Cyprus Trust (Cyprus International Trust)
Over the past twenty years, Cyprus has developed into one of the most favourable places for international business. The Cyprus low tax regime, its ability to offer sophisticated planning structures, its ability to set up and manage collective investments schemes, the enactment of the Cyprus Trusts Law which provided for the formation and administration of Cyprus international trusts combined with its excellent geographical position and infrastructure were the key factors for its success.
Cyprus Trust (Cyprus International Trust)
A Cyprus trust may be defined as an arrangement having the obligation under which a person to whom property is transferred (i.e., the trustee) is bound to deal with the beneficial interest of the property in a particular manner in favour of a specified person or persons or class of persons (i.e., the beneficiaries). The creator of the trust is the settlor. A trust is an arrangement and therefore not a separate legal entity.
A foreigner wishing to establish a Cyprus trust (Cyprus International Trust) has the following options:
– To create a Cyprus trust, either by a trust deed or by will;
– To incorporate a Cyprus International company to be the holder or the manager of movable property including securities and stock to be placed in Cyprus trust in the Cypriot corporation or in an overseas company and managed by the Cyprus International Company and vice versa;
– To incorporate a Cyprus subsidiary company or a branch of an overseas corporation to hold or manage movable property placed in trust in the Cyprus subsidiary or branch of the overseas corporation;
– To set up a Cyprus international trust under the provisions of the Cyprus International Trusts Law.
The purpose for setting up a Cyprus international trust under the provisions of the Cyprus International Trust Law
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.
Cyprus International Trust Law
Cyprus’ Trust Law is based on the English Trustee Act of 1925. In July 1992, Cyprus enacted The International Trusts Law (Law No. 69/1992) which provided for the formation and administration of Cyprus international trusts. The Cyprus Trust law was amended on 23 March 2012, the Cyprus International Trust (Amending) Law of 2012. Cyprus is also a party to the “Hague Convention on Trusts” which seeks to ameliorate the situation by providing a common and harmonized choice of law rules for voluntary written trusts.
A Cyprus International Trust
A Cyprus International Trust is a complete set of guidelines for the operation of the Cyprus trust. A person can be very flexible in the design of his/her trust.
The trust instrument may specify the:
– The direction of paying out of trust income to beneficiaries and lists instructions as to the timing of final distribution and trust termination.
Extreme care should be taken to design the trust so that it accomplishes the objectives of the individual setting up the trust.
Any type of property such as cash, personal property, or real estate, can be placed in a Cyprus trust. The decision as to which assets you place in the trust will depend upon your overall plan and objectives. Transferring assets to a trust is a formal process and title assets must be changed from individual ownership to trust ownership.
A Cyprus International Trust defines a settlor, a trustee, and a beneficiary.
– The settlor who initiates the Cyprus trust.
– The trustee, who gets no benefit from the trust, will hold property of which they are the legal owners for the benefit of other persons, known as “the beneficiaries”.
– The beneficiaries, are those who will ultimately be benefited from the trust.
It is necessary that the settlor and beneficiaries are not residents of Cyprus in the year preceding the creation of the trust and that at least one of the trustees is a resident of Cyprus. The term “resident of Cyprus” is to be determined in accordance with the Cyprus Tax Laws. Therefore settlors or beneficiaries can take up residence in Cyprus.
A trust can still qualify as an international trust for the purposes of Cyprus law even if the settlor, trustee, or beneficiaries are international business companies or international partnerships.
One distinguishing element of a Cypriot trust is that in an international trust, the settlor, the trustee, or anyone or more of the beneficiaries can be a Cyprus Company. This facility can offer unique opportunities to investors. If for example, the settlor wants to maintain full control over the management of the trust, he can form a Cyprus Company with him as sole shareholder and sole director. The Cyprus company can then act as the sole trustee of the trust.
Types of Cyprus Trusts
Some of the main types of Cyprus trusts are:
– Discretionary trust
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.
– Fixed trusts
Where the share or interest of the beneficiaries in the trust property is specified by the settlor;
– Charitable Trusts
Usually, a trust is set up for the relief of poverty, the advancement of education or religion, or any other purpose that is beneficial to the community. In particular, they are set up for certain public purposes. They are enforced at the behest of the Attorney General acting on behalf of the state.
Taxation of Cyprus Trust
The Cyprus Tax Law exempts such trusts from income tax, capital gains tax, and estate duty tax, making Cyprus International Trusts a very attractive Cyprus tax planning vehicle for non-resident investors. More specifically:
– All income of a Cyprus international trust is not subject to Cyprus Taxation; dividends, interest, or other income received by a trust from an International Cyprus business company is also neither taxable nor subject to withholding tax provided that the beneficiaries are not tax resident in Cyprus; and
– There is no capital gains tax on the disposal of the assets of a Cyprus international trust.
