On Monday, the Parliamentary Committee on Finance discussed the bill to consolidate the provisions governing Cypriot international and local non-international trusts, with the relevant authorities agreeing in principle on the need for modernization but requesting time to review the specific provisions.
The bill, introduced by MPs Fotini Tsiridou and Christiana Erotokritou, aims to unify the legislative framework for the two types of trusts and to extend the modern regulations applicable to international trusts to local, non-international trusts.
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Ms. Tsiridou stated before the Committee that the two categories are currently treated differently and that the provisions governing domestic trusts are scattered across various, outdated pieces of legislation. As she explained, the goal is to create a more modern and unified framework. She emphasized that the legislation governing international trusts is very different from that governing Cypriot trusts. As he explained, the goal is a unified legal framework that will cover both categories and move beyond the outdated provisions that apply only to Cypriot trusts.
The Ministry of Finance and the Tax Department requested time to further study the proposal, highlighting issues that require consideration.
The Tax Department expressed particular reservations regarding the provisions concerning charitable foundations. As it noted, the tax reform passed last December stipulates that tax exemptions and deductions must be provided for in the Income Tax Law.
The Tax Department also noted that there is an issue regarding the full tax exemption for charitable organizations, since, as it stated, there is no competent authority to supervise or approve them, a fact that could create opportunities for abuse. It also raised the issue of the tax treatment of real estate sales.
The Legal Service welcomed the effort to modernize the system but questioned whether it is feasible to comprehensively reform the legislative framework governing trusts through a bill. It argued that it would be preferable to have a single piece of legislation so that reference to two different laws would not be necessary.
At the same time, he expressed concern about tax exemptions and their potential impact on government revenue, as well as whether the new regulations would apply retroactively to existing trusts.
The Central Bank requested time to examine issues related to money laundering risks, while the Capital Markets Commission stated that it does not oppose the modernization, though it has reservations regarding specific provisions.
The Cyprus Securities and Exchange Commission (CSE) agreed in principle with the proposal, noting, however, that further consideration is needed on issues related to anti-money laundering and transitional provisions.
The Cyprus Bar Association, represented by Emily Yolitis, supported the proposal put forward by the Association, noting that Cypriot trusts have remained largely within the same framework since 1955, whereas separate legislation was enacted for international trusts in 1992 and revised in 2012. As it noted, the proposal aims to bring older trusts into alignment with the current legislative framework, so that Cypriots, too, can benefit from the unified and more modern regime.
The Association of Banks also supported the proposal, citing legal certainty and Cyprus’s credibility, while also raising the issue of safeguarding creditors’ rights.
The Cyprus Chamber of Commerce and Industry (CCCI) also welcomed the modernization effort, proposing the creation of a working group involving the relevant ministries and affected stakeholders to comprehensively examine the tax, property, and other implications of the proposal.
Ms. Erotokritou clarified that it is not the intention of the proposers to change the tax base or to reduce government revenue, nor to create opportunities for abuse of the provisions regarding charitable foundations.
AKEL MP Aristos Damianou welcomed the initiative, noting, however, that this is a complex issue that should have been addressed by the executive branch, as the Republic of Cyprus has been exposed on numerous occasions. He emphasized the need to modernize an outdated framework but expressed concerns about the legal implications of creating a new unified framework.
ELAM MP Marios Pelekanos spoke in favor of modernization, noting that he would await the opinions of experts.
Yiannis Laouris, a member of parliament for Direct Democracy, welcomed the effort to modernize the framework, noting the need to simplify procedures.
Source: CNA
