Cyprus International Trusts
A trust is a settlement or legal agreement affecting at least three parties, namely: the Settlor (the person/legal entity that establishes the trust, aka: donor, grantor, trustor or trust-maker), the Trustee (the person/legal entity that agrees to hold the trust property in his/her/its name for the benefit of the Beneficiary), the Beneficiary(ies) (the person/legal entity for whom the Trust is created and rightfully receives the benefits deriving from the Trust) and (optional) the Protector (the person/legal entity authorised to protect the Trust assets and also monitor the Trustee’s administration of the Trust).
Putting it into simple terms, a trust is a fiduciary relationship between the Settlor and the Trustee under which the Trustee is entrusted to hold the assets/property (hereinafter as the ‘Trust Property’) for the benefit of the Beneficiary(ies). Therefore, the Trustee becomes the legal owner of the Trust Property but at the same time the Beneficiary(ies) are recognised as the Beneficial Owners of the Trust Property under Trust Law.
The Cyprus International Trust Law has undergone major reform and the most recent amendment, introduced in early 2012 (Law 20(I)/2012, which amends the 1992 Law), has transformed the Cyprus Trust regime into the most modern and favourable trust regime in Europe. The new law clarifies grey areas and removes restrictions and limitations that are no longer necessary while the foundations of the law remained intact. More specifically, it enhances further the Cyprus International Trust and makes it more workable, accessible and effective and creating an infrastructure for Cyprus to emerge as a major trust jurisdiction.
The main prerequisites in order to form a Cyprus International Trust are the following:
- The Settlor is not a tax resident of Cyprus during the year preceding the year in which the trust was formed. There is no longer any prohibition on settlors relocating to Cyprus after the establishment of the Cyprus International Trust;
- Beneficiaries may also relocate to Cyprus after a year following the trust creation.
- The trust property can include all kinds of assets situated anywhere in the world and it can comprise of real estate property located in Cyprus;
- At least one of the trustees must be a resident of Cyprus;
The Cyprus International Trust enjoys important tax and other advantages some of which are summarised as follows:
- The income, gains and profits of an International trust derived or deemed to be derived from sources outside Cyprus are not subject to income tax, capital gains tax, special defence contribution or any other tax in Cyprus.
- Dividends, interest or royalties received by a Cyprus International Trust from Cyprus international business company are not taxable and not subject to any withholding tax.
- An alien, beneficiary or not, who creates an offshore irrevocable trust in Cyprus and retires in Cyprus is exempt from tax if all the property settled and the income earned is abroad.
- The availability of tax treaties between Cyprus and a number of other countries, together with the favourable tax status of trusts in Cyprus, provide the international tax planner with a valuable tool and are often useful in minimising the tax burden of a trust and its beneficiaries. In the case where "trusts" do not come under the definition of "persons" in a tax treaty, it may be advisable for a trust to establish a Cyprus offshore trust company for trading, investment and other activities, thereby taking full advantage of the treaties. Such a company would, of course, be liable to tax on its profits at much lower rate.
- An offshore trust would not be subject to estate duty in Cyprus, since the settlor is not domiciled in Cyprus, and the trust has not property in Cyprus. Whether the settlor and the beneficiaries are to avoid the estate duty in their own country, this will depend on that country's legislation.
- Cyprus offshore trusts are not subject to exchange control and may hold and manage assets and liabilities in any foreign currency and in any foreign country, including freely convertible and transferable balances with banks on the island.
- The Cyprus International Trust may be used to protect assets from risks arising in tort, contract and in relation to any other transactions entered into by the Settlor.
- The trust may hold shares in the Cyprus Company with Cypriot nominee shareholders who will hold shares of the company for the ultimate beneficial owners, i.e. the trust.
- The Cyprus International Trust duration can be indefinite.
- The Cyprus Law is the proper law of the Cyprus International Trust; therefore, Cyprus is under obligation to protect the trust, which protects against the applications of foreign laws such as forced heirship laws.
The reform of the International Trust Law brought Cyprus once again in the forefront of trust jurisdictions and given the island’s beneficial tax regime the new legislation is expected to be one of the most useful tools in tax planning for foreign investors. The latter is evidenced by the considerable boost in Cyprus investments since the introduction of the amended Law. If you are considering to establish such a Trust in Cyprus, do not hesitate to contact our qualified personnel. Having the necessary knowledge and proper expertise, we can assist you fulfil all the aforementioned prerequisites and establish the most proper investment vehicle for your needs.
Covered areas: formation and sustenance of Cyprus International Trusts.
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