Cyprus International Trusts

Cyprus Trusts

After the recent changes in the Law, the Cyprus position as an international financial center and a reputable Trust jurisdiction is improved. The Cyprus International Trust is an important tool that can be used for tax planning, assets protection and wealth management considerations.

Cyprus trust law is essentially based on the English system. Trusts are mainly regulated by the Trustee Law, Chapter 193, enacted in 1955 and based on the English 1925 Trustees Act. This is supplemented by the English doctrine of equity and English case law prior to 1960.

In 1992, Cyprus enacted the International Trusts Law. This was done to update and modernize the law and establish Cyprus as an offshore and financial center and a serious trusts jurisdiction.

General concept

The various types of trust vary in complexity but they have one common fundamental feature. A “person” being either an individual or a company (“the trustee”) agrees to hold certain assets (“the trust property”) in its name for the benefit of another person (“the beneficiary”) on certain terms and with certain powers (which are usually set out in the Trust Deed). The assets comprising the trust fund are legally held and registered as owned by the trustee and the trustee is under a duty, enforceable in the Courts, to hold those assets and the income arising from them for the benefit of the beneficiary/ies.

The other important parties of the trust are: The settlor: This is the person that creates the trust. In some jurisdictions the settlor could not act as trustee or be a beneficiary. In the Cyprus jurisdiction, the settlor can also be a trustee or beneficiary. The protector: This is the person(s) that has the power to restrict key powers (such as add beneficiaries, etc.) of the trustee so that they can only be exercised with the consent of a suitable person

For a valid trust to be created, the following three certainties must be present:

  • Certainty of intention – there must be evidence of the express intention of the settler to create the trust. This is usually evidenced by the trust instrument (although it is possible to have orally created trusts);
  • Certainty of subject matter –the assets that are to become the trust property must be readily identifiable, ie money, property, shares etc;
  • Certainty of objects –the identity of all the intended beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust.

Cyprus International Trusts

For the purpose of attracting foreign investors to create in international trusts in Cyprus, the International Trusts Law of 1992 has been passed and deals with the regularization of international trusts. This law is not a self-contained law on trust but it builds on the existing Cyprus Trust Law, which is based on the English Law. This Law offers freedom of movement of funds and it removes certain doubts as to whether the existing legislation could cover arrangements such as those, which are common in other jurisdictions.

An International Trust is trust whereby:

  • The settlor is not a permanent residence of Cyprus.
  • The trust property doesn’t include immovable property in Cyprus
  • At least one of the trustees is a resident in Cyprus
  • The beneficiaries are not permanent resident of Cyprus during the calendar year preceding the year of creation of the Trust

The 2012 amendment therefore, enables Settlors and Beneficiaries to take Cyprus residency after the creation of a CIT and also allows the CIT to own immovable property in Cyprus.

Types of International Trust

Discretionary Trust

The trustees have a general discretion over the amount of benefits and the manner by which the beneficiaries might enjoy such benefits. The beneficiaries may be defined according to name or reference to a class (i.e. the settllor’s children) or simply left to the full discretion of the trustees. Usually, the settlor indicates to the trustees his wishes for the disposal of the trust property by means of a Letter of Wishes.

Fixed Trust

Under a fixed trust, the trustees have no discretion in distributing the trust assets to the beneficiaries.

Fixed and Discretionary Trust

This type of trust gives discretion to the trustees over the distribution of income for a period of time. However, they may be required to distribute the income to a specified individual or individuals in fixed amounts, while maintaining discretion over the distribution of the capital amongst a class of beneficiaries

Protective Trust

This trust is appropriate when a beneficiary is given a life interest which may become discretionary on certain defined events, such as the bankruptcy of the beneficiary.

Trading Trust

The trustee is usually a limited liability company which has powers to carry on business, and the trust has trading functions and employees to manage its business. Since all documentation used is in the name of the trust company, third parties are not aware of the existence of the trust.

Cyprus International Trusts enjoy important tax advantages, providing significant tax planning possibilities

Advantages of a Cyprus International Trusts

Tax Benefits

Income – All income whether trading or otherwise of an International Trust is not Taxable in Cyprus

Dividends – Dividends, interest of other incomes received by a Trust from from a Cyprus company are also neither taxable nor subject to withholding tax.

Capital gains – Gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus.

Retired – An alien who creates an International Trust in Cyprus and retires in Cyprus is still exempt from tax if all the property settled and the income earned is abroad, even if he is a beneficiary.

Non-tax benefits

Estate planning – An individual, through the use of a Cyprus Trust, can arrange to be inherited by persons, who due to the legislation of the individual’s country, would otherwise be excluded from the inheritance. An individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve that by transferring them to a CIT

Anonymity – An individual who wishes to keep the ownership of a company anonymous and confidential, can do this by setting up a Discretionary Cyprus Trust to own the shares in the company

Investing in Business overseas – An individual, who wishes to invest in business overseas but wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up an International Trust in Cyprus to invest in overseas business.

Divesting of Personal Assets – An individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve this by transferring them to an International Trust created in Cyprus.

Flexibility – Cyprus law allows the removal of a trust from its jurisdiction and vice versa. In this way it provides the necessary flexibility if such transfer would be advantageous because of change of circumstances

 Conclusion – It cannot be denied that the Cyprus International Trust is a strong instrument for effective Tax Planning and Tax optimization. Furthermore CIT is an excellent tool for Assets Protection Planning strategies.