects.

The settlor must manifest an intention to create a trust. The trust property must be specified with reasonable certainty and the beneficiaries of the trust must be ascertainable. This last requirement is waived in the case of a purpose / charitable trust as identified in the Law.

In order to set up an express or charitable trust, a trust deed must be drafted and signed between the settlor and the trustee in which the conditions under which the trust property will be transferred to the trustee and held by it are identified.

Trusts do not have legal personality. In this respect, whatever is to be done for the trust is done through the trustee acting not in his/her personal capacity but as the trustee of the relevant trust.

Bank accounts are also opened in the name of the trustee who acts again not in his/her personal capacity but as the trustee of the relevant trust.

A trust may have any decent name and there is no official procedure of approving the name selected.

The administration or management of trusts, including, the undertaking or provision of trustee services, irrespectively of where the trust was established or the provision of services of administration or investment or disposal of the assets of a trust are exercised, once such services are offered in or from Cyprus, are regulated activities subject to the provisions of the Law Regulating the Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, as amended, hereinafter referred to as the “Fiduciaries Law”.

Such activities may be offered only by licensed legal persons pursuant to a licence granted by the regulating authority which is the Cyprus Securities and Exchange Commission or may be offered by exempted persons as these are identified in the Fiduciaries Law, namely lawyers, members of the Cyprus Bar Association and accountants, members of the Institute of Certified Public Accountants of Cyprus and their subsidiaries.

The provision of administrative trustee services by physical persons in the below cases, does not require the obtaining of relevant licence, provided that such administrative services are not advertised or used in order to attract clients, nor will they be offered or provided to other persons, other than those specified further below:

(i) The provision of the services of a trustee when the person providing the trustee services is the settlor or where all the beneficiaries of the trust are himself and or his/her spouse and/or his/her family members and/or his/her spouse’s family members, up to the fourth degree of relation; or

(ii) Being a trustee in a trust created under a will of a physical person.

The Fiduciaries Law provides that The Cyprus Bar Association, The Institute of Certified Public Accountants of Cyprus and The Cyprus Securities and Exchange Commission, maintain registers of trusts where particular limited information as to established trusts in Cyprus is submitted.

For trusts managed by lawyers members of the Cyprus Bar Association, the information is submitted to the Cyprus Bar Association, for trusts managed by accountants members of The Institute of Certified Public Accountants of Cyprus, the information is submitted to The Institute of Certified Public Accountants of Cyprus and for all other trusts not fallen in the above categories, to The Cyprus Securities and Exchange Commission.

Information given to the regulating authorities upon registering a trust

Upon registering a trust with the appropriate regulating authority, the following information must be submitted:

(i) The name of the Trust;

(ii) The names and addresses of the Trustees;

(iii) The date of establishment of the Trust;

(iv) The date of change of the proper law of the Trust, if any; and

(v) The date of termination of the trust once taken place.

In addition, by strict provision of the Fiduciaries Law, this information is NOT open to the public, but only to the regulating authorities. No information as to the content of the trust deed or the settlor or the beneficiaries are given which are kept in strict confidence.

Provision of trustee services – continued obligation as to what information must be kept available

Any person providing trustee services, administers and manages trusts, must collect and have at all times available in Cyprus for possible disclosure to the relevant regulatory authority the following information, where applicable:

(i) the identity of all trustees;

(ii) the identity of the settlor;

(iii) the identity of all beneficiaries or information on the class of beneficiaries;

(iv) the identity of the protector (if applicable);

(v) the identity of the fund manager, accountant, tax official (if applicable);

(vi) the activities of the trust; and,

(vii) The identity of any other person who exercises control over the trust.

(Our Comment: The above obligation of disclosure to the relevant regulatory authority is limited to the items specified there in as per the provisions of the Fiduciaries Law as amended. The International Trusts Law in the case of Cyprus international trusts imposes further strict confidentiality obligations on the persons dealing with Cyprus international trusts as further below analyzed). 

