Supreme Court of Cyprus – Update on legal actions against Bank of Cyprus & Laiki Bank,“haircut”
The Cyprus’ Supreme Court on April 23, 2013 began reviewing appeals filed against the March 29, 2013 Eurogroup’s decision to wind down Laiki bank and impose massive losses on all deposits in excess of €100.000 at both Laiki and the BoC (Bank of Cyprus). The appeals were submitted by local and foreign depositors who face losing the totality of their uninsured deposits at Laiki Bank and up to 60 percent of their funds above €100,000 at the BoC.
The legal representatives of the depositors appealed against the provisions of the verdict 104/2013 of the Central Bank with regard to Laiki, on the grounds that the decision is violating the fundamental right to property and that is contrary to the constitution of Cyprus and the European Declaration of Human Rights. Litigants to the case are the Bank of Cyprus, the Central Bank, the Republic of Cyprus, Mr. Panicos Demetriades as the Governor of the Central Bank, Mr. Michael Sarris as the former Finance Minister and Mr. Dinos Christofides as the special administrator of the Bank of Cyprus.
At this point the Supreme Court initiated the hearing of 53 applications. The deadline for filing appeals to the authorities against the Eurogroup’s decision is until June 08, 2013. The number of applications is anticipated to rise dramatically by this date. The Supreme Court’s decision is expected to be final in all cases and therefore not subject to further appeal. Hence, a number of law firms are ready to take the case to the European Court of Human Rights, if requested by their clients.
The hearing began with the pleading of the Attorney General Mr. Petros Clerides, defending the Republic of Cyprus, on the preliminary objection filed on behalf of the Republic. He asserted that the decrees of the Central Bank regarding the restructuring of the two banking institutions follow the political decision of the Eurogroup and constitute a condition for the fulfillment of the loan agreement and the Memorandum of Understanding. Therefore, they are outside the authority of the Supreme Court, as they are the result of a governmental decision adhering to an international agreement to avoid the disorderly bankruptcy of Cyprus. Thus, the haircut on deposits comprises a Governmental Act that cannot be challenged as an Administrative Act affecting the plaintiffs individually.
Regarding a petition by the applicants’ lawyers to postpone the hearing so they could access data that do not have at their disposal, Attorney General warned that the disbursement of the first tranche of the loan package depends on the continuation of the process. He also noted that this is the most serious case that stood before the Supreme Court, since the establishment of the Republic.
Meanwhile, Mr. Clerides said that all documentation pertaining to the case will be disposed, apart from those that the Central Bank has classified as confidential, following directions from the European Central Bank, preventing even the Legal Service from accessing them.
In response to the statement of the Attorney General that the decrees regarding the restructuring of the two banks constitute a Governmental Act, the plaintiffs’ lawyers raised specific legal issues. They asserted that the particular claim is incorrect and that it is in a stark contrast to the real facts, as it clearly comprises an Administrative Act which generates specific legal effects on the applicants, such as adverse economic effects, affecting, limiting and suppressing their fundamental rights.
Moreover, they wondered how is it possible to suggest that the State can violate, eliminate and restrain constitutional fundamental rights while the affected individuals have absolutely no right to judicial protection. To further support their case, they stressed the fact that the Eurogroup is not a legal body of the EU and therefore the agreements reached through it are not legally-binding.
In response to Mr. Clerides statement that the disbursement of the first tranche of the loan depends on the continuation of the case before the Supreme Court, the applicant’s lawyers urged the court not to decide with political criteria (according to when the Memorandum of Understanding is going to be signed), but rather to apply the Cypriot law and the jurisprudence of the Supreme Court.
Stop the illegal expropriation of your money
Michael Chambers & Co team has already filed a number of appeals against Laiki Bank and Others for depositors claiming the recovery of their assets expropriated via the illegal tax on deposits which breaches the right to property. Our expert team is able to advice on the procedure on every step of the way and to provide constant updates on the hearing proceedings. Please contact our litigation team to claim the issuance of an interim injunction to block the haircut of your deposits, until the decree for recovery of damages and compensation for your loss is decided.
The main condition for Cyprus to get the €10 billion loan package, as agreed between the government and the Eurogroup, is the restructuring of the country’s two leading banking institutions, through the resolution of Laiki Bank and the recapitalisation of Bank of Cyprus (BoC). The plan provides for transferring Laiki’s deposits under €100,000, its loans and its €9 billion liabilities from the Emergency Liquidity Assistance to the BoC.
Under this programme, all uninsured deposits above €100,000 in both Laiki and BoC will be frozen and subsequently utilised to resolve Laiki’s debts and to recapitalise BoC. Laiki’s depositors not protected by the €100,000 limit face losing up to 80% of their money, while BoC’s clients in excess of €100.000 can lose up to 60% of their assets. According to Central Bank’s statements, 37.5% of BoC’s uninsured deposits will be changed into shares with voting rights and dividends, and a further 22.5% will be frozen to ensure the bank meets the terms of its recapitalisation.
This led to a growing feeling of unfairness and injustice among depositors, who feel that a person’s savings are no longer private property, but a political tool used by the European government leaders to accomplish their expansionist goals.
Eurogroup’s decision has no legal effect
The Eurogroup’s decision is perceived as having been enforced on the Cypriot government. However, this decision enjoys no legal status, as the Eurogroup does not have any authority to issue legally-binding verdicts. The tax on deposits would have been binding, only if it was determined by the ECOFIN council. Should there have been an ECOFIN decision been taken with regard to the Cyprus bail-in, the Cypriot Parliament would be forced to implement the EU legislation when voting in favour of the levy on deposits.
