The Cyprus International Trust
The Cyprus International Trust is exempt from taxation and can be used effectively for tax and other planning considerations. The use of the Trust as a vehicle of International Tax planning and business structuring is extremely growing and the Trust is became one of the most flexible institutions of English law.
The International Trusts Law 69(I) was enacted in 1992, and subsequently amended on 23 March 2012, the Law regulates the establishment and administration of trusts and is designed to complete the spectrum of services the island offers as financial center. Furthermore Cyprus Trust Law is based on the Trustees Law (Cap 193) which largely adopts the text of the English Trustee Act 1925; and the equity and case law in England;
Criteria to establish an International Trust
- The settlor may not be a Cyprus tax resident in the year preceding the year of creation of the trust.;
- No beneficiary other than a charity is a permanent resident in Cyprus;
- There must be at least one trustee resident in Cyprus at all times;
In principle, no formalities, registration or reporting requirements are required for the creation of a trust in Cyprus, The law confirms the validity of a trust created by any person who is of full age and of sound mind, Trusts created during the lifetime of the settlor are usually in writing, and the settlor’s discretion on the choice of provisions, powers and restrictions that may be contained therein is almost unrestricted.
The trust must, satisfy the classic requirements:
- Intention to create a trust
- The trust fund must be specified with reasonable certainty and
- The beneficiaries under the trust must be ascertainable.
A Cyprus non-resident of full age and capacity who sets-up a Cyprus international trust is deemed as having the capacity to transfer property. The section goes on to provide that no foreign law relating to inheritance or succession shall be capable to invalidate the trust or affect any transfer relating to the creation of the trust.
There must be at least one trustee resident in Cyprus at all times. Trustees are appointed by the settlor and they manage the trust property and follow the settlor’s wishes as expressed to them in the letter of wishes. Trustee’s main duties are a) to administer the trust property prudently; and b) to comply strictly with the terms of the trust (The general rule is that the trustees do not have the power to vary the terms of the trust under any circumstances). The trustee in case they excess their powers "breach of trust" will be personally liable for the full extent of any loss incurred as a result of such a breach.
The main right of the beneficiaries under a trust is their right to enjoy their interest in the trust property.
Property of all descriptions can be settled into trust and it is now permitted for Cyprus International Trusts to invest in any movable or immovable property situated in Cyprus.
Duration and irrevocability
Cyprus International Trust may exist in perpetuity.
The International Trust is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors unless and to the extent that the creditors can show that the trust was made with the intent to defraud them. The burden of proof of such intent lies with the creditors and an action against the trustees to avoid the trust, on grounds of fraud, must be brought within two years from the date when the relevant transfer of assets is made to the trust.
Advantages of Cyprus International Trusts
Cyprus International Trusts enjoy important tax advantages and they provide significant tax planning possibilities:
- Favourable legal system
Strong legal system based on English Common law;
- No formalities for registration
An International Trust is exempt from any obligation for registration;
- No exchange control
Cyprus International Trusts are not subject to exchange control. The absence of exchange control restrictions and the availability of professional international banking services, make Cyprus a convenient base for the remittance and transfer of funds;
- Irrevocable trust
An international trust is irrevocable unless special provision to the contrary is made in the instrument creating the trust;
- Exemption from Income Tax, Dividends, interest or other income as well as Estate Duty and Capital Gains Tax in Cyprus
All income whether trading or otherwise of an International Trust, is not taxable in Cyprus.
- Stability and Management services
Cyprus offer political and economic stability and high quality services provided for the operation of a trust;
There are no registrations or reporting requirements for trust established in Cyprus. Only a court may by order allow the disclosure of information where the disclosure is of paramount importance to the outcome of the particular civil or criminal proceedings;
- Relocation of Cyprus International Trust
International Trusts Law allows the removal of an International trust from Cyprus and vice versa;
Anyone 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;
- Asset protection
International Trusts law provides that notwithstanding the provisions of any bankruptcy or liquidation laws in Cyprus or in any other country, unless it is proven to the Court that the trust was made with intent to defraud persons who, at the time when the payment or transfer of assets was made to the trust, were creditors of the settlor, the trust shall not be void or voidable. The burden of proof lies with the creditors and such an action must be instituted by the creditors within two years from the date of transfer or disposal of the assets of the trust);
- Maintaining funds overseas
An individual, who wishes to invest in business overseas and want to ensure that the profits received are not remitted to the country of his residence may create a Cyprus International Trusts to invest in overseas business;
- Investment Holding Company
A trust can be used in one country to own an investment holding company in another country;
- Global Estate Planning
An individual, through the use of a trust, can arrange for it to be inherited by persons, who due to the legislation of the individual’s country, would otherwise be excluded from the inheritance);
- Holding property that cannot personally be held
An individual may not be able to hold property in his own name but a trustee can often hold it for his benefit;
Types of Trusts
- Fixed trusts
These are trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor;
- Discretionary trust
These are trusts where the trustees may, at their discretion determine what share or interest of the trust property should go to each member of a class of beneficiaries. A Discretionary Trust grants the trustees discretion to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may also be given discretion in deciding when to pay any money to any of the members of the class.
- Fixed and discretionary trusts
It is possible to have a combination of a fixed and discretionary trust. The trustees may have discretion as to the distribution of income for a period of time, but are required to distribute the capital ultimately in fixed proportions. Conversely, they may be required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of beneficiaries.
- Trading trusts
Under a trading trust the trustee is usually a limited liability company which has powers to carry on business and the trust has trading functions and has employees to manage its business. Third parties are not aware of the existence of the trust as all documentation used is in the name of the trustee company.
- Purpose trusts
Purpose trusts can be used to accumulate corporate earnings for general corporate purposes rather than for any defined group of individuals.
The Cyprus International Trust is an excellent vehicle for flexible and effective tax planning. The law is very flexible and allows a range of combination as to the settlor, beneficiary and trustees.Cyprus International Trust compare with most tax locations worldwide. Cyprus trust may in certain cases be used to obtain the benefit of an applicable double tax treaty or provide asset protection where this is required.