Confidentiality takes a prominent position in the Cyprus International Trusts Law. The trustees, the protector, the trust enforcement supervisor or any other person dealing with Cyprus international trusts are not allowed to disclose any information or documents to any person not allowed by law to receive it, unless a court order is issued, by which:

(i) the names of the settlor or any of the beneficiaries are disclosed;

(ii) the trustees’ deliberations as to the manner in which a power or discretion was exercised or a duty conferred or imposed by law or by the terms of the Cyprus international trust were performed are disclosed;

Likewise, the disclosure of the reason for any particular exercise of such power or discretion or performance of duty, or the material, upon which such reason will be or might have been based, is prohibited.

Furthermore, confidentiality extends to anything forming part of the accounts of a Cyprus international trust.

In the case of the accounts of the trust, the trustee has the power to disclose such information to the beneficiaries only in the case it considers that such a disclosure safeguards the bests interests of the trust. 

Notwithstanding the above, where there is a pending criminal prosecution or civil litigation, the court may issue an order for disclosure of information as above, provided it will be satisfied that such an order is of paramount importance for the outcome of the court proceedings. 

 

(Our Comment: The International Trusts Law with this provision has imposed further conditions while a court will consider to issue a disclosure order. In this respect, before a court will grant a disclosure order related to a Cyprus international trust the additional conditions imposed by the law as above must be met. Such conditions are not in place in regular court cases in the absence of a Cyprus international trust in the structure when disclosure orders (Norwich Pharmacal orders) are issued. 

In this respect a Cyprus international trust in corporate structures gives additional protection in case of court proceedings).

As per the 5th AML EU Directive, (the “Directive”) member states should have imported this Directive to local legislation by 10 January 2020.

As per the provisions of the Directive, each company / legal entity, MUST declare its ultimate beneficial owners, physical persons, holding more than 25% of beneficial interest in the company / legal entity, to the public registry of beneficiaries for companies / legal entities,  the “Companies’ Registry”, that it will be created for this purpose and their names will be open to the public.

Details will be available once the Directive will be implemented in local legislation.

For the time being this directive has not been implemented in Cyprus but it is expected to be done the soonest possible as Cyprus currently is in breach of the relevant EU Directive.

The Companies’ Registry, will be open to the public and in this respect, any person or governmental authority, may have access and get the information as to who the ultimate beneficiaries of companies are, holding more than 25%.

In those companies where nominee shareholders are used, the ultimate beneficial owners holding 25% plus one share, will be disclosed to the Companies’ Registry and the information therein will be accessible to the public.

The Directive creates a separate registry for trusts. This is the trust registry for beneficiaries of trusts, the “Trusts’ Registry”. In this case, the trustees of a particular trust are obliged to disclose in the Trusts’ Registry to be created, the ultimate beneficiaries of the particular trust. The difference with the Companies’ Registry, is that the Trusts’ Registry, will not be open to the public.

The disclosure obligations will apply to trustees of express trusts administered in a member state (regardless of the governing law of the trust).

The obligation of disclosure is in place regardless of whether the trusts have taxable consequences in the member state as the 4th AML directive provided.

The trustees will need to register beneficial ownership information on all existing trusts as well as new trusts created after the legislation comes into effect.

The Directive will also extend the registration obligation to non-EU trustees of express trusts which form a business relationship or acquire real estate in a member state.

The Directive applies the same obligations to persons holding equivalent positions in other types of legal arrangements having a structure or effect similar to trusts, such as “fiducie” and certain types of “Treuhand” or “fideicomiso” – the French, German and Spanish fiduciary notions similar to trusts respctively).

As per the Directive, only the authorities and persons that can demonstrate legitimate interest and proving same through relevant procedure to be implemented, may have access to the Trusts’ Registry. The conditions for the "legitimate interest" test, must be defined in the law by each individual member state.

Access to the Trusts’ Registry must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any member state's register of Companies’ Registry.

Member states must put in place mechanisms to ensure that information on beneficial ownership in the registers of companies and trusts is "adequate, accurate and current"; and member states will have to ensure interconnection between each member states' registers of companies and trusts via an EU "Central Platform". The Trusts’ Registry must have been set up by the 10th of March 2020. So far nothing has been set up.

The corporate structure where trust is used as shareholder and not a nominee shareholder, gives additional protection to the ultimate beneficial owners as their identity will not be open to the public at large BUT only if legitimate interest is shown and accepted by the regulating authority under certain procedure to be provided.

