The Cyprus International TrustThe law governing the establishment of trusts in Cyprus is based on the English system. It is a combination of the English Principles of Equity and Statue Law. The International Trust Law was enacted in 1992 with the aim of providing incentives for the establishment and administration of Trusts in Cyprus by non-residents. This has enabled the creation of what we call 'International Trusts', that is, Trusts set up under the provisions of the International Trusts Law. Trusts are established to provide legal protection for the settlor's assets; for the purposes of wealth management, investment, social goals, charities, succession planning and tax planning.
Trusts have been created for a number of reasons in an effort to minimise overall tax liability. The end result is the constant growth of a trust as a tool for international tax planning as well as a vehicle for business structuring and asset protection. Since 1992, when Cyprus enacted the International Trusts Law, Cyprus proved a favourable jurisdiction for the creation and establishment of International Trusts.
A trust is a settlement or legal agreement affecting at least three parties. It is a fiduciary relationship in which the settlor gives the right to the trustee to hold title to a property (trust property) for the benefit of the beneficiary. The trustee has the legal title to the trust property, whereas the beneficiary has the beneficial title to the trust property. The ultimate beneficial owners of the trust property is/are the beneficiaries. Consequently, the trustee is the legal owner of a trust's assets, but not the beneficial owner, which is the beneficiary or beneficiaries or classes of beneficiaries.
Concept and the Parties of the Trust/ Requirements to create a valid Cyprus International TrustA person being either an individual or a company ('the trustee') is required to hold and manage various assets ('the trust fund') in its name for the benefit of other persons ('the beneficiaries'). The composition of a Trust is made up from the following parties:
- The settlor (or Grantor, Trustor, Trust Maker) – A settlor is a person who has put property into the trust; the person who creates/expresses the intention to create the Trust. Property is normally put into the trust when it is created, but it can also be added at a later date. It can act as a beneficiary or a trustee but is not a permanent resident of Cyprus. The Settlor has the right to reserve some powers, such as to revoke or amend the trust or to remove and appoint trustees.
- The beneficiary – A beneficiary is anyone who benefits/receiving the benefits from the property held in the trust ('trust fund'). It can be either the settlor or the trustee and is not a permanent resident of Cyprus (charitable institutions are excluded). The identity of all the beneficiaries must be ascertained or ascertainable at the time of setting up the trust.
- The trustee – Trustees are the legal owners of the trust property (for the benefit of the beneficiary). They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used. to comply with the terms of the trust. The terms of a trust are set in the Settlement of Trust, also referred to as Trust Deed or Trust Instrument. Any action taken by a trustee that contravenes the terms of the trust deed is a 'breach of trust' and makes the trustee personally liable for the full extent of any loss incurred. At least one trustee is resident in Cyprus (a Cyprus IBC or a partnership).
- Trust Property – Pursuant to the amended section 8, by virtue of the 2012 Law, the powers of trustees have been extended even further; namely with the amendments the Trustee may hold, maintain or invest in movable and immovable property in Cyprus and abroad, including shares in companies incorporated in Cyprus. It must be readily identifiable.
- TThe Protector – the person that can restrict the trustee from exercising key powers. Ιndividuals or companies that are typically appointed by the settlor to protect the trust assets. Appointing a protector is optional. The protector has the right to control the trustee but does not have the right to intervene in the trustees obligations and undertakings. The protector has the right to dismiss a trustee. If a protector intervenes a trustee's duties or has been granted the right to do so in the Trust Deed, a trust may be recognized as a "sham trust" or "illusionary trust" and thus being considered or even declared void.
Cyprus Trust Registry
The law imposes the obligation on resident trustees to register all Cyprus International Trusts with one of the three Competent Authorities i.e. the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC) or with the Cyprus Bar Association. The Trust registries maintained by the supervising authorities shall contain the following information about the Trusts:
- Name of the trust
- Date of creation of the trust
- Date of termination of the trus
- Name and address of the trustee
- Date of any change in the law governing the trust to or from Cyprus Law.
The identity of the settlor and the beneficiaries is not disclosed in the Registry. The Registers of Trusts are not available to the public, but they are available for inspection by the Competent Authorities.
Advantages of Using a Cyprus International Trust
- Income, gains and profits arising overseas are exempted from income tax, capital gains tax or any other type of tax in Cyprus (unless the beneficiary is a Cyprus tax resident)
- Dividends, interest, royalties or any other type of income received from a Trust by a Cyprus International Business Company are also exempted from income tax or withholding tax
- A Trust is not subject to estate duty in Cyprus
- A foreigner who creates a Cyprus International Trust 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
- Asset protection - (a) individuals can protect their assets from inheritance or capital gains tax and high inflation rates in their own country.
- (b) Unless it is proved that the Trust was established to defraud the creditors of the settlor, the trust shall not be void or voidable in case of any bankruptcy or liquidation of the settlor.
- (c) The individual may wish to divest his personal assets for fiscal or any other reasons.
- Estate Planning - an individual through the use of a Cyprus International 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 (minors, mentally handicapped persons etc.)
- An individual can arrange for income received overseas to be remitted in the Cyprus International Trust
Other non-tax advantages may include:
- The same settlor can be the trustee (therefore the sole director and the beneficial shareholder) and also the beneficiary
- Cyprus International Trusts are not subject to exchange controls as well as bank deposits in Cyprus banks
- Confidentiality - No government or the Central Bank of Cyprus can disclose to anyone information regarding the various parties of the Trust. However; registration of the Cyprus International Trust in the Trusts Registry is mandatory, the registration does not require the submission of the relevant Trust Deed, disclosure of the settlor and the beneficiaries and the information is not available to the public, only to the Competent Authorities in case of inspection
- Cyprus's favourable legal system and geographical position
- The presence of many reputable International Fund Management companies
- No reporting requirements for Trusts
- The Cyprus International Trust is ideal for high net-worth individuals with somehow complicated family structures, like for instance, divorced spouses and children from different
- Because of the economic crisis managing family wealth by means of a Cyprus International Trust has gained great importance because of the way families wish to distribute property.
