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Cyprus International Trusts

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Cyprus International Trusts

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The law governing the establishment of trusts in Cyprus is based on the English system. It is a combination of the English Principles of Equity and Statue Law. Cyprus International Trusts are regulated by the International Trusts Law 69(I)/1992 as amended by Law 20(I)/2012.

What is a trust?

A trust is a settlement or legal agreement between three parties:

  • The Settlor: (or grantor, trustor, trust maker); the person who creates the trust; he/she is the owner of the initial property placed under trust.
  • The Trustee: legal or natural person, who agrees to hold the trust property in his/her/its name for the benefit of the Beneficiary under the terms of the trust. Responsible for managing the property.
  • The Beneficiary/Beneficiaries: individuals or companies receiving the benefits of the trust property.

A trust is a fiduciary relationship in which the Settlor gives the right to the Trustee to hold title to a property (trust property) for the benefit of the Beneficiary. The trustee has the legal title to the trust property, whereas the Beneficiary has the beneficial title to the trust property.The ultimate beneficial owners of the trust property is/are the beneficiaries.

Trusts are established to provide legal protection for the trustor’s assets; for tax planning purposes; wealth management; investment or for charitable purposes.

The law imposes a duty of confidentiality on the trustee about the trust and the identity of the settlor and beneficiary. It is only possible to disclose such information in case of a court order in any civil or criminal proceedings when the court is convinced that such information is important to the outcome of the proceedings.

The main duties of the Trustees are to administer the trust property prudently and to comply with the terms of the trust. The Terms of a trust are set in the Trust Deed or Trust Instrument. Any action taken by the trustees that contravenes the terms of the trust deed is a ‘breach of trust’ and makes the trustee personally liable for the full extent of any loss incurred.

The Settlor has the right to reserve many powers, such as to revoke or amend the trust, to instruct the Trustee, to remove and appoint trustees, to change the law regulating the trust.

All trusts related matters are determined in accordance with Cyprus Law.

Requirements to create a valid Cyprus International Trust:

  • The following three certainties must be present:

1. Certainty of Intention:

Evidence of express intention of the settlor to create the trust. This is evidenced by the Trust Instrument.

2. Certainty of Subject Matter:

The trust property must be readily identifiable otherwise the trust is void for uncertainty.

3. Certainty of Objects:

The identity of all the beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust.

  • The Settlor shall be of sound mind and of right age.
  • The Settlor (being either natural or legal person) shall not be a resident of Cyprus during the year preceding the year in which the CIT (Cyprus International Trust) was formed. They may become Cyprus Residents after the creation of the CIT as, there is no longer a prohibition on settlors relocating to Cyprus after the creation of the Cyprus International Trust.
  • The beneficiaries shall not be residents of Cyprus in the year preceding the establishment of the Trust.
  • The beneficiaries may relocate to Cyprus after a year of the establishment of the trust.
  • The trust property can include all kinds of assets situated in Cyprus or anywhere in the world.
  • At least one of the trustees must be resident of Cyprus during the whole duration of the trust.

Trust Registry:

The law imposes the obligation on resident trustees to register all Cyprus International Trusts with one of the three Competent Authorities i.e. the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC) or with the Cyprus Bar Association. The Trust registries maintained by the supervising authorities shall contain the following information about the Trusts:

  • Name of the trust
  • Date of creation of the trust
  • Date of termination of the trust
  • Name and address of the trustee
  • Date of any change in the law governing the trust to or from Cyprus Law.

The identity of the Settlor and the Beneficiaries is not disclosed in the Registry. The Registers of Trusts are not available to the public, but they are available for inspection by the Competent Authorities.

Benefits of Cyprus International Trusts:

Tax benefits

  • Income, gains and profits from non-Cyprus sources are exempt from taxes in Cyprus.
  • The worldwide income, gains and profits are taxable in Cyprus only if the beneficiary is tax resident in Cyprus.
  • Beneficiaries who are non-tax residents of Cyprus are taxed only on Cyprus sourced income in accordance the Income tax law of Cyprus.
  • Dividends, interests or royalties received by a Cyprus International Trust from a Cyprus company are not taxable and not subject to any withholding tax.
  • No estate duty/inheritance tax.

Asset protection

  • A Cyprus International Trust may be used to protect assets against risks, claims by governments or creditors, expropriation etc.
  • Protection from creditors.
  • Protection from claims of spouses or former spouses.
  • A Cyprus International Trust can be utilized to protect assets against claims in tort or contact because of transactions entered by the previous owner of the trust property.

Confidentiality and reporting

  • The Trustees owe duty of confidentiality to the settlor and to the beneficiaries. They are not allowed to disclose any information or documents unless they are ordered to do so by a specific court order.
  • However, registration of the Cyprus International Trust in the Trusts Registry is mandatory, the registration does not require the submission of the relevant Trust Deed, disclosure of the settlor and the beneficiaries and the information is not available to the public, only to the Competent Authorities in case of inspection.
  • No reporting requirements for Cyprus International Trusts in Cyprus.

Managing family wealth, estate planning, inheritance planning

  • It is ideal for high net-worth individuals with complicated family structures.

Reservation of Powers

  • When setting up the trust the Settlor may reserve powers to him/herself specifically drafted into the trust instrument. Such powers are: to revoke, vary or amend the terms of a trust; to appoint or remove any trustee/enforcer/protector/beneficiary/investment adviser; to give directions to the trustee etc.

Perpetuity period

  • Trusts may exist for the duration of a lifetime plus 21 years or in the case where no natural person is involved it can exists for merely 21 years.

No exchange control regulations

Types of Cyprus International Trusts

  • Private Trusts
  • Express Private Trusts
  • Resulting Trusts
  • Constructive Trusts
  • Implied Trusts
  • Charitable Trusts
  • Fixed Trusts
  • Discretionary Trusts

For more information and advise on how a Cyprus International Trust could help to structure your business please contact us.

Article supplied by SHANDA CONSULT

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