It remains to be clarified by the law / regulations implementing the Directive how this will be achieved. Certain legal or other procedures to be followed will be set down in order to disclose the information related to the beneficiaries of a trust, to those proving legitimate interest.

 

(Our Comment: There might be complications subject to the way the Directive will be implemented. If a company has as its shareholder a trust, (not a nominee shareholder), the proper approach to follow in such a case, would be the company officials to declare to the Companies’ Registry only the name of the trust in place. In such a case, the beneficiaries of the trust will not be disclosed in the Companies’ Registry.  The implementing law should direct that the beneficiaries of a trust should be disclosed only in the Trusts’ Registry.

 

If the beneficiaries of a trust are disclosed in the Companies’ Registry, the provisions of the Directive to be implemented as to the beneficiaries of a trust, providing that such information is given only upon proof of legitimate interest, will be defeated as the Companies’ Registry will be open to the public.

 

So far though, there has not been any governmental guidance as to this possible complication and how they will implement the Directive.

 

We expect that the provisions of the Directive will be honoured and the beneficiaries of a trust will not be disclosed without the appropriate procedure showing legitimate interest as is provided in the Directive.

 

Our view is that the beneficiaries of a trust should be declared ONLY in the Trusts’ Registry and not in the Companies’ Registry as otherwise the clear provisions of the Directive will be defeated).

The Cyprus International Trusts Law has been enacted in 1992 and has been extensively amended in 2012. With its current form this law, gave Cyprus the characterization as one of the best jurisdictions for the creation of international trusts due to their numerous benefits compared to other jurisdictions.

The following conditions must be met in order to have a Cyprus international trust:

(i) The settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND

(ii) The beneficiaries, either physical or legal persons, with the exception of a charitable institution, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND

(iii) At least one of the trustees is, throughout the life time of the trust, resident of Cyprus.

The term resident of Cyprus has the meaning given to it by the Income Tax Laws of Cyprus.

As provided in the Income Tax Laws, a physical person is considered tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year.

A company is considered tax resident of Cyprus if its management and control is exercised in / from Cyprus.

Trust. See definition of trust at pages 4-5.

Trustee. The notion of the trustee includes any legal or physical person who holds the trust property to the benefit of the beneficiaries, irrespectively if the trustee is also a beneficiary and / or holds the trust property for a purpose, but in such a case, (purpose trust),  holds the trust property not exclusively to the benefit of the trustee.

Settlor. Means a legal or physical person who grants trust property or disposes property in trust or for the purpose of a will under trust terms.

Beneficiary. Means, a legal or physical person, including a person not yet born at the date of the establishment of the trust or part of a class of persons, who have a right or interest in property, which is subject to a trust.

Protector. Means a person, other than the trustee, to whom powers of any nature have been granted by the deed establishing the trust, including the power to advise the trustee regarding the exercise of its powers or with regards to the right of the protector to consent or to veto the decisions of the trustee and also includes the power to appoint or cancel the appointment of the trustee.

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The legal framework governing trusts in Cyprus is based on The Trustees Law, Cap. 193, (“The Trustees Law”), which is largely based on the English Trustee Act of 1925 and on The International Trusts Law, No. 69(I)/92, (“The International Trusts Law”), enacted in July 1992 and amended with the International Trusts (Amending) Law, No. 20(I)/2012.

In addition to the above enactments, Cyprus has ratified with the law No. 4(III) / 2017 the Hague Convention on the law applicable to trusts and on their recognition, hereinafter referred to as “The Hague Convention on Trusts” which is a convention related to conflict of laws issues and sets out rules as to the recognition of trusts of one jurisdiction to another.

Common Law  and the Principles of Equity , are also applicable, being one of the sources of the Cyprus legal system as per article 29 (1) (c) of the Courts’ of Justice Law no. 14/60 as amended, provided they do not come in conflict with local statutes.

The main types of trusts that may be established in Cyprus are the Cyprus

“local trust” and the “Cyprus international trust”. A local trust is a trust of which either the settlor or one of the beneficiaries are residents of Cyprus. A Cyprus international trust is a trust which is established under the provisions of The International Trusts Law and meets the conditions mentioned there in and explained further below.

