On 9th of March 2012 the Cyprus Parliament enacted Law 20(I)/2012 by which the Cyprus International Trust Law 69(I)/1992 was amended and modernized taking into account the needs arising from the international economy today and at the same time ensuring compliance with the EU law and directives.
Although the 1992 Law had introduced attractive provisions for international trusts after almost two decades there was a need to upgrade the law and to clarify certain areas of ambiguity and uncertainty as well as to remove certain limitations and restrictions.
Revised requirements for establishment of a Cyprus International Trust
The revised requirements for establishing a Cyprus International Trust (CIT) pursuant to the amended law are quite clear:
- The settlor must not be a permanent resident of Cyprus in the calendar year which precedes the year in which the trust was created;
- At least one of the trustees must be a permanent resident of Cyprus during the whole duration of the trust;
- No one of the beneficiaries must be a permanent resident of Cyprus in the calendar year which precedes the year in which the trust was created.
Prior to the amendment there was a requirement that the settlor and the beneficiaries (with the exception of charity) should not be permanent residents of Cyprus and this was causing difficulties if the settlor or any of the beneficiaries were subsequently becoming residents of Cyprus.
There was also a requirement that the property of the trust does not include immovable property located in Cyprus which has been deleted in the new law.
Reserved Powers of the Settlors
The amendments have introduced new provisions which have reserved extensive powers for the settlors enabling them to revoke and/or modify any of the trust terms and to instruct the transfer, distribution or payment of income or capital from the trust property.
Furthermore the settlor is granted with the explicit power to appoint and/or remove a trustee, a beneficiary or a director of any of the companies that belong to the trust structure and to issue binding instructions to the trustees in connection with the exercise of any power in relation to the trust.
The settlor is also given the right and the power to change the applicable law that will govern the trust and the forum of the management of the trust.
Powers of Trustees
The powers of the trustees of CITs have also been extended by virtue of Section 8 of the 2012 Law pursuant to which the trustee may now hold, maintain or invest in movable property in Cyprus and abroad, including shares in companies formed in Cyprus and in real estate located in Cyprus or abroad. It is important to note that under the 1992 Law it was unclear whether trustees could invest in movable or immovable property in Cyprus.
More specifically the new law provides that unless the instrument creating the trust provides otherwise the trustee has the power to:
- Invest at any time the whole or any part of the trust funds in any kind of investment as he would have done so if he were himself the absolute beneficiary of the assets of the trust;
- Vary the investment or retain it in its original state;
- Hold, maintain or invest in any movable property in Cyprus and abroad, including shares in companies created in Cyprus and in immovable property located in Cyprus of abroad.
Duration of Trusts
Pursuant to the 1992 Law a CIT could be valid for up to 100 years from the date of its creation (subject to certain exceptions). The 2012 Law abolished all restrictions on the duration of trusts and for trusts created on or after the amendment there is no limitation regarding the duration of the continuation of the validity and enforceability of the trust. Furthermore no rule against perpetuity or long term investment or any equivalent principle or rule shall apply to a trust or to any advancement, distribution, payment or disposition of property from the trust.
Subject to 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 must cease to exist.
The 2012 Law extensively redefines charitable institutions. It provides that a CIT is deemed to be a charitable institution where it has as its main objective of achieving one or more of purposes set out in section 7(1) of the Law such as the prevention or relief of poverty, the advancement of education, the advancement of religion, the advancement of health or the saving of lives, the advancement of art, civilization, cultural heritage or science, the advancement of the protection or improvement of the environment, the advancement of the welfare and the protection of animals.
Confidentiality has been preserved under the amendment and pursuant to section 11 of the law the trustee, the protector, the supervisor of the performance of the trust or any other person are forbidden from disclosing to any person not legally entitled any documents or information regarding the trust.