What actually happened is that the Eurogroup deftly passed over to Cyprus the responsibility of enacting the law with regard to the tax on deposits. Therefore, Cyprus shouldered the load of legislating a decision contrary to one of the most inviolable rights protected under its own and European Union’s constitution; the right to property.
Violating the right to property
The fundamental right to property should have been protected, as “every natural or legal person is entitled to the peaceful enjoyment of his possessions”, under Article 1 of Protocol I of the European Convention of Human Rights, and under the Constitution of the Republic of Cyprus (Article 23).
Interestingly, in February 2013 the Central Bank reassured Laiki in response to a potential haircut, that “any action aimed at reducing, depriving or restricting the property rights of depositors, contradicts the provisions of the Constitution of the Republic of Cyprus and of Article 1 of the First Protocol of the European Convention of Human Rights, provisions which protect the right to own property and which are crucial to the functioning of a free market economy. Hence, any suggestion to the contrary is not only legally unfounded but it cannot merit serious consideration.” (Retrieved from http://www.sigmalive.com/files/download/1595 )
Since the Eurogroup’s decision has no legal effect, Cyprus ends up taking all liability for any contravention of the right to property under its own constitution. Therefore, a judicial battle with regard to whether the levy contravenes the right to property or not, would be restrained to Cyprus legislation and the only recourse could take place before Cyprus courts.
Legal action against banks
Depositors that risk losing assets from Eurogroup’s bail-in plan for Cyprus may consider taking legal action. There could be grounds to sue for redress against the Central Bank of Cyprus or Laiki and BoC. Due to this new banking status, the individuals that have been rendered unable to protect their own assets have shown a great interest in filing lawsuits against Cyprus’ banks in order to recover their losses and claim compensation.
Any depositor who wishes to join a class action to recover funds expropriated via the illegal and fraudulent levy which breaches the human rights convention, may contact Michael Chambers & Co. A class action is a type of lawsuit under which a group of individuals who are claiming similar damages from the same organisation can jointly take legal action and sue over the same legal grounds. Please contact our litigation team to join a class action against the Central Bank, Laiki or BoC to claim the issuance of an interim order with which your bank account will be frozen, until the decree for recovery of damages and compensation of your loss is decided.
With the global economic turmoil having a huge effect on the worldwide shipping industry, the visionary policies of Cyprus are demonstrating high levels of commitment towards ensuring the growth and wellbeing of Cyprus shipping companies. The country’s simplified registration procedures, favorable taxation regime, well-developed infrastructure and advanced safety policies have established the Cyprus flag as one of the most prominent in the world. Therefore, it is no wonder why Cyprus is one of the most highly sought-after registration jurisdictions for ship owners, charterers, ship managers and other shipping-related companies.
Cyprus’ Shipping Industry
Cyprus has long been established as a renowned shipping centre that successfully meets the rising demands of the globalised maritime industry. By giving competitive tax incentives and putting simplified policies into practice, Cyprus’ successive governments succeeded to attract international shipping businessmen and to develop the country into a highly-regarded shipping hub with a powerful sovereign flag.
The international merchant fleet of Cyprus is the 3rd largest of all 27 EU member states, representing a 12,7% of the total fleet, and the 10th largest in the world with 1867 ocean-going vessels of a gross tonnage exceeding 22 million. In addition, Cyprus is the leading third-party ship management hub of the EU with a total fleet representing 20% of the world third-party ship management market. Limassol, the country’s maritime capital, is EU’s largest ship management centre and the 2nd largest on a global scale.
The shipping sector contributes about 6% of the country’s GDP, accounting for 1 billion euro each year. There are more than 140 ship owning, ship management and ancillary shipping-related companies maintaining premises in the country and undertaking international operations from the island. Moreover, the shipping industry in Cyprus employs approximately 4,500 on-shore personnel and 55,000 international seafarers.
The benefits Cyprus has to offer for individuals that register a shipping company under its sovereign flag are numerous. The most prominent are outlined below:
Competitive registration and financial incentives
Cyprus is recognised as one of the most competitive and respected shipping registration centres in the world. Opportunities for ship ownership, chartering or management are available for Cypriot, EU and non-EU nationals and a provisional registration may be conducted in order to give the applicant more time until the documentation for permanent registration is concluded. Cypriot authorities also allow for parallel-in and parallel-out registration in order to facilitate individuals who want to take advantage of the many benefits offered by registration under the Cyprus flag as much as possible.
There are several financial incentives offered to shipping companies that wish to register in the Republic of Cyprus. The fees for the registration of a vessel are significantly lower than in other countries and are calculated based on the gross tonnage and type of the ship. Cyprus does not impose any exchange control and allows the uncontrolled movement of foreign currency. Foreign participation in most segments of the economy is also permitted, as the country provides for liberal foreign direct investment regulations. Moreover, anonymity of beneficial owners through trustee or nominee shareholders is ensured, and financiers and mortgages are fully safeguarded. Finally, the low operational costs have prompted a lot of international shipping entrepreneurs to set up companies with fully-fledged headquarters in the country.
Advantageous tax regime under the tonnage tax system
The favorable tax regime in Cyprus is the main force behind the exceptional growth of the shipping registry over the past decades. The shipping taxation is fully compliant with EU and OECD directives with respect to harmful taxation practices, providing also for tax neutral regulations for both EU and non-EU companies.
The Merchant Shipping Legislation of 2010 was a turning point for the country, as it placed it in a very competitive position. Cyprus became the only European country with a tonnage tax system that is approved by the EU and covers the three main shipping categories of ship-owning, ship-management and the chartering of vessels. The new taxation system provides for the imposition of tonnage tax on the net tonnage of the ships, rather than corporate tax on the profits derived from their activities. It is important to note that the tonnage tax legislation is regulated by the Department of Merchant Shipping and not by the tax authorities.