A third type of trust is the foreign or offshore trust which is set up by foreigners for the benefit of foreigners and does not meet the conditions to be classified as local trust or Cyprus international trust but has as chosen proper law applicable to it, Cyprus law.

The Trustees Law, the Common Law and the Principles of Equity, apply to local trusts and to Cyprus international trusts. The provisions of The International Trusts Law apply exclusively to the Cyprus international trust.

In case there is any inconsistency between the provisions of The Trustees Law, Common Law or Equity and the provisions of The International Trusts Law, the provisions of the International Trusts Law prevail as to Cyprus international trusts as being a special law regulating particular type of trusts.

In case of a foreign trust which has chosen as its proper law the law of Cyprus, then what legal environment is applicable to local trusts applies as well to this type of trusts.

With this publication we shall deal initially with the general legal environment on trusts, and then we shall deal extensively with the Cyprus international trust.

The trust is the most important legal concept created by Equity and one of the greatest achievements of English jurisprudence. It has been created by Equity to prevent injustice administered by the rigid application of Common Law or statute.

The gist and magnificence of trusts is that they permit a division in the ownership of the property subject matter of the trust, between the trustee and the beneficiary(ies) in such a way that the trustee is compelled to act to the best interest of the beneficiary(ies) in relation to the use and management of that property.

It is very difficult to construct a comprehensive definition of what a trust is and this is because of the variety of the trusts that can exist and the variety of ways that can be created.

In view of the above-mentioned complications, there is not yet a satisfactory definition in the various laws applicable to trusts as to the meaning of trust.

Having in mind the various attempts, laws and court decisions in place as to what it might be the meaning of trust and taking also into consideration the Common Law and Equity approach, it may be said that a trust is the relationship which arises, expressly, impliedly or constructively, where a person called the trustee, is compelled in Equity by the courts or by the terms of a particular trust deed or will, to hold property, whether real or personal and whether by legal or equitable title,

(i) for the benefit of some persons, the beneficiaries, irrespectively if the trustee is also a beneficiary of the trust; and/or,

(ii) for any purpose, but in such a case of a “purpose trust” not exclusively to the benefit of the trustee but to the beneficiaries or for other objects of the trust.

Also based on the general nature of the trust, a more simple definition may be put forward, that a trust is the relationship by which, a person to whom property is vested is compelled in Equity to hold the property for the benefit of another person or for some purpose other than his own.

There are mainly three principal types of trusts: the express trusts, the resulting trusts and the constructive trusts. All trusts that are not express, may be classified as implied trusts.

Subject to their purpose may be classified as purpose trusts or charitable trusts and subject to the discretion and powers granted to the trustee may be also classified as fixed or discretionary.

Trusts may be created during life time, (inter – vivos), or on death by a will.

Express trusts are those created by the express clear intention of the settlor (intentionally), or the express and clear declaration of the person to whom the property is vested, the trustee, to the benefit of a particular beneficiary or for a purpose.

Resulting trusts are implied by the court – they are not created intentionally by the settlor. In this type of trust the beneficial interest in the property comes back (results) to the person, (settlor), who provided the property or to his estate and for this reason are classified as resulting trusts.

Constructive trusts arise by operation of law. Such trusts are created irrespective of the intention of the parties in order to satisfy the demands of justice. When property is held by a person in such circumstances which constitutes an abuse to hold it or creates injustice, then Equity converts the holder into a constructive trustee for the benefit of the person the property should be.

Charitable trusts are those which are created for a charitable purpose(s). There is though no legal definition of what constitutes a charity as per The Charities Law Cap.41.

Charitable trusts may be created by any deed, will or other document provided it has as its object charitable purposes. Such document is registrable as per the provisions of The Charities Law Cap. 41. The trustees may apply to the Council of Ministers to be registered with the aim to receive legal personality for such charitable institution.

A charitable trust may be set up as well as per the provisions of The International Trusts Law provided, it meets the requirements mentioned therein.

Local charitable trusts established pursuant to the Charities Law Cap. 41, are enforceable by the Attorney General of the Republic on behalf of the state, while charitable trusts formed pursuant to The International Trusts Law are enforceable as per the terms of the trust deed establishing them.

Purpose trusts are those trusts which have no - beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. A charitable trust in effect, is a purpose trust for charitable purposes.

