Cyprus International Trusts
Setting up an international trust provides
a variety of financial planning opportunities.
Introduction
The use of the Trust as a vehicle of International Tax planning and business structuring is constantly growing. Trusts are used today more than ever before in a myriad of circumstances, many of which would have been impossible to conceive at the time the concept was originally formed.
Concept of a trust
- The concept of a trust was developed over a period of several centuries and is legally defined as a relationship created – inter vivos or on death – by a person (the settlor) who places assets under the control of the trustee for the benefit of a third party (the beneficiary).
- These assets would constitute a separate “fund” and are not part of the trustee’s own estate.
- Title of the trust assets stands in the name of the trustee
- The trustee is empowered and duty bound to manage the assets held in trust in accordance with the terms of the trust agreement.
Who may be a Settlor?
An individual may be the settlor if he or she is capable of freely disposing of the property to be settled. A corporate body’s power to be a settlor depends upon the powers conferred on it by its constitution or law.
Who may be beneficiaries?
Any individual, including unborn persons, minors, and persons of unsound mind, or a corporate body can be the beneficiary. A settlor creating a trust may also be a beneficiary of that trust. A trustee can also be the beneficiary of a trust provided that he or she is not the sole trustee nor beneficiary as in that instance no trust would effectively exist.
Who may be the trustees?
An individual who is an adult and of sound mind, or a corporate body, if authorized by its constitution, may be a trustee.
What property may subject to a Trust?
Property of all descriptions can be settled into trust. However, as will be seen later, the trust fund of a Cyprus International Trust must not include any immovable property in the Republic of Cyprus.
What is a protector?
The settlor may stipulate that the trustees consult a nominated independent third party before exercising any power of discretion, in order that this third party, or protector, can be satisfied that the assets of the trust and the duties of the trustees are being attended to in a satisfactory manner.
Cyprus International Trusts
Since 1992, when Cyprus enacted The International Trusts Law, Cyprus proved a favourable jurisdiction for creating international trusts. The International Trusts Law complements the Trustee Law which is based on the English Trustee Act 1925.
Under section 2 of the International Trusts Law, a trust qualifies for a Cyprus International Trust where:
- the settlor is not a permanent resident in Cyprus;
- at least one trustee is a permanent resident in Cyprus;
- no beneficiaries are permanent residents in Cyprus; and
- the trust property does not include any immovable property in Cyprus.
The distinguishing element of this definition which is also the unique feature of the Law compared to other jurisdictions, is that according to the proviso in section 2, a trust shall not fail to qualify as an International by reason only that either the settlor or the trustee or any one or more of the beneficiaries is a Cyprus Company. This facility can offer unique opportunities to the Investor. If for example the settlor wants to maintain full control over the management of the trust, he may do so by forming a Cyprus Company the shares of which may belong entirely to him and who can also be the sole director of such a company which could act as sole trustee of an International trust to which the assets of the settlor were transferred.
Formalities that need to be fulfilled
- In principle, no formalities are required for the creation of a trust in Cyprus, except where the trust is created by a will, in which case the particular requirements relating to wills have to be observed. Trusts created during the lifetime of the settlor are usually (but not necessarily) 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, however, satisfy the classic requirements of the three “certainties”: certainty of intention, subject-matter and objects. In other words, by the instrument purporting to create the trust, the settlor must manifest an intention to create a trust, the trust fund must be specified with reasonable certainty and the beneficiaries under the trust must be ascertainable.
- There is no registration or reporting requirement for trusts established in Cyprus. The only authority to be informed of the creation of an International Trust is the Central Bank of Cyprus and only in cases where the International Trust owns shares in a Cyprus Company.
- If the “Cypriot” trustee of the international trust will be a Cyprus Company, in the case of non-EU equity participation, prior permission from the Central Bank of Cyprus must have been obtained for the operation of the company under the Capital Movement Law (115(1)2003).
- For the trust instrument to be properly executed, stamp duty at the standard rate of CYP 250,00 is payable irrespective of the amount of the trust fund.
