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Cyprus International Trusts

Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]

Introduction

The use of the Trust in international business planning is becoming more and more popular, in many cases for purposes which would have been impossible to conceive back when the concept was originally formed. Cyprus is becoming an important player in the Trust arena since the Cyprus International Trust has countless advantages to offer not only confined to tax optimization.

A trust exists in relation to identified assets (the “trust fund”), whereby the owner of these assets (the “settlor”) creates a trust by appointing a trustee (either an individual or a company) to hold and manage the trust fund in its name for the benefit of certain other persons (the “beneficiaries”). In effect, the settlor vests the legal title of the trust property in the trustee, who manages it in accordance with the instructions of the settlor, which are written and expressed in a trust deed of will. The settlor may also appoint a person (the “protector”) to act as a guardian to ensure that the trustee will exercise its discretion with the prior consent of the protector. .

Although the trustee has legal ownership of the trust property, beneficial ownership belongs to the beneficiaries. Thus, the trustee merely holds and manages the trust property which is an independent fund only available to the beneficiaries. The trustee must keep property and records relating to the trust of which it is a trustee duly separate from its own property and records.


Characteristics of a Cyprus International Trust

Cyprus Trust Law was reformed in 1992 by the passing of the International Trusts Law 1992, which builds on the existing Cyprus Trust Law (Trustees Law, Cap. 193) itself based on the English Law. The new Law of 1992 was passed to revamp the existing conditions, aiming to attract foreign investors.

A Cyprus International Trust is characterized by the following: 
• the settlor is not a permanent resident of Cyprus;
• no beneficiary (other than a charity) is a permanent resident of Cyprus;
• the trust property does not include any immovable property situated in Cyprus;
• at all times, there is at least one trustee resident in Cyprus; 
• the trust remains valid for up to 100 years, unless it is a charitable or purpose trust that may continue indefinitely; 
• income can be accumulated for the whole duration of the trust.


Benefits of using a Cyprus International Trust

• No taxation – exemption from all taxes in Cyprus.

• Confidentiality – there is no duty to register and/or prepare and file accounts or tax returns according to the Law, and therefore neither the settlor nor the beneficiaries are anywhere disclosed. In fact, the Law prohibits any trustee or any other third party from disclosing anywhere such informationexcept under a disclosure order by a Court in Cyprus.


• Flexibility – the applicable Law allows relocation of jurisdiction and vice versa, provided that the Law of the new jurisdiction recognizes the validity of the trust and the respective interests of the beneficiaries.

• Protection - the trust remains valid even if the settlor becomes bankrupt, unless it is proven that the trust was made with the intent to defraud the creditors of the settlor at the time of the transfer.


• Retirement - a foreigner who retires in Cyprus and creates a Cyprus International Trust is still exempt from tax if all the property settled is out of Cyprus and the income is earned abroad, even if he is a beneficiary.

Whether or not the income receivable by a trust can benefit from the provisions of a Double Tax Treaty (DTT) will depend on the terms of the particular treaty. For example, a treaty may state only that income will be taxable where the recipient is resident and may, or may not, have a requirement that the resident must be the beneficial owner of the income. Countries whose legal system endorses the principles of equity and, in particular, the distinction between legal and beneficial ownership, may accept that the legal right to receive income in the name of the trustee is sufficient to entitle the trustee to enjoy benefits under a DTT.

On the other hand, countries that do not make this distinction will consider the income as belonging to the beneficiary and thus will not grant treaty benefits to the trust. However, this can be overcome by the use of a Cyprus company, which is fully entitled to DTT provisions, which in effect will be placed under the trust as a consolidation vehicle for the trust property, as shown in the diagram below.


Uses of a Cyprus International Trust

• Protection of wealth: ensuring that persons that cannot be trusted with the management of the settlor’s estate (ie. minors, handicapped persons, etc.) are well provided for, even after the settlor’s death.
• Inheritance/ estate planning: for distribution of the settlor’s estate according to his wishes, which may not comply with his/her local inheritance Law. 
• Asset protection: as long as the trust is not created with the intention to defraud settlor’s creditors, assets settled are protected in case the settlor becomes bankrupt in the future. 
• Protection of assets, such as assets acquired while working abroad by expatriates who settle these into a trust before repatriating.


Stamp Duty

The trust deed itself is subject to stamp duty. The deed must be stamped within 30 days after the creation of the trust. The stamp duty amounts to approximately EUR430.


In practice

Due to the personal nature of the Trust relationship, the great powers which can be conferred to the Trustees, the significance of the assets settled and the importance of the purposes for which such a vehicle is created, the need to get the structure right before implementation as well as to express this properly in the Trust Deed and related documentation is vital.

Fiducenter has extensive expertise and experience in setting up and administering Cyprus International Trusts. We are at your entire disposal to discuss any case you have in mind.

George Savvides
Partner
george.savvides@fiducenter.com.cy
www.fiducenter.com.cy
Phone: 357 25 50 40 00 Fax: 357 25 50 41 00

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View more features and contributed articles

The Report

Offshore Trusts Guide: Introduction

Offshore Trusts Guide: Jurisdictions

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