Under the tonnage tax system, shipping companies which posses or charter vessels are exempted from income tax on their profits and are automatically taxed based on the tonnage of the Cypriot flag ships they own or charter. Moreover, they are not liable to capital gains taxation upon selling a vessel, or selling and transferring shares. In addition, these companies are not subjected to stamp duty on ship mortgage deeds or other documentation, or to estate duty imposed on inheritance of shares. Officers and crew of vessels registered in Cyprus are fully exempted from income tax.
Ship-management companies are entitled either to pay tax at a rate of 25%, calculated on the tonnage of the international ships they manage, or to pay tax based on their profits at a rate of 4.25%. In case they undertake the full management of Cyprus flag vessels, ship-management companies are fully exempted from tonnage tax. Moreover, no tax is withheld from dividends paid out of profits derived from ship management activities, and no tax is levied on the recipient shareholder with regard to these dividends. Ship-management companies are also exempt from defence contribution imposed on paid dividends.
Non-shipping income of ship-owning, chartering and ship-management companies invested in other activities is subject to corporate tax at the normal rate of 10% (possible increase of 2.5%), which is the lowest corporate tax rate in the EU. The taxation legislation provides for several exemptions that may decrease the payable tax rate on non-shipping income even below 10%.
EU Flag and International Agreements
Excellent international relations have contributed in a significant way to the expansion of the country’s shipping registry. The entry of Cyprus in the European Union in 2004 as one of the two member states with an “Open Registry”, developed new growth perspectives for the country’s maritime industry. EU directives prompted policymakers to set up an action plan, implementing new policies for the qualitative upgrading and development of the Cyprus EU flag. Cyprus also enjoys the advantages of being a member of the Council of Europe, United Nations, the Conference for Security and Cooperation in Europe, Commonwealth and the Group of Non Aligned Countries.
Cyprus offers fiscal benefits to those who wish to register on the island, by boasting a broad spectrum of double tax treaties with more than 40 countries, aimed at avoiding double taxation of income earned in any of the countries concerned. There are also several merchant shipping bilateral agreements in place, geared towards the facilitation of seaborne trade and employment of seafarers, while promoting friendly relations and development of mutual economic interests. Through these agreements, Cyprus’ vessels enjoy national or privileged treatment during embarkation and disembarkation in foreign ports.
Well-developed Maritime Infrastructure and Professional Services
Cyprus features a highly developed maritime infrastructure and professional services, committed in satisfying the demands of shipping entrepreneurs. The country’s advanced maritime infrastructure is comprised by admiralty courts, a classification society, trade associations and the Department of Merchant Shipping. DMS is a highly effective organisation operating under the Ministry of Communications and Works, offering dedicated and speedy services to shipping companies in terms of registration, issuance of certificates, ongoing operations and legislative work. Moreover, Cyprus operates maritime offices in London, New York, Rotterdam, Hamburg, Brussels and Piraeus dedicated in offering world-class services to Cyprus’ shipping companies.
There are numerous shipping-related service agencies in the country, such as marine surveyors, shipping security companies, marine insurance and P&I brokers, ship-brokers, bunkering facilities, an underwater survey service and a ship-repair facility. Additionally, there is a great influx of multilingual legal, accounting, banking and technical service providers specialised in shipping, underlining the faith in the continuous growth of Cyprus as a shipping centre. The advanced professional services in Cyprus are supported by an effective legal system, which is based on the English model.
High Levels of Safety and Security
Commercial shipping is in the forefront of the agenda of the EU, displaying great sensitivity regarding the standards of safety and security of vessels. Cyprus’ ships are required by legislation to put into practice compulsory security measures when sailing through risky areas, in addition to the particular measures for maritime security as outlined is SOLAS and the ISPS Code. Moreover, shipping policies are frequently upgraded to reinforce the safety levels, wellbeing and employment of seafarers in order to heighten the reputation of Cyprus as a shipping jurisdiction.
A considerable number of ships in the registry of Cyprus are managed by dedicated ship management companies distinguished by their know-how in this field. High-risk ships are determined with large-scale examinations conducted by the competent authorities with inspections being carried out on a worldwide basis. There is a wide network of inspectors of Cyprus flag vessels operating from 23 international ports to guarantee efficient control and to avoid confinements by port controls.
It is worth noting that the Cypriot flag is classified among the “White Lists” of Paris’ and Tokyo’s Memorandums of Understanding (MOUs) and excluded from the list of “Targeted Flag States” of the United States’ Coast Guard, leading to less inspections and fewer delays at international ports. Moreover, Cyprus is a member of the International Maritime Organisation (IMO) and has endorsed all international conventions on shipping safety and security, as well as on pollution prevention.
Grab the opportunities that Cyprus has to offer
There is a wide range of benefits available to individuals wishing to register a shipping company under the Cyprus flag. Aside the island’s sound reputation as an international financial centre, the advantageous tax legislation and competitive registration procedures, combined with fiscal incentives and advanced maritime infrastructure, render Cyprus the ideal jurisdiction for ship-owning, chartering and ship-management companies. Michael Chambers & Co LLC’s team can provide speedy incorporation services to shipping companies, as well as legal assistance to any tax-planning or shipping-related issue. If you wish to speak to one of our shipping and admiralty lawyers, please contact us.
Cyprus is struggling with the worst crisis in its history since the 1974 invasion by Turkish military forces that divided the country in two. The island’s banking sector, holding assets more than eight times the size of the national economy, has been dangerously impaired by exposure to Greek banks, where individual bondholders underwent a 75% ‘haircut’ during 2012. The European Union and International Monetary Fund indicated under a “bail-in” effort that Cyprus should raise €5.8 billion from its banking institutions towards its own financial rescue in return for a €10 billion loan.
