Cyprus: International Trusts

Last Updated: 12 April 2001


In July 1992, the International Trusts Law was enacted, regulating the establishment and administration of International Trusts on the island.

The doctrines of equity, on which trust law is based, have long formed part of the legal system in Cyprus, inherited from the time of being a British Colony. The object of this legislation was to modernise and update the existing legal framework.

The full description of the concept of establishing an International Trust is described in our web site on

The Cyprus International Trust is exempt from taxation and can be used effectively for tax and other planning considerations.

The definition of an International Trust and the most important provisions of the Cyprus International Trust Law provide some unique opportunities for a wide range of investors as compared to the other common-law international jurisdictions.

The law allows International Business Companies and International Business Partnerships to act as trustees to an International Trust.

This provision opens up two main possibilities:

1. A Cyprus IBC acting as trustee to a particular trust

    The advantages of such a set up are mainly two, namely:

  • Avoiding to incur the 4.25% tax imposed on Cyprus International Business Companies
  • Complete confidentiality of the beneficial ownership of an underlying asset

2. A Cyprus IBC offering trustee services to third parties

This is usually the case where an International Financial Service Company, such as a Bank, can set an IBC for the purposes of offering trustee services to third parties. The financial institution can derive substantial tax benefits from incorporating in Cyprus, as the income from the trustee services will be liable to tax at the rate of 4.25%.

An application for the setting up of an International Trust in Cyprus can be downloaded from this site.

To discuss the particulars of your interest in an International Trust in Cyprus please contact Aspen Consultants directly.


The law defines an International Trust as being a trust in respect of which:

  • the settlor is not a permanent resident of Cyprus
  • no beneficiary other than a charitable institution is a permanent resident of Cyprus
  • the trust property does not include any immovable property situated in Cyprus, and
  • at least one of the trustees, during the whole duration of the Trust, is a permanent resident of Cyprus.

A trust can still qualify as an international trust for the purposes of the law even if the settlor, trustee or the beneficiaries are Cyprus International Business Companies or International Business Partnerships.

This is a distinguishing element of the definition, which can offer unique opportunities for a wide range of investors as compared to trusts in other international jurisdictions.

Validity of an International Trust

The law confirms the validity of a trust created by any person who is of full age and of sound mind, regardless of any provisions relating to inheritance or succession of the law of Cyprus, or the law of any other country.

The International Trust is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors, unless and to the extent that the creditors can show that the trust was made with the intent to defraud them. The burden of proof of such intent lies with the creditors and an action against the trustees to avoid the trust, on grounds of fraud, must be brought within two years from the date when the relevant transfer of assets is made to the trust.


The perpetuity period of a non-charitable trust is one hundred years and accumulation of income may continue for the duration of the trust. Charitable and Purpose Trusts may carry on indefinitely.

The Law Governing an International Trust

The possibility to change the proper law of an International Trust is expressly provided in the law. It allows a Cyprus trust governed by Cyprus law to change to a foreign law trust and permits a foreign trust to adopt Cyprus law if such change is recognised by the law of the country concerned.


Confidentiality takes a prominent position in the law. The settlor, trustees and beneficiaries should not disclose information to third parties relating to International Trusts, unless a Cypriot court orders the information to be disclosed.


The law makes it abundantly clear that the income and gains of an International Trust derived or deemed to be derived from sources outside Cyprus is exempt from all kinds of taxes in Cyprus. Further, no Cyprus estate duty is chargeable in respect of assets belonging to an International Trust created in Cyprus.


It is expressly provided that an International Trust is exempt from any obligation for registration.

Advantageous Uses of a Cyprus Trust

A Cyprus International Trust can prove advantageous for a number of reasons. These may include:

1. Tax-planning considerations

Income Arising Overseas:
An individual who has income arising overseas, which he does not wish to remit to his country of residence, can arrange for such income to be directed to a Cyprus International Trust.

Divesting Personal Assets:
An individual who wishes to divest his personal assets for fiscal or other reasons can achieve that by transferring them to a Cyprus International Trust.

