Bill Submitted to Parliament Seeks to Modernize Cyprus Trust Law and End Resident Distinction

A significant overhaul of Cyprus trust legislation is being advanced through a bill submitted to Parliament by the Cyprus Bar Association, with the objective of modernizing one of the most important legal mechanisms used for asset management, business succession, wealth preservation and private estate planning.

The proposal represents one of the most substantial reforms to trust law in recent years and is designed to update the existing legal framework while removing long-standing distinctions between Cyprus residents and non-residents in the establishment of trusts. According to those behind the initiative, the changes will effectively lead to the "de-offshorization" of the trust regime.

At present, the International Trusts Law of 1992 imposes specific conditions linked to the tax residence status of both the settlor and the beneficiaries of a trust. The proposed legislation would eliminate those requirements and introduce a new concept, replacing "International Trusts" with what would be known as "Cyprus Express Trusts."

The initiative was presented by the President of the Trust Committee of the Cyprus Bar Association, Emily Giolitis, during Wealth Week Cyprus in Limassol. She explained that the purpose of the amendments is to remove what she described as outdated discrimination that no longer serves any meaningful function.

"What we are seeking today with the amendments we submitted to Parliament is the de-offshorization of trusts in Cyprus, by eliminating the criteria that require the settlors and beneficiaries of a trust to be non-Cypriots in the year preceding its establishment," he said.

Giolitis argued that the distinction between tax residents and non-residents of the Republic is no longer justified because trusts are regarded as tax-transparent structures.

"There is no reason to discriminate between tax residents and non-tax residents of Cyprus, as for tax purposes the trust is considered tax transparent," he noted.

The proposed amendments reflect wider developments in the global tax and regulatory landscape, where the traditional offshore model has gradually given way to frameworks that align with modern European standards. Supporters of the reform maintain that offshore trust structures no longer correspond with contemporary requirements, which increasingly demand a genuine connection between the jurisdiction where a trust is established, the location of tax residence and the existence of real economic activity.

According to the explanatory memorandum prepared by the Trust Committee, the reform gains additional importance because of the so-called nexus test, which places greater emphasis on actual presence and business activity within a country when determining tax treatment.

The proposal is also intended to address what its authors view as an imbalance in the current legal system. Under the existing framework, Cypriot residents generally have to rely on the older 1955 legislation to establish trusts, while non-residents are able to make use of the more modern provisions introduced by the 1992 law.

Beyond abolishing residency-based restrictions for founders and beneficiaries, the bill contains several technical and substantive amendments aimed at strengthening and clarifying the legal framework. It introduces the new designation "Cyprus Express Trusts" and extends the application of the updated legislation to trusts that were established under previous laws.

The draft legislation also seeks to clarify issues concerning the jurisdiction and powers of Cypriot courts, modernize the "firewall" provision that shields Cyprus trusts from claims based on foreign legal systems, and provide greater certainty regarding the duration of trusts and the rule against perpetuities. In addition, it updates court powers and the legal provisions governing changes to the applicable law.

The Trusts Committee believes these measures will create a more efficient and user-friendly environment for the establishment and administration of trusts in Cyprus.

The legislative initiative comes at a time when Cyprus is actively working to reinforce its role as an international hub for professional services, wealth management and family asset planning.

Speaking during Wealth Week Cyprus, which attracted more than 200 international delegations and over 25 expert speakers, Emily Giolitis highlighted the value of trusts as an important instrument for family and investment planning.

As he stated, "Cyprus can be a very good alternative for family planning and wealth management," adding that the country is already used by investors as a jurisdiction for the protection and organization of investments.

The proposed legislation is expected to be referred to the Parliamentary Committee on Legal Affairs, where it will undergo a detailed article-by-article examination. Those promoting the reform have expressed confidence that the legislative process will move forward over the coming months.

By fLEXI tEAM