On 19 March 2013, the Cypriot parliament rejected a levy on all deposits, insured and uninsured, and entered into a series of negotiations in order to find a solution that would remove the threat of a haircut and safeguard all depositors’ assets. The European Central Bank (ECB) alleged that without an agreement being reached by 25 March, it would block emergency funding to the banking institutions, leading to definite collapse and the exiting of Cyprus from the Euro zone.
The deal came only hours before the deadline to prevent a breakdown of the Cypriot banking system in exhaustive negotiations between the president of the Republic of Cyprus and the EU, ECB and IMF officials. Negotiations unfolded under President Anastasiades’ committed struggle to safeguard the business structure of Cyprus as an offshore financial services hub.
The programme approved by the Euro Group will rescue the country from a disorderly bankruptcy by dissolving the Popular Bank of Cyprus (Laiki) and transferring deposits below €100,000 to the Bank of Cyprus (BoC). In this way a “good bank” is going to be developed. Not-guaranteed deposits above €100,000 in both institutions will be frozen and utilised to settle Laiki’s financial obligations and to recapitalise BoC through a deposit/equity conversion. Moreover, Laiki will move €9 billion from the Emergency Liquidity Assistance (ELA) of the ECB to BoC in order to provide liquidity to the bank according to applicable regulations.
There is no need for the Cypriot parliament to vote on the plan, as they have already passed legislation with regards to drafting procedures for bank resolution. Moreover, in the light of a run when banking institutions restart their operations, parliament has voted in favour of enacting several capital control mechanisms.
Although this is a painful programme for Cyprus, it averts the danger of a chaotic bankruptcy which would have led to an exit from the Euro zone with catastrophic repercussions and restores the viability of the financial sector. The EU pressure may have placed Cyprus in a difficult situation, but it is only a matter of time before the country can once again stand on its own strengths and get back on growth trajectory.
The benefits that Cyprus still has to offer:
Despite the financial turmoil on the island, Cyprus’ status as a prime location for company registration is still highly preserved, as the numerous benefits offered are maintained and safeguarded. The country’s exceptionally advantageous taxation system, combined with its strategic position giving access to the European, Asian and Middle Eastern markets, as well as the EU membership, render Cyprus one of the most robust and effective regions in the world for company formation. Characterised as the region’s “miracle”, Cyprus is a premier finance, investment and commercial centre.
Gaining a sound reputation mainly for its low corporate taxation and favourable corporate structures, large multinational organisations from around the world are relocating to Cyprus to reap the many benefits of the island’s “white-list”, non-offshore status in order to optimise profitability though effective tax planning tools. Resident and non-resident companies enjoy a 10% corporate tax rate (possible increase of 2.5% after Euro Group’s suggestion), a 4.25% maritime management company tax rate and a 0% tax shipping company tax rate. These are the lowest tax rates in developed Europe and are EU, OECD, FATA and FSF directives-compliant. Moreover, Cyprus boasts a broad network of over 40 advantageous double taxation treaties.
The tax incentives offered by the Cyprus government have led to the establishment of the country as a highly regarded international financial hub for investments into or from Europe, Russia and the Middle East. Some of the main tax incentives offered by Cyprus are outlined below: • Profits generated outside the Republic as well as dividends are tax-free • Exemption from withholding taxes and capital gains taxes • Companies formed in Cyprus are exempted from succession taxes from inheritance of shares • Highly favourable provisions with regards to non-trading companies, such as holding, royalty, portfolio trading or real-estate companies and companies trading in securities, as well as Cypriot non-resident companies • Low personal tax rates and low social insurance contributions • Ability to register for EU VAT in the Republic and therefore take advantage of additional fiscal and commercial benefits • Corporate restructurings can take place without any tax effect • Unilateral relief from foreign taxes to all Cypriot companies
Governmental and tax authorities value investors and therefore make it exceptionally easy for businesses to set up operations on the island, by securing high levels of privacy and full anonymity, and providing complete exemption from all exchange control restrictions. Moreover, the island’s first-rate infrastructure enables individuals to add value to their tax-planning strategies by establishing fully-fledged offices with minimal operational costs. Additionally, Cyprus boasts a thriving multilingual corporate, financial, banking and auditing services industry equipped by well-educated professionals, at very low expense levels compared to other European regions. Finally, advanced air and sea transportations, as well as highly-developed telecommunications services facilitate transportation and communication throughout the island.
The Solution: Setting up a Cyprus company with an account overseas.
As extracted from the above, Cyprus’ position as an advantageous company formation jurisdiction is well cemented. Therefore, investors should not be worried with regards to the restructuring imposed on its banking sector, as there are alternatives. Investors can set up a Cyprus company for their business operations with a bank account overseas. They may form a sought-after Cyprus corporate structure, as the numerous tax benefits are being preserved, and open a bank account to carry out their banking transactions in another favourable jurisdiction. Bank accounts in several low-tax jurisdictions can be opened in just a few days, with swift and straightforward procedures. Offshore bank accounts are highly regarded as one of the most efficient tax-friendly tools to attain banking confidentiality and financial stability. Being highly coveted by corporations around the globe, offshore bank accounts enable organisations to enhance their profitability, retain privacy and upgrade their brand image to their international clientele. Through forming an offshore bank account, individuals can take advantage of many benefits; such as tax-free savings, low minimum deposits, high interest rates, and complete secrecy and anonymity, as well as legal protection in order to maximise asset protection and diversify their investment portfolios.
