The Trusts Committee, one of the specialised committees established under the Presidency of the Cyprus Bar Association by Mr Michalis Vorkas, has focused since its inception on modernising Cyprus’ international trust legislation. This includes the International Trusts Law of 1992 (Law 69(I)/1992), which has undergone significant amendments over the years.
Key reforms introduced in 2012
The 1992 law was substantially amended in 2012. These changes allowed, among other things, international trusts to hold immovable property in Cyprus, removed the 100-year duration limit, and introduced provisions strengthening the settlor’s retained rights without affecting the validity of the trust under Cyprus law.
The 2012 amendments also relaxed residence restrictions, allowing settlors or beneficiaries to become Cyprus tax residents after the creation of the trust, provided they were not Cyprus tax residents in the year preceding its establishment.
Current reform focus: “de-offshorisation” of trusts
The main objective of the current proposed reform is a broader modernisation of the framework and the “de-offshorisation” of trusts. Under the proposal, the term “International Trusts” would be replaced with “Cyprus Express Trusts”.
A key element of this shift is the removal of residency-based criteria requiring that the settlor and beneficiaries (except for charitable institutions) must not be Cyprus residents in the year preceding the creation of the trust.
The proposal argues that this requirement is outdated, as trusts are already transparent for tax purposes and will remain so. It also highlights that Cyprus residents currently rely on older legislation, the Trustees Law (Cap. 193) of 1955, while non-residents use the 1992 framework as amended.
Clarifications and legal refinements
The proposed amendments also introduce a series of clarifications and technical improvements, including:
- Clarification that trustee residency requirements apply only while the trust is governed by Cyprus law
- Clarification of the “against perpetuities” rule, including new provisions allowing trusts established under the 1955 Trustees Law to operate without time restrictions
- Refinement of the definition of “inheritance right” to include jurisdictional rights, claims, or interests arising under Cyprus law
- Clarification of the definition of “Court”, including jurisdictional scope for District Court Presidents
- Amendment of the “firewall provision” (Article 3(3)), adjusting the limitation period for fraud-related claims to two years from discovery or when reasonable diligence could have revealed the fraud
- Removal of references to termination from Article 4, limiting it to revocation
- Clarification of the accumulation of income rules under a revised Article 6(2)
- Clarification that a change of governing law converts the trust into a Cyprus express trust from the date of the change
- Rewriting of Article 11A on court powers
- Amendment of jurisdiction rules under Article 12B, incorporating EU Regulation 1215/2012
- Extension of the law’s application to trusts established under the 1955 Trustees Law before the new law entered into force
- Transitional provisions confirming that earlier valid transfers or dispositions remain unaffected
A unified legal framework
The proposed reforms aim to create a single, unified legal framework that removes distinctions between Cyprus residents and non-residents. This aligns with the modern “nexus test” used in European tax rules, which focuses on the connection between the jurisdiction of establishment and tax residency.
The bill has already been submitted to the House of Representatives, and stakeholders now await the committee stage discussion, article by article.
Also read: Cyprus EU Presidency leaves strong mark on Nicosia’s image
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