Cyprus International Trusts
Cyprus trust law is mainly regulated by the Trustee Law, Chapter 193 and the International Trusts Law of 1992, and is essentially based on the English system.
Under the Cyprus International Trusts Law, an international trust is described as a trust created by a non-resident settlor for the benefit of non-resident beneficiaries.
The law goes further in providing that:
– The settlor of the international trust, being any person who is of full age and of sound mind, must not be a resident of Cyprus in the year preceding the year of the creation of the international trust;
– No beneficiary, other than a charity, should be a resident of Cyprus in the year preceding the year of the creation of the international trust; and
– There must be at least one trustee resident in Cyprus at all times.
Perpetuity – A Cyprus trust has no limit on its duration and may be valid and enforceable without containing a fixed maturity date.
Cyprus law to apply – Any issue relating to a Cyprus international trust shall be determined in accordance with the applicable law of Cyprus and no reference to the laws of any other jurisdiction will be made. Therefore, the validity, interpretation or effect of any trust or transfer of property to a trust will be examined on the basis of the laws of Cyprus only and will not be affected by any inheritance or succession laws in force in any country.
Trustees – The administration of the trust property by the Trustees should be made prudently and in strict compliance with the terms of the trust.
Any action taken by the Trustees contrary to or in excess of the terms of the trust deed will be deemed as a “breach of trust” and such Trustees will be personally liable for the full extent of any loss incurred as a result of such breach.
The Cyprus International Trusts Law provides the trustees with extensive investment powers, ensuring the Trustee’s capability of performing his tasks. Pursuant to these powers, the Trustee may hold, maintain or invest in any movable and immovable property in Cyprus and abroad.
Reserved powers to the settlor – The settlor under a Cyprus trust is provided with a right to reserve certain powers, whether retained or given to him in his capacity as a protector or inspector for the application of the trust or otherwise.
The powers that may be reserved by the settlor are outlined in section 4A of the relevant law, some of which are set out below:
– the amendment or revocation of any terms of the trust;
– the allocation, distribution, payment or other disposition of income or capital from the trust property or the issuance of binding directors to the trustee for that purpose;
– the appointment or termination of any trustee, inspector, protector or beneficiary;
– changing the applicable law governing the trust or place (forum) of management of the trust;
– the restriction of the exercise of any power of the trustee, for example requesting that these be exercised only subject to the approval of the settlor or any other person expressly mentioned in the trust deed.
The retention of any of the above powers by a settlor of an international trust shall not, in accordance with Cyprus law, in any way affect the validity of the trust or delay the execution of the trust and should not give rise to an intention of the settlor to defraud its creditors.
CITs provide multiple benefits – such as anonymity, asset protection, flexibility and taxation incentives and benefits – which high net-worth individuals around the world can use within the framework of their tax planning and investment strategies.
In order to establish a CIT, a trust deed must be drafted and signed by the settlor and the trustee, establishing the conditions under which the trustee will hold and manage the trust property.
The following conditions must also be met:
– The settlor, either a natural or a legal person, must not be a Cyprus resident during the calendar year proceeding the year of the trust’s creation. Further, the settlor must be of legal age and sound mind.
– At least one of the trustees must be a Cyprus resident for the duration of the trust.
– No beneficiary, either a natural or legal person, can be a Cyprus resident during the calendar year immediately preceding the year in which the trust was created (with the exception of charitable organisations).
– The trust deed must be stamped in Cyprus. Further, the CIT’s name, the trustee’s name and the trust date (not the deed itself) must be registered with the Cyprus Bar Association.
Further, in order to create a valid CIT, the following certainties must apply:
– Certainty of intention – the trust instrument (ie, the trust deed) must demonstrate clearly the express intention of setting up a trust.
– Certainty of subject matter – the trust assets must be readily identifiable.
– Certainty of objects – the beneficiaries must be ascertained or ascertainable at the time of the trust’s establishment. The amended law of 2012 may also consider unborn children as beneficiaries.
Cyprus International Trust Benefits
The following benefits relate to CITs:
– Asset protection – the main advantage of a CIT is the separation of legal ownership from beneficial ownership. Assets transferred to a trust are no longer part of the property owned by the settlor and cannot be claimed by creditors or litigators.
– Income, gains and profits from non-Cyprus sources are exempted from income, capital gains, dividend tax or any other taxes in Cyprus.
– No estate duty or inheritance tax is due in Cyprus.
– Registration of the trust does not require the submission of the relevant trust deed or the disclosure by the settlor or the beneficiaries; therefore, confidentiality is safeguarded (expect under a disclosure order by a Cyprus court which is granted only in cases of fraud).
– A CIT may be used to reduce or eliminate the settlor’s inheritance tax.
– A CIT is ideal for high-net-worth individuals, especially individuals with complicated family structures (ie, individuals who are divorced or have children with different spouses).
– A CIT may hold shares of legal entities with nominees for confidentiality.
– There are no exchange control regulations for CITs in Cyprus.
– The same person can be the settlor, trustee (through a Cyprus company in which he or she can be the sole director and the only beneficial owner of the shares) and beneficiary (ie, an individual could have direct absolute control and ownership of the trust fund).
– A CIT trust may form an international business company, partnership or branch and obtain the relevant benefits.
– Trust capital received in Cyprus by a foreign national, whether resident or retired in Cyprus, from trusts not resident in Cyprus is not taxable on the trustee.
– Dividends, interest or royalties received by a CIT from a Cyprus or an international business company are not taxable or subject to withholding tax.
Taxation of Cyprus International Trusts
CITs provide a significant number of tax advantages and can be used as part of an international tax planning strategy. General information on how trusts are taxed in Cyprus is listed below. However, in order to estimate the tax that may be imposed on a trust, its specifications, purpose and any other relevant circumstances that may concern it must be considered.
Income – Income received from sources outside Cyprus is not taxable in Cyprus if the beneficiary is not a Cyprus tax resident, while income received from local sources is taxable in Cyprus. Income received from local or overseas sources is taxable in Cyprus, provided that the beneficiary is a Cyprus tax resident. Dividends – Dividends, interest or other income received by a trust from a Cyprus company are not taxable. Payments to beneficiaries – Non-resident beneficiaries are not subject to tax on the payments that they receive from a Cyprus tax. Capital gains – Capital gains that occur after the disposal of a CIT’s assets are not subject to capital gains tax in Cyprus. Estate duty – A CIT is not subject to estate duty in Cyprus.
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