As more individuals choose offshore accounts to manage their funds, it is highly important to determine the most appropriate jurisdiction to match your particular banking and financial objectives. Michael Chambers & Co. LLC offers incorporation services in the British Virgin Islands (B.V.I.), Seychelles, Belize and Panama, providing unparalleled services to meet the expectations of even the most discerning investor. Discover the B.V.I., Seychelles, Belize and Panama offshore jurisdictions.
The B.V.I., Seychelles, Belize and Panama are advantageous, low-taxation jurisdictions with politically and financially secure business surroundings. They enjoy advantageous corporate tax regimes with low or zero tax rates, thus giving the opportunity for greater gains on annual capital. They require minimal start up and maintenance costs for company formation and enjoy favourable company legislations. They adhere to stringent privacy and confidentiality legislations and have low levels of bureaucracy. They offer great opportunities for asset protection and tax planning. Moreover, they enjoy protection from creditor claims and lawsuits, as well as lower levels of business risk. They are all highly regarded international financial centres, offering flourishing banking services and an attractive investment environment. The vast growth of their financial sector has led to establishing the B.V.I., Seychelles, Belize and Panama as top-rated jurisdictions for offshore company formation, bank account and management services.
Expert advice and guidance can be given with regards to the corporate regulations of each region, the corporate tax legislation, the company confidentiality legislation, the regulations to the directors and shareholders, and the banking system and legislation of these countries. Moreover, investors can be informed on the incorporation time, as well as the documentation required within the particular jurisdiction.
Determining the best jurisdiction to open a bank account for your Cyprus Company.
With the European sovereign debt crisis urging Cyprus to introduce a major restructuring programme for its banking system, investors who wish to set up a company in Cyprus are advised to open a bank account overseas. This is a highly effective asset protection technique to safeguard your favourable Cyprus corporate structure for years to come in order to maximise profitability.
Michael Chambers & Co. LLC’s fiduciary services team is able to advise on international incorporation and tax planning and can provide a variety of solutions to individual business structures according to their specific financial and banking needs.
High-net-worth individuals with valuable possessions around the globe need effective asset protection tools to manage and safeguard their wealth, as a respond to the differing legislations and tax regulations of the various jurisdictions. A trust is one of the most effective legal tools available for anyone who requires maximum protection of their funds. It is a legal structure that allows investors to transfer their assets into a binding document, enabling them to dissociate legal ownership of the funds from them and to help them reap numerous tax and estate planning benefits.
Defining a Trust
According to the Hague Trust Convention of 1984, a trust entails an arrangement where a physical or legal person, called the “trustee”, consents to holding certain assets, the “trust fund”, for the benefit of others, called the “beneficiaries”. This obligation is vested to the trustee by the previous owner and creator of the trust, “the settlor”, under certain conditions outlined in the “trust deed”.
In other words, when setting up a trust, a settlor divests himself of the legal ownership of the assets held in the trust. These assets are then authorised as owned by the trustee who is legally obliged to administer the trust fund and the profits derived from it, for the benefit of the nominated beneficiaries.
It is worth noting that the same individual can act as the settlor, trustee and beneficiary, through forming an offshore company in which he can be the only director and the only beneficiary of the company shares.
Setting up a Cyprus International Trust
Generally, there are no registration or reporting formalities involved in the formation of a trust in the Republic of Cyprus. The only exception to that is in the case of a trust created by a will, where the specific requirements associated to the will have to be examined.
Trusts are usually formed in writing and the settlor has almost unrestricted discretion in terms of the selection of powers, provisions and restrictions that may be encompassed in the trust deed.
However, the trust must satisfy the following three certainties in order to be valid:
- Certainty of intention: the settlor must demonstrate explicitly his/her intention of setting up a trust.
- Certainty of subject-matter: the tangible or intangible assets that are to be held in the trust fund must be readily outlined.
- Certainty of objects: the nominated beneficiaries of the trust, individuals or legal entities, must be ascertainable.
A stamp duty of €427.15 is payable upon the creation of a Cyprus International Trust. The trust is usually formed within a few days, with the cost of formation dependent on the complexity involved. The annual cost of managing the trust fund would depend upon the time spent and work involved, irrespective of the amount of the trust property.
Benefits of Creating a Trust in Cyprus
There are numerous reasons as to why investors might want to set up a trust. Some of these are detailed below:
Trusts in the Republic of Cyprus enjoy significant tax advantages, providing considerable tax planning opportunities to interested individuals.
Income: Any income arising from the assets of a trust fund is tax-free in Cyprus. Due to this, investors can amass wealth with highest tax efficiency and no tax authority around the globe can question such income, as it does not constitute part of the settlor’s assets.
Dividends: Dividends, interest or royalties acquired by a trust from a company in the republic are not being taxed.
Capital Gains: Gains derived from the sale or disposition of immovable assets of a trust situated in Cyprus are not imposed on capital gains tax.
Estate Duty: A trust established for estate planning reasons is not imposed on estate duty or inheritance tax in Cyprus.
Corporate Tax Planning: Setting up a trust in Cyprus with the purpose of owning an underlying holding investment company operating in another country, is a highly efficient tax planning strategy adopted by international corporations.
Pre-immigration Planning: Investors relocating to a high tax jurisdiction may gain fiscal advantages by placing assets in a trust established in Cyprus, as a way to safeguard their assets and avoid taxation in both jurisdictions.
Repatriating to Cyprus: Even while working abroad, expatriates may set up a trust to place their assets into before repatriating to Cyprus, in order to shelter their funds from the taxation regime of their country of domicile.
