Cyprus has established a local trust legislation that is a combination of the English Trustee Act of 1925 and the International Trust Law No.69 (I)/92 as amended by Law 20(I)/2012. When forming an International trust, Cyprus provides a simple registration process, high levels of confidentiality and great opportunities for effective tax and property management planning.
A trust can be defined as a settlement between the settlor and the trustee, in which the settlor transfers to the trustee assets, for the purpose of managing in the benefit of the beneficiaries. A trust can have an indefinite life.
Parties included in a Trust:
- The Settlor: the creator of the trust and the individual that holds the property. The settlor can also be a beneficiary;
- The Trustee: the party that is responsible for managing the trust always in the benefit of its beneficiaries. The trustee must comply with the terms stated in the trust deed. The trustee should be an individual with business knowledge and experience since they will be the one managing the assets;
- The Beneficiaries: the parties for which the trust has been set-up for, that will benefit from it and have the rights in respect to the trust property. At any given time the beneficiaries can request from the trustee data regarding the books of the trust;
- The Protector: the individual that is appointed by the settlor to protect the trust assets. Appointment of a protector is optional.
Uses of Trusts:
Setting up a Cyprus International Trust can be used for the purposes of managing family wealth and preserving family property. A trust can also assist in holding property for minors and ensure that all family members meet their future needs. Along with the above, a trust can also be set-up to provide pensions to employees acting as a form of incentive to the staff.
Advantages of a Cyprus International Trust:
- Confidentiality – Trusts are set-up in full discretion and anonymity. Any information regarding the trust will only be disclosed in the event of a court order.
- Protection – A Cyprus International Trust can be used as a source of protection of the asset against any future claims from creditors, spouses, government etc. A trust can also be used to manage family wealth and preserve family property and hold property for minors.
- Taxation – An international trust that is set-up
in Cyprus can benefit from the favourable current tax system of the
country. See a few of the most significant benefits below:
- No Capital Gains Tax is paid on the disposal of assets of a Cyprus trust
- No estate or inheritance tax
- Income received from local or overseas sources is taxable in Cyprus where the beneficiary is a Cyprus tax resident. If beneficiaries are non-tax residents of Cyprus, only Cyprus sources of income are taxable under Cyprus's income tax law.
- Variety – The trust property may consist of all kinds of assets from all around the world. Assets can also be added to the trust at any time.
- Reporting – No reporting requirements for Cyprus International Trusts.
Conditions to set-up a Cyprus International Trust:
When setting up a Cyprus International Trust there are a few conditions to keep in mind.
- The first condition is that the settlor was not a Cyprus Resident in the year before the trust was set-up. The settlor can relocate to Cyprus after setting up the trust
- Secondly, the beneficiary/beneficiaries must also not be Cyprus residents during the year which precedes the year of creation of the trust. There is an exemption in regards to charitable institutions
- Thirdly, at least one of the trustees must be a Cyprus permanent resident during the length of the trust
- A Cyprus International Trust is subject to stamp duty of €430 that must be stamped 30 days after the set-up of the trust; otherwise a penalty will be imposed
- A confidential trust agreement must be prepared and signed between the settlor and the trustee
Along with the above, when setting up a Cyprus International Tax, three certainties must be existent in order to the trust to be valid:
The first one is the Certainty of Intention. There must be an intention of the settlor to set-up the trust. This intention is verified by the trust agreement that will be prepared.
The second certainty that must be existent is the Certainty of Subject Matter. The trust property must be easily identifiable and be transferred to the trust. If this certainty is not reached, then the trust will be void for uncertainty. Trust assets can be any form of cash in the bank, shares, immovable property etc.
The third and final certainty is the Certainty of Objects. All the beneficiaries of the trust must be identified when setting up the trust. Beneficiaries can be identified as a group of people as well; for example a family or a company.
Cyprus Trust Registry:
According to the law, a Cyprus International Trust must be registered to one of the below three authorities:
- Cyprus Securities and Exchange Commission (CySEC);
- Institute of Certified Public Accountants of Cyprus (ICPAC);
- Cyprus Bar Association.
Information such as the name of the trust, the commencement and termination date of the trust and the name of the trustee must be disclosed to one of the above authorities and will be included in their trust registries. The trust registries are not available for the public and the name of the beneficiaries and of the settlor are not released.
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.