Pre-migration Arrangements:
Individuals moving to a high-tax country may obtain fiscal advantages in their new country by placing funds in a Cyprus International Trust.

Investing in Overseas Business:
An individual who wishes to invest in business overseas but wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up a Cyprus International Trust to invest in overseas business.

Investment Holding Company:
A trust can be used in one country to own an underlying investment holding company in another. This type of tax planning device has many advantages in providing the maximum possible protection for both settlor and beneficiaries alike.

2. Other planning considerations

Exchange Control:
An individual with assets outside his country of residence, which country may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to a Cyprus International Trust.

An individual who wishes to keep anonymity can do this by setting up a discretionary trust, which owns the shares in the company. This is a particularly useful and popular vehicle for carrying out trading and financial activities, particularly for residents of countries, which do not recognise the concept of a trust.

Global Estate Planning:
An individual, through the use of a trust, can arrange for it to be inherited by persons, who due to the legislation of the individual’s country, would otherwise be excluded from the inheritance.

Asset Protection:

  • Individuals from volatile parts of the world may wish to protect part of their fortune from high domestic inflation rates by converting it into strong currency assets, or
  • Individuals can protect their assets against possible expropriation laws, future claims of Governments, law suits or international blocking or freezing regulations overseas.

  • Types of Trusts

    There are various types of trusts that can be set up in Cyprus. The choice depends on the circumstances of the settlor and his objectives. These may include:

    1. Discretionary Trust

    It is possible for a settlor in Cyprus to establish a Discretionary Trust based on Cap 193, which states that the powers of trustees can be expanded by the settlor in the trust deed.

    A Discretionary Trust grants the trustees discretion to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may be given also discretion in deciding when to pay any money to any of the members of the class. Thus, none of the beneficiaries has any right to be paid any money out of the trust fund, since the trustee may exercise his discretion and postpone any such payment or even decide not to pay a particular beneficiary at all.

    The Discretionary Trust is the most commonly used type of trust in Cyprus due to the many advantages it provides. These include:

  • The beneficiaries cannot be taxed on the trust fund, because they have no legal right in the trust fund until the trustees exercise their discretion in their favour.

  • Similarly, the beneficiaries cannot be subject to local exchange control regulations regarding compulsory repatriation of assets until the trustees exercise their discretion.

  • Since the beneficiary only has contingent interest, the trust assets are not available to his creditors, should he go bankrupt.

  • It is a flexible instrument, allowing trustees to vary the various interests under the trust, as and when circumstances change, without the need to have recourse to the procedures of variation of trusts (i.e. getting the agreement of all the beneficiaries or asking the court to vary the terms of the trust).

  • It should be pointed out that in the case of Discretionary Trusts, it is customary that the settlor also prepares a “letter of wishes” in which he expresses his wishes to the trustees on any matters concerning the trust.

    2. Fixed Trust

    Another type of trust is a Fixed Trust, which does not give the trustees any discretion when distributing the assets to the beneficiaries. An example of this type of trust is one, which requires the trustees to distribute the income of the trust property to a particular individual, during that individual’s lifetime and thereafter distribute the capital to a named beneficiary or beneficiaries in specified shares.

    3. Fixed and Discretionary Trust

    It is possible to have a combination of a Fixed and Discretionary Trust. The trustees may have discretion as to the distribution of income for a period of time, but are required to distribute the capital ultimately in fixed proportions.

    Conversely, they may be required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of beneficiaries.

    4. Trading Trust

    Under a Trading Trust the trustee is usually a limited liability company which has powers to carry on business and the trust has trading functions and employees to manage its business. Third parties are not aware of the existence of the trust as all documentation used is in the name of the Trustee Company.

    5. Purpose Trust

    The Cyprus International Trusts Law of 1992 provides a legal definition of a Purpose Trust. This can be a useful adjunct to international corporate planning and can be used to accumulate corporate earnings for general corporate purposes rather than for a defined group of individuals.

    To receive more information on offshore services or to discuss the particulars of your international tax planning needs please contact the authors.

    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.

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