– Aliens who set up a Cyprus international trust and retire in Cyprus are exempt from Cyprus tax if all the property is settled and the income earned is abroad, even when they are beneficiaries, and an international trust created for estate duty planning purposes would not be subject to estate duty in Cyprus.
Ownership of Cyprus immovable property
There is no prohibition on Cyprus tax resident beneficiaries to own Cyprus immovable property
Overseas law and other related amendments (The International Trust (Amending) Law of 2012)
– Matters arising relating to the validity or administration of a Cyprus international trust will be determined by the laws of Cyprus, without the necessity to refer to any other jurisdiction.
– The validity of the Cyprus international trust or any transfer or disposition of property to it, will not in any way be affected by the law relating to inheritance or succession in force in Cyprus or in any other country
– Cyprus law governs exclusively the trustees’ fiduciary powers and duties, and the powers and duties of any protectors of the trusts.
– Dispositions to a Cyprus trust may not be challenged on the grounds that they are inconsistent with the laws of another jurisdiction. This is particularly important if there is a challenge on the grounds that the other jurisdictions do not recognise the concept of trusts
– The international trust, if it contains a clause in favour of Cyprus law, is fully protected from unfounded foreign judicial claims as a matter of public policy and order.
– The provisions give power to the trustees to apply to the Cyprus court for directions and changes.
Settlor’s powers and interests and other related amendments (The International Trust (Amending) Law of 2012)
The Cyprus law allows the settlor of trust the following options:
– Reserve the powers of the trust
– Retain a beneficial interest in the trust owned by the property
– Act as the protector or enforcer of the trust
– Revoke, vary or amend the terms of the trust
– Apply any income or capital of the trust property
– Act as a director or officer of any corporation wholly or partly owned by the trust
– Give binding directions to the trustee in connection with the property owned by the trust
– Appoint or remove any trustee, enforcer, protector, or beneficiary
Further, 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.
If powers are to be reserved by the settlor there is a danger that the trust shall be considered as a sham and consequently void. A possible and preferable solution would be to appoint a protector. An alternative and preferable option are to appoint a protector and allocate these powers to the protector. In this way, the settlor shall distance himself/herself from the administration of the trust and eliminate the possibility to be considered a sham. Also, the trust may be the subject of attack by the settlor’s creditors or subject to the forced heirship rules of succession.
Cyprus Trusts Duration
There is no maximum restriction on the duration of Cyprus trusts unless otherwise provided for in the terms of the trust. A Cyprus 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 income or capital from the trust.
Powers of trustees on investments
The provisions on powers of trustees on investments are similar to those of a trustee in England and Wales, and to those that have followed the English law, including Malta. The old law gave trustees freedom in terms of investment powers, merely requiring that such powers be exercised in accordance with the trust instrument and with the diligence and prudence of the same investment powers as those of an absolute owner, allowing them to invest in a broader range of investments for the best interests of the beneficiaries. The amending law clarifies further that trustees may now invest in Cyprus property both movable and immovable which is situated both in Cyprus and overseas, including shares in companies incorporated in Cyprus.
Cyprus Trust Transferability
A Cyprus trust can be transferred to another country’s jurisdiction and at the same time a trust established in another jurisdiction may be transferred to Cyprus
Cyprus Trust Asset protection
An important aspect is that the Cyprus trust “shall not be void or voidable in the event of the Settlor’s bankruptcy or liquidation or in any action or proceedings against the settlor…” The law goes on and states that consideration should not be given to the fact the Cyprus trust is being made for the benefit of the settlor himself, his spouse, or his children.
The only situation where a Cyprus trust can be held void is when it is proven to the satisfaction of the Court that the Cyprus international trust was made with the intent to defraud the creditors of the settlor at the time when the payment or transfer of assets was made to the trust. The burden of proof to establish intent to defraud lies with any creditor seeking to annul the Trust. Section 3(3) of the Cyprus Law, states that such action must be initiated within two years following the transfer or disposal of assets to the Trust.
The above provision renders Cyprus an “asset protection trust heaven”. Trust assets are protected against creditors and also the legislation effectively limits the time period during which a claim can be taken in Court. The two-year time frame for claims specified under section 3(3) provides for additional security with regard to the assets. From the moment the assets are transferred to the trust, this immediately triggers the two-year limitation period.
Cyprus Trust Stamp Duty
A Cyprus International Trust is subject to stamp duty. If the trust deed is stamped thirty days after the date of its creation then a late payment fine is charged. The amount of the late payment fine depends on the length of the delay.
Cyprus Trust Registration
Cyprus Securities and Exchange Commission (CySec)will maintain a register of Cyprus trusts and as such Trustees will need to register the Trust to such a supervisory body. Also as per the new regulations of the Prevention and Suppression of Money Laundering Activities Law, CySec shall keep a Cyprus trust register.