Assets under Cyprus trusts are safeguarded from all kinds of third party claims on the setllor’s personal property, as the assets held in the trust are outside the scope of such claims. In case that the settlor becomes insolvent or declares bankruptcy, a Cyprus trust cannot be deemed void, unless the Court has evidence that the trust was formed with the intention to defraud creditors of the settlor.
Trusts can be used to ensure that minors, mentally handicapped persons or individuals that would otherwise be left out of the inheritance, are well provided for. Also, individuals who wish to divest themselves of any personal belongings for any reason whatsoever have the ability to transfer them into a trust.
Avoidance of forced inheritance
According to the International Trusts Law, no foreign legislation regarding succession or inheritance shall have an effect on any disposition relating to the establishment of a trust or invalidate a trust, provided that the settlor is an adult of full age and of sound mind. Therefore, it is apparent, that Cyprus International Trusts are immune from any forced heirship claims in the Cypriot Courts.
Absence of exchange control restrictions
An individual with income deriving outside his home country, or someone who wishes to invest in business overseas and wants to ensure that the profits and dividends are not remitted to his country of residence, may arrange for such funds to be transferred to a trust established in Cyprus. As a full member of the European Union, Cyprus has abolished all exchange control regulations.
As a general rule, no individual including the trustees, government officials and officers of the Central Bank may disclose any information relating to the trust. The only exception to that is when a Cyprus court specifically orders holders of such information to disclose sensitive material, as part of civil or criminal proceedings.
A powerful asset protection technique
Protecting your assets through trust formation in a favorable jurisdiction is crucial for individuals who wish to safeguard the future of their wealth. There are considerable asset protection and tax planning advantages that can be gained through the use of a Cyprus International Trust. Michael Chambers & Co. is able to advise on alternative estate planning mechanisms and tax strategies, according to each client’s personal and financial needs. If you wish to speak to one of our trust lawyers, please contact us.
Cyprus boasts the third biggest maritime fleet in the EU; the tenth biggest fleet in the world. It is a market leader in ship management and as such security and safety of ships is a paramount issue, which has been addressed under the new Protection of Cyprus Ships Against Acts of Piracy and Other Unlawful Acts Law 2012. The law was published in the Official Gazette on 15th June 2012 and marks a new era in protection for Cyprus registered ships against security threats. The law has been enacted in order to enhance security and is based upon the advice and proposals offered by the International Maritime Organization.
The law addresses a number of potential security issues, including piracy but also covers other “unlawful acts” which is defined to mean “an act or suspicious act or circumstance which, by its nature or context, threatens the security of the ship or may cause damage to the ship or to the persons on board or the cargo”. Examples of unlawful acts governed by the law are:
- seizure of control of the ship (including acts of piracy);
- committing acts of violence against a person on board the ship;
- damage to or destruction of the ship or its cargo;
- placement on board the ship of a device which may cause damage to it, its cargo or the persons onboard;
- abduction or hostage taking of one or more persons onboard the ship;
- theft or transportation out of the ship of certain items;
- exercise or threat of violence or commissioning of any of the above;
- Transmission of information to assist any of the above acts.
Compulsory Security Measures
The new law states that Cyprus ships are required to implement compulsory security measures when sailing through high-risk zones. These measures should be implemented in addition to SOLAS Chapter XI-2 and ISPS Code.
Obligations are placed upon the master and operator of the ship to take necessary measures for the safety of the ship and to prevent “unlawful acts”.
Additional Protective Measures
The Law also enables the operator of a ship to request permission to engage private armed or unarmed security personnel where necessary for safety of the ship in high risk zones. The operator of a Cyprus ship must submit to the Department of Maritime Security an application requesting a certificate which will be issued to allow the boarding of such private security personnel and the use by them of firearms or other equipment in high-risk zones.
The application should include:
- the name and full details of the ship;
- full details of the private security company it wishes to engage;
- a full risk assessment and description of security measures to be undertaken;
- a description of the equipment required to be used;
- places and dates of embarkation and disembarkation of the security company;
- places and dates of the loading and unloading of firearms and other equipment;
- description of the routes taken by the ship;
- a copy of the agreement with the ship security company.
In order for permission to be granted:
- the request must be justified by reference to the security assessment;
- the security personnel must be specially licensed by the government to provide such services (see below).
The ship operator is under an obligation to ensure that the security company he engages holds a valid license, sufficient indemnity insurance and that all guards are able to communicate with the master and crew. Moreover the contents of the contract made between the operator of the ship and the private ship security company are specified and must include:
- full details of each private security guard;
- details of authorized firearms or other special equipment that may be used;
- conditions permitting the use of such firearms and special equipment;
- procedure to be followed to amend any of the above matters.
Private Ship Security Companies
The law states that private ship security companies must submit an application to the Department of Maritime Security in order to obtain a license permitting them to provide services of unarmed or armed personnel to Cyprus registered ships. The application will be approved upon satisfaction of the Department of Maritime Security that the said company is able to provide the services in a manner in compliance with the governing regulations.
The Courts of Cyprus will govern all actions of a licensed private ship security company in Cyprus and the Department of Maritime Security must approve all persons employed by such companies.
Conduct of Private Security Guards
The law governs various aspects of the conduct of any privately engaged security personnel including embarkation and disembarkation, movement and storage of firearms, ammunition and other security equipment whilst on board the ship, as well as governing liability issues between the ship operator and the private ship security company.
Duty to Report
The master and operator are obliged to report to the Department of Merchant Shipping any undertaking or attempted undertaking of an unlawful act upon their ship and to provide full information to the Department of Merchant Shipping regarding that act. Moreover the operator is placed under a direct obligation to inform and keep updated the relatives of hostages and those injured as a result of an unlawful act.