Trusts may not exist indefinitely.
The general rule is that trusts may continue to exist for the lifetime of a life in being plus 21 years, or in the case that the life in being is not a natural person, merely for 21 years. International trusts are exempt from this rule. Under the 1992 law, an International Trust could last for up to 100 years. If it is a charitable or purpose trust then it could continue indefinitely. However, under the 2012 Law, an international trust which was established during or after the entry into force of the 2012 Law has no limit on the period over which an international trust may continue to be valid and enforceable. Accordingly, the 2012 Law abolishes all restrictions on the duration of trusts. Moreover, excluding express terms of the trust to the contrary, no concession, distribution, payment, holding or disposal of the income or capital of the trust to another trust is invalidated merely by reason that the other trust continues to be valid and enforceable after the date on which the first trust ceased to exist. The perpetuity rules do not apply in the case of charitable or purpose trusts which may continue indefinitelyA Cyprus International Trust can be used as vehicle:
- For management of funds
Investment Trust Funds, Banks etc. may through the use of a Cyprus International Trust and a Cyprus International Business Company that acts as a Trustee manage funds on behalf of their Clients.
- Of holding property which cannot personally be held
A minor may not be able to hold property in his own name but a Trustee can often hold and manage it on its behalf until its maturity in order to take the control.
- Of establishing collective investment
A Cyprus International Trust can be used as a vehicle by several persons to make joint investments. The trust can provide the basis of their co-operation and can regulate their relationships and the sharing of the financial results of their joint venture.
- Of protection against high taxation.
For Clients/Settlors residing in high taxation jurisdictions it is possible to minimize their taxation on income or wealth by transferring their property to a Cyprus International Trust in order to be able to take advantage – (as under a proper tax structure)- of the beneficial extensive double taxation network of Cyprus and the non-taxability of any income of the trust in Cyprus.
- Of protection against spendthrift beneficiaries
The Cyprus International Trust can be used as vehicle of protecting family fortunes for future generations by safeguarding capital and avoid it being frittered away by spendthrift beneficiaries.
- Of managing profit sharing & pension schemes
Through the use of a Cyprus International Trust, Companies can provide pension schemes benefit plans and profit sharing arrangements declaring their employees as one class of beneficiaries. The Trust provides a most effective method of grouping and sharing benefits and it has also the additional advantage of being able to cover any specific circumstance.
- Of investing in business overseas
A Client who wishes to invest in business overseas but wishes to ensure that the profits and dividends are not remitted to the country of his residence, may establish a Cyprus International trust in order to use it as a vehicle for his investment.
- Of promoting causes and charities
Through the establishment of a Cyprus International Trust a Client/Settlor can provide for a charity, promote a religious or artistic cause or establish a foundation to support a worthy project.
Types of Trusts
- Private Trusts
- expressly created by the settlor
- can be created by deed, in writing, by will and, with some exceptions, orally
- The intention of the settlor must be made absolutely clear. The three certainties listed in paragraph 1 above must be present. The beneficiaries have enforcement powers in respect of the trust.
- Express Private Trusts
Express trusts are, as their name suggests, expressly created by the settlor. They can be created by deed, in writing, by will and, with some exceptions, orally. The intention of the settlor must be made absolutely clear. The three certainties listed in paragraph 1 above must be present.
- Resulting Trusts
Resulting trusts arise from the implied, rather than the express intention of the settlor. This intention can be inferred by the way the settlor acts or behaves.
- Constructive Trusts
They are imposed by law independently of what anyone intended. An example of a constructive trust would be where A gives money to B to hold for C. If B then gives the money to D and D knows that B was holding the money for C, then D will be construed as to also hold the money on trust for C. These are trusts that arise from the implied intention of the settlor and will either be resulting or constructive trusts.
- Implied Trusts
These are trusts that arise from the implied intention of the settlor and will either be resulting or constructive trusts.
- Charitable Trusts
There is no legal definition of what constitutes a charity. Usually a trust that is set up for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community is considered to be a charitable trust. In particular they are set up for certain public purposes. They are enforced at the suit of the Attorney General acting on behalf of the state. It is possible to set up an international charitable trust in Cyprus under the International Trusts Law.
- Fixed Trusts
These are trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor.
- Discretionary Trusts
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. The above is intended to provide a brief guide only. It is essential that appropriate legal advice is obtained.
The Cyprus law is the proper law of the Cyprus International Trust.
- If the chosen law of the Cyprus International Trust is the law of Cyprus, then Cyprus is under an obligation to protect that trust. All questions relating to Cyprus International Trusts are to be determined in accordance with the laws of Cyprus without reference to the law of any other jurisdiction. This protects against the application of foreign laws such as forced heirship laws. It further provides for greater control, protection and security over the Cyprus International Trust.
- The new legislation specifies that the Cyprus International Trust or the disposition of trust assets will not be void or voidable or capable of being set aside or be subject to any implied terms and in no circumstances will the capability of the settlor, the trustee, the protector or the beneficiary be subjected to any obligations or be questioned. When the Cyprus International Trust contains a choice of law clause in favour of Cyprus law, the provisions of the Cyprus International Trust law will be applicable irrespective of any other conflict of law provisions in force in Cyprus. This is a fundamental rule which must be abided by as a matter of public
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