Cyprus International Trusts are governed by the International Trusts Law of 1992 (hereafter the ‘’Trust Law’’) which regulates the establishment and administration of International Trusts. The Trust Law complements the Trustees Law, Cap 193 which remains in force and is based on the English Trustee Act 1925.
Under the Trust Law, International Trusts are defined as those where:
- The settlor is not a permanent resident in the Republic of Cyprus;
- At least one of the trustees during the whole duration of the trust is a permanent resident in the Republic of Cyprus;
- No beneficiary, other than a charitable institution, is a permanent resident of the Republic of Cyprus; and
- The trust property does not include any immovable property situated in the Republic of Cyprus
A potential breach of the above conditions, will result in the loss of the advantages of a Cyprus International Trust.
In addition, the Trust Law provides for the following:
- a trust shall not fail to qualify as an International Trust because either the settlor or the trustee or any one or more of the beneficiaries is a partnership or company that satisfies the conditions of articles 8 and 28 respectively of the Cyprus Income Tax Law.
- the trustee include both legal and individual persons
The above provisions offer unique opportunities to an 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 the sole trustee of an International Trust to which the assets of the settlor will be transferred.
Validity of International Trusts
Based on the Trust Law, a settlor who transfers an asset to an International Trust, shall be deemed to have the capacity to do so, if at the time of the transfer is of full age and of sound mind, under the Law of the country of which he is permanent resident.
In addition, an International Trust is not void or voidable in the event of the settlor’s bankruptcy or liquidation or in any action or proceedings against the settlor at the suit of his creditors unless and to the extent that it’s proved to the satisfaction of the Court that the International Trust was made with the intent to defraud the creditors of the settlor at the time when the transfer of assets was made to the trust. The onus of proof lies on his creditors.
Note also that an action against the trustee of an International Trust pursuant to the provisions of the paragraph above must be brought within a period of two years from the date when the transfer of assets was made to the trust.
Duration of International Trusts
The duration period of an international trust may continue until the one hundredth anniversary from the date on which it came into existence, unless terminated sooner due to a relevant direction in the instrument creating it or for any other reason.
In addition, if an International Trust does not contain an express power of revocation, it shall be deemed to be irrevocable by the settlor or his legal personal representatives, notwithstanding that it is set up voluntary.
Confidentiality relating to International Trusts
The trustee or any other person including officers of the Government and officials of the Central Bank of Cyprus, cannot disclose to any person:
- the name of the settlor or of any beneficiaries
- the trustee’s deliberations as to the manner in which a power or discretion was exercised, or a duty conferred or imposed by the law or by the terms of the international trust was performed
- the reason for any particular exercise of such power or discretion or performance of duty or the material upon which such reason has been or might have been based
- the exercise or proposed exercise of such powers or discretions or the performance or proposed performance of such duty
- the accounts of the international trust
Given that a request is made by a beneficiary for the disclosure of any document or information relating to or forming part of the accounts of the international trust, the trustee shall be obliged to disclose the document or other information requested.
A court before which civil or criminal proceedings are pending may, by order, allow the disclosure of the information or documents mentioned above, after an application is submitted by a litigant or party in the said civil or criminal proceedings, as the case may be.
Note that the court will issue an order, if it’s satisfied that the disclosure of the information or the document mentioned above is material for the outcome of the proceedings.
Registration of International Trusts
International trusts are exempt from the obligation of registration under any law.
International Trusts – tax implications
In accordance with the International Trusts Law of 1992, the income and gains of an International Trust derived or deemed to be derived from sources outside the Republic are exempt from all tax imposed in the Republic of Cyprus.
Cyprus International Trusts enjoy important tax advantages, providing significant tax planning possibilities. The following advantages are indicative of the possible options for tax minimisation:
- all income whether trading or otherwise of an International Trust, (ie a Trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus
- dividends, interest or other income received by a Trust from a Cyprus international business company are also neither taxable nor subject to withholding tax
- gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus
- an alien who creates an International Trust in Cyprus and retires in Cyprus is still exempt from tax is all the property settled and the income earned is abroad, even if he is a beneficiary
- an International Trust is not subject to estate duty in Cyprus
In addition to the above, based on the Cyprus International Trusts Law, there is fixed stamp duty payable on the creation of an International Trust.
Non tax advantages
There are many other advantages, apart from tax savings, where Cypriot trusts can prove beneficial. These include the following:
- an individual, through the use of a Cypriot trust, can ensure that minors, mentally impaired persons or persons that cannot be trusted with the management of the individual’s estate are well provided for, even after the individual’s death
- an individual, through the use of a Cypriot 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 this by transferring them to a Cypriot international trust
- an individual who wishes to keep the ownership of a company anonymous and confidential can do this by setting up a discretionary Cypriot trust to own the shares in the company
- an individual who has or may have income arising overseas, which they do not wish to remit to their country of residence, can arrange for such income to be directed to the trustees of a Cyprus based settlement and be held in a discretionary trust in accordance with his wishes
- an individual with assets outside their 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