Fixed trusts are those trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor and cannot change. That is, the trustee is bound to make a distribution of the trust property to the beneficiaries in a fixed or predetermined manner, as set out in the trust deed. The fixed entitlement may be a specified fraction or a percentage.

Discretionary trusts are those trusts where the entitlements to the trust fund are not fixed but are determined by the trustee according to relevant criteria set out in the trust deed by the settlor. In effect, the trustee has the discretion as to whether and how much of the trust property to distribute to the beneficiaries. In discretionary trusts the beneficiaries only have contingent rights to the trust property. They cannot claim the trust property at any time. The allocation of the trust property is entirely at the discretion of the trustee. Discretionary trusts can only arise as express trusts. It is not possible for a constructive trust or a resulting trust to arise as a discretionary trust.

In order to create a valid express trust, the settlor, who is transferring the property to the trustee, must be competent to do so, namely, at the time of the transfer he/she must be of age and mentally sound as per the law of the country, he/she is resident.

In principle, there are no formalities, which are required for the creation of an express trust, except where the trust is created by a will, in which case the particular requirements for the creation of a valid will must be adhered to.

The express trusts and charitable trusts though, must satisfy, in addition to the above, the requirements of the so called, three certainties:

(i) Certainty of intention;

(ii) Certainty of subject matter; and

(iii) Certainty of objects.

The settlor must manifest an intention to create a trust. The trust property must be specified with reasonable certainty and the beneficiaries of the trust must be ascertainable. This last requirement is waived in the case of a purpose / charitable trust as identified in the Law.

In order to set up an express or charitable trust, a trust deed must be drafted and signed between the settlor and the trustee in which the conditions under which the trust property will be transferred to the trustee and held by it are identified.

Trusts do not have legal personality. In this respect, whatever is to be done for the trust is done through the trustee acting not in his/her personal capacity but as the trustee of the relevant trust.

Bank accounts are also opened in the name of the trustee who acts again not in his/her personal capacity but as the trustee of the relevant trust.

A trust may have any decent name and there is no official procedure of approving the name selected.

The administration or management of trusts, including, the undertaking or provision of trustee services, irrespectively of where the trust was established or the provision of services of administration or investment or disposal of the assets of a trust are exercised, once such services are offered in or from Cyprus, are regulated activities subject to the provisions of the Law Regulating the Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, as amended, hereinafter referred to as the “Fiduciaries Law”.

Such activities may be offered only by licensed legal persons pursuant to a licence granted by the regulating authority which is the Cyprus Securities and Exchange Commission or may be offered by exempted persons as these are identified in the Fiduciaries Law, namely lawyers, members of the Cyprus Bar Association and accountants, members of the Institute of Certified Public Accountants of Cyprus and their subsidiaries.

The provision of administrative trustee services by physical persons in the below cases, does not require the obtaining of relevant licence, provided that such administrative services are not advertised or used in order to attract clients, nor will they be offered or provided to other persons, other than those specified further below:

(i) The provision of the services of a trustee when the person providing the trustee services is the settlor or where all the beneficiaries of the trust are himself and or his/her spouse and/or his/her family members and/or his/her spouse’s family members, up to the fourth degree of relation; or

(ii) Being a trustee in a trust created under a will of a physical person.

The Fiduciaries Law provides that The Cyprus Bar Association, The Institute of Certified Public Accountants of Cyprus and The Cyprus Securities and Exchange Commission, maintain registers of trusts where particular limited information as to established trusts in Cyprus is submitted.

For trusts managed by lawyers members of the Cyprus Bar Association, the information is submitted to the Cyprus Bar Association, for trusts managed by accountants members of The Institute of Certified Public Accountants of Cyprus, the information is submitted to The Institute of Certified Public Accountants of Cyprus and for all other trusts not fallen in the above categories, to The Cyprus Securities and Exchange Commission.

Information given to the regulating authorities upon registering a trust

Upon registering a trust with the appropriate regulating authority, the following information must be submitted:

(i) The name of the Trust;

(ii) The names and addresses of the Trustees;

(iii) The date of establishment of the Trust;

(iv) The date of change of the proper law of the Trust, if any; and

(v) The date of termination of the trust once taken place.

