Another blow for the services sector

By Yiannis Seitanides

The new sanctions against Russia, which were decided by the European Union member states and came into force on Saturday with their publication in the Official Journal of the EU, deal another blow to Cyprus’ services sector, as they put a freeze on trusts owned by Russians or linked to Russia. The establishment of trusts is an important component of the services that Cyprus provides to foreign investors.

Cypriot trusts are particularly popular because they provide non-residents with full tax exemption, as no income, capital gains and property taxes are paid.

According to the EU 27 decision:

-The registration, the provision of registered office, business or administrative address, as well as management services, to trusts or any similar legal formations having as trustees or beneficiaries, is prohibited:

(a) Russian nationals or natural persons residing in Russia;

(b) legal persons, entities or bodies having their seat in Russia; (b) legal persons, entities or bodies having their seat in Russia

(c) legal persons, entities or bodies in which more than 50 % of the ownership rights are owned directly or indirectly by a natural or legal person, entity or body referred to in points (a) or (b); – legal persons, entities or bodies whose registered office is located in Russia

(d) legal persons, entities or bodies controlled by a natural or legal person, entity or body referred to in points (a), (b) or (c)

(e) a natural or legal person, entity or body acting on behalf or at the direction of a natural or legal person, entity or body referred to in points (a), (b), (c) or (d).

-From 10 May 2022, it is prohibited to act or arrange for another person to act as a trustee, nominee shareholder, director, secretary or similar office, for a trust or similar legal entity as referred to above.

-The foregoing shall not apply to acts absolutely necessary to terminate by May 10, 2022, contracts not complying with this Article entered into before April 9, 2022, or supplemental contracts necessary for the performance of such contracts.

-They shall also not apply where the trustee or beneficiary is a national of a Member State or a natural person holding a temporary or permanent residence permit in a Member State.

-By way of derogation, the competent authorities may authorise the services referred to above under such conditions as they deem appropriate, after having established that this is necessary in order to:

(a) humanitarian purposes, such as the provision or facilitation of assistance, including medical supplies, food or transport of humanitarian workers and related assistance, or for the removal of populations; or

(b) civil society activities that directly promote democracy, human rights and the rule of law in Russia.