Rights for the Ship’s Personnel
The law provides for certain rights for the personnel on board the Cyprus registered ship including the right for self defense, the right to arrest and detain a person attempting to commit or a person who has committed an unlawful act and the right to seize arms and equipment of those persons attempting to or who have committed an unlawful act.
The new Protection of Cyprus Ships Against Acts of Piracy and Other Unlawful Acts Law 2012 places Cyprus as a market leader in ship management by offering enhanced regulation and management of safety and security issues faced by ships registered under the Cyprus flag.
Michael Chambers & Co LLC’s team of Cyprus lawyers is able to advise on all aspects of ship management and safety measures required under the new law including compliance, engagement of security companies and licensing. If you wish to speak to one of our maritime lawyers, please contact us.
When creating a company in Cyprus promoters will most often be given the choice of creating the company from scratch (tailor made) or buying a company that has already been created and amending it to suit their specific purposes (off the shelf).
A Tailor Made Company
Where the promoter of the company requires the company to be tailored to his specific requirements from the outset, then a tailor made company will be necessary. This will mean that the company will (with the approval of the Registrar) be named in accordance with the promoter’s wishes from the outset. Moreover, the Articles of Association and the Memorandum of the company will be specifically created with provisions that are appropriate to the specific circumstances of the company. The promoters of the company will in most cases also immediately be appointed as the first members of the company and they will also probably be the first directors and secretary of the company.
A tailor made company carries with it the benefit of creating a company that is very specifically made to the requirements of the promoters. However, tailor made companies will inevitably take longer to form (which can be more costly) and will require full instructions and documentation to be provided to the persons creating the company registration can take place.
An Off-the-Shelf Company
An alternative to the tailor made company is to buy a company “off the shelf”. This essentially means buying a company which has already been made and registered with the Registrar of Companies, but has never traded and has sat “on the shelf” waiting to be used.
Whilst the purchase of such a company will mean that the entity is can operate extremely quickly without the delays incurred when tailor making a company, there are likely to be elements of the new company which are entirely unsuitable and which will need to be amended in order to make it functional in accordance with the wishes of the promoters.
The first members (registered on creation) of the company will need to transfer their shares to the new members. Furthermore the existing directors and secretary will need to resign and the new directors and secretary will be appointed.
Although the memorandum will often be a general one that is suitable for the type of company envisaged, the Articles of Association will probably need to be amended in order to create an appropriate set. Moreover the name of the company will in most cases need to be amended, as it will likely bear no connection whatsoever to the new business of the company.
An off the shelf company has the advantage of being considerably speedier to create and as such will usually be the less costly option. Although there will be changes to be made to the company documentation in order to make the company suit its new purpose, the work will be considerably less than tailor making the company from the beginning.
Michael Chambers & Co. LLC’s team of corporate lawyers is able to advise on all aspects of the company formation process, can specifically tailor make companies to a client’s individual purpose, or has a large number of off the shelf companies from which to select. If you wish to speak to one of our corporate lawyers, please contact us.
One in five marriages in Cyprus will end in divorce. Family law provisions on the island are complicated by changes in the law made in 2003 which means that different laws will apply to those who were married before 2003 and those who were married after 2003. The newer Marriages Law 2003 will deal with divorces of marriage celebrated after 2003 whereas marriages that took place before 2003 are dealt with under the provisions of the Family Courts Law.
In order for a divorce to be dealt with by the Cypriot Courts, the parties must have lived in the Republic of Cyprus for at least three months, nationality is not a factor.
The first matter to be ascertained when seeking a divorce is whether the marriage was celebrated in the Church. In the case that no religious ceremony took place, an application may be made to the Courts to divorce immediately. However, where a Church ceremony has also taken place, the competent Bishop will need to be informed of the intention to divorce before the Registrar of the Family Court will accept the application for divorce in the Civil Court. The only cases where this will not be necessary are in the case of divorces by reason of a spouse declared missing and presumed dead or divorce on the grounds of insanity. Three months from the date of notification of the Bishop will need to pass before the application for divorce in the Civil Court may proceed.
Broadly speaking, in order to obtain a divorce the following grounds may be cited:
- Serious breakdown of the relationship;
- Inexcusable desertion for two years or long periods of absence that add up to more than two years. An invitation to return should have been made;
- Separation for five years;
- Immoral behavior leading to relationship breakdown which makes the relationship intolerable to the applicant;
- Violence within the relationship, physical abuse;
- Imprisonment of the spouse for over seven years;
- Spouse declared dead or missing;
- Inability to have sexual intercourse which existed at the time of creation of the marriage and continues for six months and at the time of application for divorce;
- Refusal of one party to have children against the wishes of the other party;
- Change of religion.
The application to dissolve the marriage will need to be submitted to the Family Court in the province where the parties live. Where a religious ceremony took place, the application must be accompanied by proof of posting notification to the Bishop mentioned above.
The Family Courts will be able to grant exclusive use of the home or possessions pending divorce, but the application for divorce will primarily concern the dissolution of the marriage, matters concerning property disputes and maintenance will need to be settled by means of separate applications.
The Court will deal with the division of property in accordance with the Law Regulating Property Relations of Spouses (Law 232/1991) which provides that in the event of dissolution or annulment of a marriage if the property of one spouse has been increased and this increase has been contributed to in any way by the other spouse then an application may be made by the contributor for a return of a share of the increase.
The contribution will be presumed to be 1/3 of the increase unless a larger or smaller contribution is proved.
Maintenance may also be awarded in according to the provisions of Law 232/1991 in the event that the spouse cannot maintain him/herself because of age, health or where a child is under 18.
The Relations of Parents and Children Law (216/1990) gives mandatory child maintenance provisions and states that parents are jointly responsible for the maintenance of minor children according to their capacity.