In addition, by strict provision of the Fiduciaries Law, this information is NOT open to the public, but only to the regulating authorities. No information as to the content of the trust deed or the settlor or the beneficiaries are given which are kept in strict confidence.

Provision of trustee services – continued obligation as to what information must be kept available

Any person providing trustee services, administers and manages trusts, must collect and have at all times available in Cyprus for possible disclosure to the relevant regulatory authority the following information, where applicable:

(i) the identity of all trustees;

(ii) the identity of the settlor;

(iii) the identity of all beneficiaries or information on the class of beneficiaries;

(iv) the identity of the protector (if applicable);

(v) the identity of the fund manager, accountant, tax official (if applicable);

(vi) the activities of the trust; and,

(vii) The identity of any other person who exercises control over the trust.

(Our Comment: The above obligation of disclosure to the relevant regulatory authority is limited to the items specified there in as per the provisions of the Fiduciaries Law as amended. The International Trusts Law in the case of Cyprus international trusts imposes further strict confidentiality obligations on the persons dealing with Cyprus international trusts as further below analyzed). 

Confidentiality takes a prominent position in the Cyprus International Trusts Law. The trustees, the protector, the trust enforcement supervisor or any other person dealing with Cyprus international trusts are not allowed to disclose any information or documents to any person not allowed by law to receive it, unless a court order is issued, by which:

(i) the names of the settlor or any of the beneficiaries are disclosed;

(ii) the trustees’ deliberations as to the manner in which a power or discretion was exercised or a duty conferred or imposed by law or by the terms of the Cyprus international trust were performed are disclosed;

Likewise, the disclosure of the reason for any particular exercise of such power or discretion or performance of duty, or the material, upon which such reason will be or might have been based, is prohibited.

Furthermore, confidentiality extends to anything forming part of the accounts of a Cyprus international trust.

In the case of the accounts of the trust, the trustee has the power to disclose such information to the beneficiaries only in the case it considers that such a disclosure safeguards the bests interests of the trust. 

Notwithstanding the above, where there is a pending criminal prosecution or civil litigation, the court may issue an order for disclosure of information as above, provided it will be satisfied that such an order is of paramount importance for the outcome of the court proceedings. 

 

(Our Comment: The International Trusts Law with this provision has imposed further conditions while a court will consider to issue a disclosure order. In this respect, before a court will grant a disclosure order related to a Cyprus international trust the additional conditions imposed by the law as above must be met. Such conditions are not in place in regular court cases in the absence of a Cyprus international trust in the structure when disclosure orders (Norwich Pharmacal orders) are issued. 

In this respect a Cyprus international trust in corporate structures gives additional protection in case of court proceedings).

As per the 5th AML EU Directive, (the “Directive”) member states should have imported this Directive to local legislation by 10 January 2020.

As per the provisions of the Directive, each company / legal entity, MUST declare its ultimate beneficial owners, physical persons, holding more than 25% of beneficial interest in the company / legal entity, to the public registry of beneficiaries for companies / legal entities,  the “Companies’ Registry”, that it will be created for this purpose and their names will be open to the public.

Details will be available once the Directive will be implemented in local legislation.

For the time being this directive has not been implemented in Cyprus but it is expected to be done the soonest possible as Cyprus currently is in breach of the relevant EU Directive.

The Companies’ Registry, will be open to the public and in this respect, any person or governmental authority, may have access and get the information as to who the ultimate beneficiaries of companies are, holding more than 25%.

In those companies where nominee shareholders are used, the ultimate beneficial owners holding 25% plus one share, will be disclosed to the Companies’ Registry and the information therein will be accessible to the public.

The Directive creates a separate registry for trusts. This is the trust registry for beneficiaries of trusts, the “Trusts’ Registry”. In this case, the trustees of a particular trust are obliged to disclose in the Trusts’ Registry to be created, the ultimate beneficiaries of the particular trust. The difference with the Companies’ Registry, is that the Trusts’ Registry, will not be open to the public.

The disclosure obligations will apply to trustees of express trusts administered in a member state (regardless of the governing law of the trust).

The obligation of disclosure is in place regardless of whether the trusts have taxable consequences in the member state as the 4th AML directive provided.

The trustees will need to register beneficial ownership information on all existing trusts as well as new trusts created after the legislation comes into effect.

