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Reform of the Cyprus International Trusts Law of 1992
On 8 March 2012 the House of Representatives enacted the International Trusts (Amending) Law of 2012 (the “Amendment”) reforming the International Trusts Law of 1992, a reform that the professionals and the investors were longing for since the particular legislation required updating to adapt it to the needs of investors today. The Amendment, which became effective as of 23 March 2012, builds on the existing very attractive International Trusts Law and enhances the position of Cyprus as one of the most attractive jurisdictions worldwide to set up and operate an International Trust.
The most important changes effected by the Amendment are outlined in the following paragraphs.
(I) Residency of Settlor, Beneficiaries and Trustees
• Prior to the Amendment there were three requirements to establish an international trust, as follows:
(a) the settlor and the beneficiaries (with the exception of charities) were not permanent residents of Cyprus;
(b) at least one of the trustees was a permanent resident of Cyprus; and
(c) the trust property did not include any immovable property situated in Cyprus.
• The Amendment abolishes criterion (c) above and provides that the settlor and the beneficiaries may not be a Cyprus tax resident only in the year preceding the year of creation of the trust, thus avoiding difficulties that might have otherwise arisen if the settlor or any beneficiary were subsequently to take up residence in Cyprus.
(II) Validity of international trusts
• Following the Amendment, any issues pertaining to, amongst other things, the validity, interpretation, amendment or administration of an international trust or a disposition to an international trust will be determined by the laws of Cyprus without regard to the law of any other jurisdiction. Any inheritance or succession statutes in Cyprus or any other country will not in any way affect the validity of an international trust or any transfer or disposition of property to it.
• Furthermore the Amendment provides that no disposition to an international trust may be challenged on the basis that it contravenes the laws of another jurisdiction such as, amongst other, any forced-heirship laws, mandatory provisions of family law or laws prohibiting or not recognising trusts.
• The Amendment explicitly provides that the trustees’ fiduciary powers and duties of trustees and the powers and duties of any protectors of the trusts are governed exclusively by Cyprus law.
(III) Reserved powers and interests of Settlor
• Following the Amendment, a settlor is enabled to, inter alia, reserve powers to himself, retain a beneficial interest in trust fund, or to act as the protector of the international trust without affecting the validity of the trust.
• The powers which may be reserved are extensive and include the power to revoke, vary or amend the terms of the trust, to apply any income or capital of the trust property, to act as a director or officer of any corporation wholly or partly owned by the trust, to give binding directions to the trustee in connection with the trust property and to appoint or remove any trustee, enforcer, protector or beneficiary.
• The settlor may impose a general stipulation that the trustees’ powers are exercisable only with the consent of the settlor or any other person specified in the terms of the trust. The settlor may also reserve the power to change the governing law of the trust.
• The Amendment explicitly provides that the reservation of any powers shall not be construed as “intent to defraud” the settlor’s creditors.
(IV) Duration period of international trusts
• The restriction contained in the 1992 Law that an international trust could last for a maximum of 100 years from the date on which it came into existence, is now abolished.
• The Amendment provides that from the date it takes effect and subject to the terms of the trust, there will be no limit on the period for which a trust may continue to be valid and enforceable, and no rule against perpetuities or remoteness of vesting will apply to a trust or to any advancement, appointment, payment or application of property from a trust.
(V) Charitable Institutions
• The Amendment redefines charitable institutions. It provides that international trusts are considered charitable institutions where the trust has as a main objective to achieve one or more of the following purposes: prevent or alleviate poverty; promote education; promote religion; promote health or salvation of life; promote the development of citizens and of the community; promote art, culture, heritage or science; promote amateur sports; promote human rights, dispute settlement or reconciliation or promote religious or national harmony or equality and individuality; promote the protection or development of the environment; relief needs arising from young or advanced age, ill health, disability, economic hardship or other disadvantage; promote the welfare and protection of animals; and for any other reason for the benefit of the general public or which is consistent with the above.
(VI) Investment powers of Trustees
• Prior to the Amendment, a trustee enjoyed broad investment powers and could therefore invest the trust funds in any kind of investment wherever the investment was situated. The trustee was expected to exercise the diligence and the prudence which a reasonable person was expected to exercise when he makes investments.
• Following the Amendment, the trustee’s investment powers have been enlarged so that he has the same investment powers as those of an absolute owner and the trustees are explicitly permitted to invest in movable and immovable property (which prior to the Amendment was expressly prohibited) in Cyprus and abroad, including shares in Cyprus companies.
(VII) Public policy
• The Amendment entrenches jurisdictional protection by providing that an international trust containing a choice of law clause in favour of Cyprus law is fully protected from unfounded foreign judicial claims as a matter of public policy and order.
(VIII) Tax Status
• Following the Amendment:
(a) In case of a beneficiary who is a Cyprus tax-resident, the income and profits of an international trust derived or deemed to derive from sources within or outside Cyprus are subject to all taxes that are applicable in Cyprus;
(b) In case of a beneficiary who is not a Cyprus tax-resident, only the income and profits of an international trust derived or deemed to derive from sources within Cyprus are subject to all taxes that are applicable in Cyprus.
• Confidentiality is preserved under the Amendment and the trustee, the protector or any governmental body is not entitled to disclose information or documents relating to the settlor, the beneficiaries, the trustees and the property of the trust, unless so ordered by the Courts of Cyprus.
(X) Retroactive Effect
• The Amendment applies to all international trusts irrespective of the date of their creation and does not prejudice the validity of any prior valid disposition or transfer.
If you require further information on Cyprus International Trusts and/or advice as to whether they may be beneficial to you, please do not hesitate to contact Dace Smidrovska, Senior Legal Advisor, at email@example.com or contact your usual contact at Consulco.
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