Family law is a highly sensitive area of law. Michael Chambers & Co LLC’s team of Family Lawyers is able to advise on all aspects concerning divorce, property settlements, maintenance and custody. If you wish to speak to one of our lawyers in absolute confidence then please contact us.
Having decided to create a new business in Cyprus, one of the first considerations a promoter of that business will have will be what to name the new entity. Whilst the moment at which the new company’s name is conceived can be thrilling, the legal requirements behind a name can too often be overlooked. Approval for any company name is required from the Department of Registrar of Companies and Official Receiver and when their requirements are disregarded this can lead to delays and disappointment.
When and How Does One Apply
Obtaining approval of the proposed name for a new company will be one of the very first steps a lawyer will undertake when creating a new company on behalf of a client. An application will be made to the Department of Registrar of Companies and Official Receiver in the prescribed form and upon payment of the prescribed fee. The application can be made at a lower fee for a standard turnaround and also at a higher fee for an expedited approval.
What Information Does the Registrar Require
The application includes details of the proposed name as well as a description of the nature of the business, the meaning of words and the names of the Directors or Partners. Approval of the company or trademark should also be included.
Most law firms recommend giving a number of alternative names for approval, which will avoid the inevitable expense and delay of potential rejections.
Where a client requires a speedy service, the expedited approval can be requested. Alternatively most law firms stock a bank of pre-approved names that can be used initially for registration, where the name of the company itself is inconsequential.
What Names Are Permitted
In general promoters of a company have a freedom in relation to the company’s name. However, it must be noted that the purpose of a company name is to identify that company and (at the same time) differentiate it from other service providers and therefore names will be rejected if they are undesirable – for instance:
- The name is similar or identical to that of another existing registered company;
- The name is general;
- The name is descriptive;
- The name is deceptive (e.g. if it suggests a non existent royal/national or international connection);
- The name is a geographical location.
Furthermore certain business types are only allowed to include certain terms in their name, for example words such as “Financial Services” may only be used by companies registered as such with the Cyprus Securities and Exchange Commission. Similarly “cooperative”, “insurance” or “bank” could only be used by registered entities.
Names may be registered in any language using the Latin alphabet, provided that where a foreign language is used, a translation of the name is provided with the application.
Where a company has been created, the name may subsequently be changed, by a special resolution of the company. Approval of the new name will similarly be required. Change of name will not impact upon rights or obligations of the company prior to the change or render any existing legal proceedings defective.
In the case of a limited company the name must be followed by the words “limited” or “ltd” after the company name. Similarly, “Public Company Limited” or “P.L.C.” should follow public company names. The effect of such is to indicate to those persons dealing with the company its status.
Michael Chambers & Co. LLC’s team of corporate lawyers is able to advise on approval of a company name and all aspects of the company formation process. If you wish to speak to one of our corporate lawyers, please contact us.
What is a Pledge
A pledge is a form of real security giving the creditor (“pledgee”) proprietary rights over named property belonging to the debtor (“pledgor”). The pledgee has the right to retain those proprietary rights over the pledged property until an obligation (for instance payment of a debt) is discharged and the property is then restored back to the pledgor or alternatively, if the obligation is not fulfilled, the property vests in the pledgee to be sold and/or handled according to the agreement made between the parties.
The possession of the pledged property may be actual or it may, more commonly, be constructive. Actual possession of the goods will bring concerns regarding risk and duty of care. Consideration will need to be made for storage and appropriate insurance for the goods. Constructive possession is a much more commonly executed practice.
Pledges of Shares
A pledge of shares in a company is a widely used tool for offering commercial security in Cyprus. Such pledges are governed by the Companies Law (Chapter 113) and the Contracts Law (Chapter 149). A pledge of shares will be created by execution of a share pledge agreement which will govern the terms of the pledge and, upon signature, will specify that the following documentation be provided concurrently to the pledgee:
- Certified copies of resolutions approving the pledge and transfer of shares;
- The original share certificates for the shares in question;
- Executed and undated instruments of transfer;
- Irrevocable proxy and power of attorney regarding the shares;
- Signed and undated letters of resignation and letters of authority from Directors and Secretary.
The issue of such documents to the pledgee by pledgor will permit the pledgee to transfer the shares into his name, should the obligations specified in the share pledge agreement fail to be discharged. The pledgee will also seek to include provision in the share pledge agreement to ensure that upon the request of the pledgee, in accordance with the provisions of the share pledge agreement, a memorandum of the pledge should be registered against the Register of Members. Pledged shares should be fully paid up and have no other charges registered against them. The articles of association must allow the pledge and all the necessary board resolutions properly made.
A share pledge must be registered with the Registrar of Companies in Cyprus within the timeframe specified by law. This will safeguard the existence of the pledge in the case of liquidation.
Termination of a Pledge
Pledges will terminate in the following situations:
- The underlying obligation is fulfilled and therefore security is released according to the agreement made between the parties;
- The pledgee attains the right to enforce his pledge under the agreement and does so in accordance with provisions of the agreement;
- A specified date for termination in the agreement is reached;
- The pledgee waives his rights, serving a written termination notice upon pledgor;
- It may also (rarely) further terminate where pledgee breaches a term of the agreement – for instance if pledged goods are used and adversely affected by the pledgee.
Upon termination all proprietary documents held will be returned to the pledgor and all registered charges and memorandums cancelled.
Michael Chambers and Co. LLC’s team of commercial lawyers is able to advise on all issues relating to pledge. We can advise on all aspects of share pledges, negotiation of pledge agreements and compliance with formalities. If you wish to speak to one of our commercial lawyers, please contact us.