Trusts as we know them today have a long and storied history and the modern concept has its roots in English law, predominantly applied in the Cypriot legal system. This article sets out the basics for establishing a Cyprus International Trust (“CIT”) and the benefits offered by this instrument.
The ‘Trust’ concept
A trust is a fiduciary relationship in which one party, known as a settlor (or trustor or grantor in the U.S.), gives another party, the trustee, the right to hold title to property or assets (of whatever nature and wherever situated) for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the settlor’s assets, to make sure those assets are distributed according to the wishes of the settlor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes
Simply put, the trustee is the legal owner and the beneficiary is the equitable owner.
There are three fundamental parties to a trust: the settlor of the trust, the trustee, and the beneficiaries and if desired, the protector. The role, rights, duties, and obligations of each differ.
The Cyprus International Trust (‘CIT’)
Non – tax residents of Cyprus can create a trust whereby they can achieve the utmost possible degree of asset protection and at the same time effectively plan for their estate and succession.
To qualify as a CIT, the following conditions must be met:
- no beneficiary and no settlor, either a legal or a physical person, (other than a charitable institution) must be a permanent resident of Cyprus during the calendar year preceding the year of establishment of the trust.
- at least one of the trustees is a permanent resident of Cyprus throughout the duration of the trust period.
The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the property/assets, the beneficiaries.
- Governed exclusively by Cyprus law. Protects against the application of foreign laws. All matters relating to CITs are to be determined in accordance with Cyprus law.
- Powerful asset protection characteristics:
• there must be an intent to defraud in order for property transfers to be invalidated Unaffected by matrimonial property or succession laws
• 2-year hardening period (limitation of action)
• Claimants must show that they were creditors at the time of transfer
- Trusts may exist in perpetuity (forever)
- Settlor may reserve powers to himself under the trust deed
- Unrestrained investment powers to the trustees to increase trust assets
- Confidentiality (registers of trusts maintained by regulatory authorities include information ONLY on the name of trust, the name and address of the trustee, date of establishment, date of termination and of any change of trust governing law; Registers of trusts are not available to for public inspection
- Settlors of a CIT can relocate to Cyprus after the establishment of the trust
- Overcoming “forced heirship” rules applied in certain jurisdictions
- Legal system based on English common law and equity, table tax regime
- Preservation of wealth and segregation of assets for succession planning
- Flexibility, the CIT can be used for succession planning, charitable purposes, investments
- Administrative cost minimisation and mitigate tax liabilities
- Safekeeping assets for minors and successive generations of a family
- Benefit certain groups or classes of people such as the mentally ill
- Enable charitable objects to be carried out
- CITs are generally viewed as transparent from a Cyprus tax perspective so no Cyprus tax applies at the level of the CIT but the beneficiaries, if applicable, may be subject to Cyprus tax with respect to the CIT income allocable to them, regardless of any distributions from the CIT.
- With respect to CITs with beneficiaries who are not Cyprus tax resident, only income generated from sources in Cyprus (e.g. rental income and capital gains from real estate situated in Cyprus) is subject to taxation in Cyprus.
- With respect to CITs with beneficiaries who are Cyprus tax resident, the worldwide CIT income allocable to the Cyprus tax resident beneficiaries is subject to taxation in Cyprus based on the standard tax provisions applicable to resident individuals which include an exemption on dividends for resident individuals who are not domiciled in Cyprus and an exemption on capital gains from disposals of shares in companies that do not hold real estate situated in Cyprus.
- There are no withholding taxes on distributions of income or capital from a CIT to nonresident beneficiaries.
- No estate duty or inheritance tax is imposed in Cyprus.
IV. Provision of Trustee Services
The administration or management of trusts, including the undertaking or provision of trustee services, irrespectively of where the trust was established or the provision of administrative and investment services or disposal of trust assets of a when offered in or from Cyprus, 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 (the “ Fiduciaries Law”) as amended from time to time.
The above activities can be offered by licensed legal persons subject to a licence granted by the regulating authority which is the Cyprus Securities and Exchange Commission or can be offered by exempted persons as these are identified in the Fiduciaries Law, namely lawyers, members of the Cyprus Bar Association and accountants, members of the Institute of Certified Public Accountants of Cyprus and their subsidiaries.
N. Xenofontos LLC is a proud member of the Society of Trust and Estate Practitioners (STEP), UK with over 14 years of hands on experience with all matters pertaining to trusts, restricting of wealth and succession planning. Our Managing Director, an accredited Trust & Estate Practitioner (TEP) is a Board Member of the STEP Cyprus Branch.
- Establishment of the trust – Advising clients regarding the creation of trusts under Cyprus Law, including proposing structure ideas for creating, managing, and dissolving trusts and draft all required legal documents
- Provision of trustee & protector services
- Drafting and review of trust settlements, deeds, declarations – Advising clients on the potential flaws and deficiencies of existing trusts
- Day to day management and administration of trusts – Providing trustee, administration, management, and other related services
- Advising clients and trustees on issues arising in relation to trusts under Cyprus Law, trustee powers, beneficiary rights, interpretation of trust deeds and other trust related documentation
- Advising on family asset protection, inheritance matters and family planning
- Trust disputes – Representing clients and trustees in court proceedings (contentious or not contentious)
- Setting up private trustee companies (PTCs), especially useful for family trusts of High Net – Worth Individuals who wish to have a separate and exclusive trustee for their trusts
- Bank account management / investment management with external investment managers
- Preparation of proper books of account for the trust
- Statutory reporting / compliance