Advantages of Cyprus International Trusts
Favourable legal system
The favourable legal system relating to Trusts together with the advantageous geographic position of the island make Cyprus a particularly attractive Trust location.
No exchange control
Cyprus International Trusts are not subject to exchange control. Bank deposits with Cyprus banks, either onshore or offshore, or with any bank around the world, are also not subject to exchange control. The absence of exchange control restrictions and the availability of excellent telecommunications and international banking services, make Cyprus a convenient base for the remittance and transfer of funds.
Management services
The presence of a number of reputable international fund management companies on the island and the high standing of the legal and accounting professions ensure the availability of expert advice as well as the competent management services required for the proper operation of a Trust.
Confidentiality
International Trusts Law prohibits any of the trustees or any other persons including government officials and officers of the Central Bank from disclosing any information regarding the trust. 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, provided the following conditions exist:
- There must be a stipulation in the trust deed allowing such a change of jurisdiction
- When a trust moves to another jurisdiction from Cyprus, Cyprus law requires that the new jurisdiction recognizes the validity of the trust and the respective rights of the beneficiaries.
- When a trust is to be moved to Cyprus from another jurisdiction, the move must be recognized by the laws of the jurisdiction it intends to leave and which had governed the trust previously. This could be important in case where a change in circumstances may render such a transfer advantageous for fiscal or other reasons.
Tax
Cyprus International Trusts are not taxed in Cyprus. In fact, Cyprus International Trusts enjoy important tax advantages, offering significant tax planning possibilities to interested parties. Although taxation considerations relating to Trusts are fairly complicated, the following advantages are indicative of the possible options for tax minimisation.
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Income
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All income whether trading or otherwise of an International Trust, (i.e. a Trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus.
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Dividends
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Dividends, interest or other income received by a Trust from a Cyprus company are also neither taxable nor subject to withholding tax.
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Capital gains
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Gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus.
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Retired in Cyprus
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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.
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Estate duty
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An International Trust created for estate duty planning purposes would not be subject to estate duty in Cyprus.
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Other tax protections
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Trusts are usually used by wealthy individuals for the purpose of protecting their estate from inheritance or capital gain taxes in their home country. They can also be used by expatriates settling into a trust before repatriating assets acquired while working abroad, to protect such assets from the tax net of their home country.
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Use of double tax treaties |
Cyprus has a rich network of double tax treaties, which are accessible by “residents” of the contracting states. Although the OECD model does not refer to trusts, the OECD definition of a resident being a person liable to tax in the contracting state, it is clear that while a trust may not be considered a “person” or “body of persons” the trustees certainly are. To a Cyprus company acting as trustee and which is liable to tax in Cyprus at full rates (even though it only pays tax in its trustees’ fees and not on the income of the trust itself), the benefit of certain Cyprus’ double tax treaties may be available in respect of trust income and gains.
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Other non-tax related benefits of Cyprus International trusts
There are many situations other than saving in taxes where Cyprus Trusts can prove advantageous.
These include the following:
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Estate planning
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An individual, through the use of a Cyprus Trust, can ensure that minors, mentally handicapped persons or persons that cannot be trusted with the management of the individuals estate are well provided for, even after the individual's death.
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 Cypriot International Trust.
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Anonymity
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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.
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Maintaining funds overseas
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An individual who has or may have income arising overseas which he does not wish to remit to his country of residence, can arrange for such income to be directed to the Trustees of a Cyprus Settlement to be held on Discretionary Trusts in accordance with his wishes.
An individual with assets outside his country of residence, which country may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to a Discretionary Trust.
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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. |
Consulco Trustee Services
Consulco has substantial experience in setting up Cyprus International Trusts and in acting as Trustees.
Consulco normally operates on a fixed-fee approach to the creation of trusts. We also raise an annual trustee responsibility fee. Otherwise, our charges are based on the time we spend on administering the affairs of the trust.
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