President of the recently-formed Cyprus Fiduciary Association (CFA) and Managing Director of Fiducenter, George Savvides is determined to raise the quality standard of fiduciary services in Cyprus and to promote the country as a reputable business and financial centre.
Could you tell us how and why the Cyprus Fiduciary Association (CFA) was established?
On my various business trips I am often presented with the same question from our international counterparts – whether the fiduciary services sector in Cyprus is regulated. I felt I could not face another trip where I would have to explain that the sector itself is not regulated, but most Cypriot professionals are lawyers and accountants, who are regulated by their own professional associations. Fiducenter, having its head office in Luxembourg, is regulated through CSSF, the local regulatory body. The same holds true for other fiduciary service providers with a similar structure, who are regulated in and through other jurisdictions, but not in Cyprus. After discussing this lack of regulation in our country with other colleagues, we came up with the idea of setting up an association to promote higher professional standards in our sector. We started approaching more firms who were keen to assist in this effort and in November 2011 we officially formed the Cyprus Fiduciary Association.
What is the Cyprus Fiduciary Association’s purpose and key aims?
Our purpose is to promote the implementation of a regulatory regime for the fiduciary services sector and the professional activities of firms providing advisory services within the framework of management of private companies. We are also coordinating the common interests of CFA members by creating a significant and unified representation before any relevant regulatory authorities and advisory committees and we are actively involved in law-drafting and other regulatory matters relevant to the industry in Cyprus. The aim is to raise the standard of the quality of fiduciary services by creating an agreed and common protocol regarding compliance with regulatory authorities. The CFA also aims to have an educational, supportive and disciplinary role with its members and can also be used as a promotional tool to attract more business to Cyprus.
How do you feel the fiduciary services sector has developed in Cyprus over the years?
There has been a dramatic change over the years. Judging by the number of firms engaged in this business today, it is one of the more prosperous sectors in our economy. It has also proved to be a strong and resilient sector despite the current economic crisis, showing steady growth over the last few years. During 2004 - 2008, there was extraordinary growth demonstrated by the number of new registrations at that time – around 25,000 companies per year. We had a slowdown after that, but the sector continues to grow. What is important however is not just to increase the volume of these companies, but the quality of services – this was the main purpose of the creation of the Association. The lack of a regulatory framework can be risky and damaging for the image of the country and this is what we are trying to safeguard.
How has Cyprus’ image as a financial services centre changed since the country joined the European Union in 2004?
Before the tax reform of 2003, Cyprus was very popular internationally for tax planning, but merely as an offshore location. Since the tax reform and our accession to the European Union, Cyprus, as an international business jurisdiction has progressed a lot. A major development was the inclusion of our country in the Organisation for Economic Co-operation and Development (OECD) White List. However, there are clients abroad not following the developments in this region, who still have the impression that Cyprus can be a risky location. This is one aspect our Association is aiming to improve by raising awareness that this is no longer the case. However, this is also an issue for the state and all other players in the sector to work on.
What are the main areas for corporate and fiduciary services in Cyprus and what are the most interesting aspects for foreign investors?
Cyprus is popular for various different structures. One is the Cyprus Limited Company, due to its many tax advantages such as the low corporate tax rate at 10 per cent, tax exemption of gains from the sale of shares and other securities and the absence of any withholding tax on dividends, interest and royalty payments to non-residents of Cyprus. A Cyprus Company can be used in many different structures, such as holding, commercial, royalty and portfolio management. Then we have trusts, which are based on UK common law. Tax advantages are only one aspect of Cyprus trusts. Many other important advantages make Cyprus a great jurisdiction, for example confidentiality, because a trust is like a private agreement – so privacy is a major advantage. Other uses include wealth management and inheritance planning for clients, who want to find an efficient way to leave their fortune to heirs. Lately we have also seen a growing interest in investment funds and especially in private investment funds – known as International Collective Investment Schemes (ICIS) – which are developing well. The legal framework governing this sector has been in existence since 1999 and up until a few years ago we had only around 70 funds registered with the Central Bank. However, in the last two years we have seen significant growth, taking the number of funds up to around 100, proving their increasing popularity. They are a flexible vehicle for bringing in investment, because compared to the heavily regulated funds (UCITS), private funds (ICIS) give you the opportunity to invest in both marketable and non-marketable assets. This means you can invest in property, in one subsidiary or even in precious metals and in terms of disparity you can also focus your investment 100 per cent in one asset. Finally, Cyprus Investment Firms (CIFs) are also building up well, especially with the rising popularity of using Cyprus for FX and related operations.
The reform of the International Tax Law has brought Cyprus to the forefront of trust jurisdictions, has the change in legislation led to an increased interest in Cyprus?
Yes, there has been more interest and the changes in legislation have helped increase the popularity of trusts. Some of the most important amendments in the new trust legislation are the abolishment of all restrictions on time and duration and the clarification of the governing law, which provides more certainty that all matters arising in relation to trusts are in accordance with Cypriot law. In addition, the re-enforcement of the notion for asset protection under the trust law which overrides any foreign inheritance law is an element that certainly increases the interest of foreign investors.