Cyprus service providers licensed to register and administer Cyprus International Trusts
Creation and administration of Cyprus trusts are regulated activities subject to the provisions of the Law Regulating the Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, as amended, hereinafter referred to as the “Fiduciaries Law” and may be offered only by licensed legal persons pursuant to a license granted either by the regulating authority which is the Cyprus Stock Exchange or by fiduciaries, namely lawyers who are members of the Cyprus Bar Association and accountants who are members of the Institute of Certified Public Accountants of Cyprus.
Upon setting up of a Cyprus Trust the following information must be submitted to CySEC:
- The name of the Trust;
- The names and addresses of the Trustees;
- The date of establishment of the Trust;
- The date of change of the proper law of the Trust, if any; and
- The date of termination of the trust once taken place.
This information is not open to the public, but only be viewed by the regulating authorities. Furthermore, no information is given as to the content of the trust deed or the settlor or the beneficiaries.
Any person providing trustee services, administering and managing trusts, must collect and have at all times available in Cyprus for possible disclosure to the relevant regulatory authority the following information, where applicable:
- the identity of all trustees;
- the identity of the settlor;
- the identity of all beneficiaries or information on the class of beneficiaries;
- the identity of the protector (if applicable);
- the identity of the fund manager, accountant, tax official (if applicable);
- the activities of the trust; and,
- The identity of any other person who exercises control over the trust.
UBO Register in Cyprus for Trusts
In case the shareholder of a company is a Cyprus trust or similar, the name of the trust shall be submitted to the UBO Register in Cyprus and depending on its place of administration, its details shall also be submitted to the UBO Register in Cyprus for Trusts. A Cyprus Trust or similar must be registered therein provided that: (a) its trustee is located or residing in Cyprus, or, (b) its trustee, which is located or residing outside the EU, establishes a business relationship or acquires immovable property on behalf of the express trust in Cyprus.
Information to be submitted to the UBO Register in Cyprus for Trusts
A. For Cyprus Trusts or similar
- Country and date of creation and/or establishment;
- Applicable law;
- Termination Date (if applicable);
- In case of a similar legal arrangement, the kind of such arrangement;
- Information in regards to the country of establishment or residence of the trustee, as well as his address;
- In the case where the trustee is situated outside the EU and creates a business relationship in the Republic, the date of the beginning of the business relationship, the name of the person to whom such business relationship is established, and the document regulating such relationship;
- In cases where the trustee is situated outside the EU and acquires immovable property on behalf of an express trust in the Republic, the registration number of such immovable property and its title.
- Any other information and/or supporting documentation requested by CySEC for identification purposes.
B. For the Ultimate Beneficial Owners of the Cyprus Trust (Trustee, Settlor, Protector, Beneficiaries, any other physical person exercising final control of the trust through direct or indirect ownership or by other means)
- Name and surname;
- Name of the father;
- Date of birth;
- Place of birth;
- Nationality or Nationalities;
- Residential Address;
- Number, Type, and Country of issuance of the identification document;
- Date of Death (where applicable);
- The date on which the UBO became the beneficial owner;
- The nature and extent of the rights which are directly or indirectly held by the beneficial owner;
- The role of the beneficial owner in the trust or in a similar legal arrangement;
- Any other information and/or supporting documentation requested by CySEC for identification purposes.
Cyprus Securities and Exchange Commission – CySEC can provide access to the UBO Cyprus Trust Register to the following:
- Cyprus Securities and Exchange Commission, the Cyprus Tax Department, the Cyprus Customs Department, and the Cyprus Police with no restrictions;
- Any liable entity, in the context of due diligence and identification measures for their client;
- Any natural or legal person who can demonstrate a legitimate interest. This will be subject to acceptance by the Cyprus Securities and Exchange Commission; and
- Any natural or legal person who has a controlling interest in a company or other legal entity, inter alia, either directly or indirectly, indirect ownership, or through shares in the bearer or through control by other means. This will be subject to acceptance by the Cyprus Securities and Exchange Commission.
If access is granted, any natural or legal person will have access to the name, month, and year of birth, the country of residence and the nationality of the people involved in the trust, and the type and extent of the rights they hold in the trust. The information in the UBO Cyprus Trust Register shall not be available to the general public (unlike the UBO Companies register) but it will only be available to certain authorities and or people that show a legitimate interest.
How Can We Help
We can create and manage a Cyprus international trust to serve your needs.
If you are interested in receiving a quote, please complete the Trust Information Sheet by clicking the link below and return it to us. Upon receipt, we will provide you with a quote.
Tel. +357 22 340000
Email: [email protected]
The authors expressly disclaim all and any liability and responsibility to any person, entity, or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication.
Accordingly, no person, entity, or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.