The Directive will also extend the registration obligation to non-EU trustees of express trusts which form a business relationship or acquire real estate in a member state.

The Directive applies the same obligations to persons holding equivalent positions in other types of legal arrangements having a structure or effect similar to trusts, such as “fiducie” and certain types of “Treuhand” or “fideicomiso” – the French, German and Spanish fiduciary notions similar to trusts respctively).

As per the Directive, only the authorities and persons that can demonstrate legitimate interest and proving same through relevant procedure to be implemented, may have access to the Trusts’ Registry. The conditions for the "legitimate interest" test, must be defined in the law by each individual member state.

Access to the Trusts’ Registry must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any member state's register of Companies’ Registry.

Member states must put in place mechanisms to ensure that information on beneficial ownership in the registers of companies and trusts is "adequate, accurate and current"; and member states will have to ensure interconnection between each member states' registers of companies and trusts via an EU "Central Platform". The Trusts’ Registry must have been set up by the 10th of March 2020. So far nothing has been set up.

The corporate structure where trust is used as shareholder and not a nominee shareholder, gives additional protection to the ultimate beneficial owners as their identity will not be open to the public at large BUT only if legitimate interest is shown and accepted by the regulating authority under certain procedure to be provided.

It remains to be clarified by the law / regulations implementing the Directive how this will be achieved. Certain legal or other procedures to be followed will be set down in order to disclose the information related to the beneficiaries of a trust, to those proving legitimate interest.

 

(Our Comment: There might be complications subject to the way the Directive will be implemented. If a company has as its shareholder a trust, (not a nominee shareholder), the proper approach to follow in such a case, would be the company officials to declare to the Companies’ Registry only the name of the trust in place. In such a case, the beneficiaries of the trust will not be disclosed in the Companies’ Registry.  The implementing law should direct that the beneficiaries of a trust should be disclosed only in the Trusts’ Registry.

 

If the beneficiaries of a trust are disclosed in the Companies’ Registry, the provisions of the Directive to be implemented as to the beneficiaries of a trust, providing that such information is given only upon proof of legitimate interest, will be defeated as the Companies’ Registry will be open to the public.

 

So far though, there has not been any governmental guidance as to this possible complication and how they will implement the Directive.

 

We expect that the provisions of the Directive will be honoured and the beneficiaries of a trust will not be disclosed without the appropriate procedure showing legitimate interest as is provided in the Directive.

 

Our view is that the beneficiaries of a trust should be declared ONLY in the Trusts’ Registry and not in the Companies’ Registry as otherwise the clear provisions of the Directive will be defeated).

The Cyprus International Trusts Law has been enacted in 1992 and has been extensively amended in 2012. With its current form this law, gave Cyprus the characterization as one of the best jurisdictions for the creation of international trusts due to their numerous benefits compared to other jurisdictions.

The following conditions must be met in order to have a Cyprus international trust:

(i) The settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND

(ii) The beneficiaries, either physical or legal persons, with the exception of a charitable institution, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND

(iii) At least one of the trustees is, throughout the life time of the trust, resident of Cyprus.

The term resident of Cyprus has the meaning given to it by the Income Tax Laws of Cyprus.

As provided in the Income Tax Laws, a physical person is considered tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year.

A company is considered tax resident of Cyprus if its management and control is exercised in / from Cyprus.

Trust. See definition of trust at pages 4-5.

Trustee. The notion of the trustee includes any legal or physical person who holds the trust property to the benefit of the beneficiaries, irrespectively if the trustee is also a beneficiary and / or holds the trust property for a purpose, but in such a case, (purpose trust),  holds the trust property not exclusively to the benefit of the trustee.

Settlor. Means a legal or physical person who grants trust property or disposes property in trust or for the purpose of a will under trust terms.

Beneficiary. Means, a legal or physical person, including a person not yet born at the date of the establishment of the trust or part of a class of persons, who have a right or interest in property, which is subject to a trust.

Protector. Means a person, other than the trustee, to whom powers of any nature have been granted by the deed establishing the trust, including the power to advise the trustee regarding the exercise of its powers or with regards to the right of the protector to consent or to veto the decisions of the trustee and also includes the power to appoint or cancel the appointment of the trustee.

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