The amendment of the prohibition with regards to a possible Cyprus residency of the settlor and beneficiaries is also an important one.
What types of trusts are most popular in Cyprus?
It depends on what country the requests come from, for instance many trusts from the UK are for employment benefit purposes whereas other jurisdictions use trusts for inheritance and wealth management purposes. However, trusts are kind of a tricky vehicle, because they might not be recognised by certain countries, therefore the law provisions of the home country of the settlor or beneficiary will determine whether the trust will be of any use for its intended purpose. Especially in civil law countries, like France, it is now even more difficult to find any benefit in using trusts, because they are generally considered as transparent entities.
How easy is it to set up a trust in Cyprus and how expensive is it?
It is very easy and flexible to set up a trust in Cyprus. It is a matter of creating the trust instrument and getting it stamped by the registrar for a reasonable fee. Obviously the rest depends on what kind of a trust you want to set up and the particulars of each case, but in general a Cyprus trust is very flexible, confidential and easy to manage. Trusts are very popular and for example at Fiducenter we now manage more trusts than we do Cyprus Companies. The overall set up costs for a Cyprus trust are around 30 per cent less than in other finance centres.
Which are the most common countries to seek fiduciary services from Cyprus?
Russia is obviously a key country, as are the CIS countries, but Cyprus is now very popular also in Poland, Italy, the UK and Scandinavian countries. There are also efforts to introduce these services in China, India and other Asian markets, but interest in Cyprus changes together with international developments in the field. For example in Sweden, as of few years ago, Cyprus was very popular for many different structures, including portfolio management. Following several changes in Swedish tax legislation, some structures became less attractive. This proves that interest fluctuates with current developments, showing it is important for Cyprus not to depend heavily on only a few certain countries in this sector.
At the moment, is Cyprus a strong competitor in terms of offering fiduciary services and is it on an equal footing with other jurisdictions? How could Cyprus further improve its status?
Cyprus is strong and well known in this specific market and as a jurisdiction it is still gaining popularity. We just need to be careful with the current economic situation and try to protect our advantageous tax system or we could face losing a lot of business. We also need our public sector to become more efficient and to respond faster to the international business sector. There are already good efforts to have more automation in many of the processes, but we need even more automation to better support the industry. Personally I would also like to see more specialisation in Cyprus. I do not like this idea that ‘we are good at everything’, we are a small country and could be even stronger if we decide what we want to focus on. I am not saying we should put all our eggs in one basket, but more specialisation and developing a specialised supporting industry could make us a stronger player internationally. Cyprus is already a strong international business centre, but we must continuously develop to stay competitive.
In your view, which niche services should Cyprus focus on to become a stronger player?
We should focus on commercial companies, but with a proper structure to ensure a multitude of benefits for our country in many different aspects from employment and accommodation to the use of telecommunication, professional and financial services. You need proper substance in order to keep the structure secure for such companies. Many commercial companies are using Cyprus to market themselves to other regions, using Cyprus as a re-selling centre in effect. Cyprus is also an attractive location for the establishment of corporate head offices for centralised services like marketing, obtaining finance collectively and budgeting. Cyprus has the necessary infrastructure and professionals to support the provision of these services.
Since its establishment, how has the Cyprus Fiduciary Association been received so far?
It has been received very well. There was a great need in this sector for a body that would help members to be associated with high-quality services, be their representative and united voice before parliament and the regulators, promote Cyprus, deal with other associations and provide education, seminars and monitoring services. It was tough at the beginning and it is still a lot of hard work to make the association stronger through memberships, but we are constantly growing by approving applications and accepting new members. At the moment we have around 25 firms as members. However, our potential membership is limited as the Association will only accept firms as members, not individuals, based on our current plans. Many accounting and legal companies in Cyprus also offer fiduciary services, but we are targeting fiduciary services companies who specialise purely in this sector. Based on our own research, as unfortunately there is no official data, there are around 100-120 such companies in Cyprus.
What message would you like to give to foreign businesses and investors and why should they use Cyprus’ fiduciary services instead of other jurisdictions?
Cyprus has robust legal and tax regimes, which are investor-friendly and stable, a strong professional network and a good business infrastructure, but is also convenient for its geographical location and time zone. However, I would advise companies to present their facts and make sure Cyprus is the jurisdiction that can service their needs and offer the right advantages. Cyprus offers many valuable and significant advantages and incentives to foreign clients, but there is no such a thing as ‘one size fits all’ in this industry. The lowest corporate tax rate in the EU, the exemption from tax on dividend income and full exemption from gains on the sale of securities, are aspects of our tax system that provide numerous opportunities for holding companies, commercial structures, portfolio investment and investment funds. Cyprus also does not withhold tax for transfers out of Cyprus, making us a good exit point for many structures. It is also promising that there is local support and opportunities to further develop the already attractive package that Cyprus offers to investors and businesses – such as the recent yacht scheme for VAT purposes and the Intellectual Property (IP) regime based on the Luxembourg model. We already have an excellent framework in place and ultimately the Cyprus Fiduciary Association wants to strengthen Cyprus as an international business centre for the provision of corporate and fiduciary services.