Disclosure can only be made where the instrument creating the trust provides otherwise or when a court order for disclosure is issued or where a request is submitted by a beneficiary to the trustee for the disclosure of the accounts of the trust or for any documents or information
relating to the proceeds and payments made by the trustees which form part of the said accounts. In such a case the trustee shall have the power to make such disclosure only if in his opinion it is necessary and it is for the best interest of the trust.
Pursuant to section 12(2) of the Law the instrument creating a CIT is liable to a stamp duty of EUR 430.
Furthermore the new Fiduciaries Law of 2012 (as amended by virtue of Law 109(I)/2013) has introduced a registration requirement for trusts and provides that within 15 days from execution the trust must be registered at the relevant Cyprus Authority. It is important to note that the only information that is disclosed is the name of the trust, the name and address of the trustee, the date that the trust is set up, the date upon which the governing law of the trust may be amended and the date of termination of the trust. All other information pertaining to the trust is not disclosed for the purposes of the registration and according to the law is kept confidential.
Following the amendment:
- The income and gains of a CIT derived or deemed to be derived from sources inside and outside of Cyprus shall be subject to all taxes imposed in Cyprus in the event that the beneficiary is a resident of Cyprus (section 12(1)(a)).
- Where the beneficiary is not a resident of Cyprus the income and gains of a CIT derived or deemed to be derived from sources inside the Republic shall be subject to all taxes imposed in Cyprus (section 12(1)(b)).
These tax provisions in the law mean that a Trust with non-Cyprus residents and income from non-Cyprus sources will be exempted from Cyprus tax.
Selection of applicable law
The trust shall be governed by the law selected by the settlor which selection may be express or implied by the terms of the instrument creating the trust. The express and implied selection of the laws of Cyprus shall be valid, effective and final (notwithstanding the circumstances).
In the instances where no applicable law has been selected or where the law that has been selected does not make provision for trusts or where the selected law does not make provisions for the specific category of the trust (in which both cases the selection of law shall not be valid) the trust shall be governed by the law which is more closely related thereto
According to the new section 12A(4) the factors that need to be taken into account for the purpose of determining the law which is more closely related to the trust are:
- The state in which the management of the trust is carried out as prescribed by the settlor;
- The state in which the assets are located;
- The country in which the trustee resides;
- The purposes of the trust and the countries where these needs to be implemented.
Jurisdiction and governing law of the trust
A new section 12B has been introduced specifically providing where the Cyprus courts shall have jurisdiction (unless the instrument creating the trust provides otherwise) without prejudice to the provisions of the EC Council Regulations No. 22/2001 on jurisdiction and enforcement of judgments.
Furthermore according to the amendments all matters arising in relation to a CIT shall be determined in accordance with the laws of Cyprus, without reference to the applicable law of any other jurisdiction. Therefore, any matters regarding the validity, interpretation or effect of any trust or transfer will be decided by the laws of Cyprus.
The fiduciary powers and duties of trustees are also now regulated solely by the laws of the Republic of Cyprus. It is also important to note that according to the law no CIT is void or voidable because it is contrary to any law of any other jurisdiction.
If the terms of the trust so provide the applicable law of the trust may be changed to or from the law of Cyprus provided that:
- In the case of a change from the law of Cyprus to another law the new applicable law recognises the validity of the trust and the respective interests of the beneficiaries;
- In the case a change from another law to Cyprus law such a change is recognised by the previously applicable law.
Variation of CITs
A trust may be varied in any way provided by its terms or by the court subject to the exercise of its discretion upon the filing of an application approving any arrangement which varies or revokes the terms of the international trust or enlarges or modifies the powers of management of administration of trustees
Application of amended trust law
The changes brought forward by the 2012 Law apply to all CITs irrespective of the date of their setting up and its provisions do not in any way affect the validity of any distribution or transfer which took place prior to the enactment of the 2012 Law.
It is expected that with these amendments Cyprus will become an even more popular and attractive trust jurisdiction taking into consideration the simplified procedure for setting up a CIT, the relaxed provisions in the new Law and the favorable tax benefits that the CITs can enjoy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.