A. Why Set Up a Trust
The creation of a Trust is a question of good planning for your life, the people you love , the people in need, a way to be in full control of your riches, your estate, your wealth, your assets and your income. To protect your life’s rewards from business risks and unwarranted interference. To make sure that with smart tax planning there will be enough of your blessings left to be enjoyed and distributed in accordance with your wishes whilst you are alive and following your death.
More specifically the most common reasons for structuring a Trust are.
Disposal of assets and income through exercising own free will overcoming any existing or future legal or other constraints, protection of assets from creditors, government, spouses or ex- spouses, safeguarding the assets from sale by beneficiaries, wealth planning, succession planning, optimization of tax planning, investment and asset management, management of family finances or on behalf of minors until they reach adulthood, preserving family fortunes for descendants.
B. Why is Cyprus a Good Choice
The law of Trusts has been part of the Cyprus legal system for nearly a century (English Trustees Act of 1925) practised by British trained lawyers well versed in the Common Law system of law which was developed throughout the ages through binding judicial precedent of the Courts of Britain. This kind of skills is used by Cypriot lawyers to suit the most complex situations. Building on this invaluable legal tradition, claimed by no more than two other EU member states, the Cyprus Trustee Law (Cap 193 – 1960) was streamlined and given a modern competitive edge by the International Trusts Law of Cyprus No 69 (1) of 1992 as amended by Law No 20(1) of 2013 and as further aligned with the fiduciary legislation thus creating an enviable legal framework for the operation of Trusts.
C. Main Elements of a Simple Typical Cyprus Trust
A trust is established (Trust assets are separate from the assets of the Trustees) by means of a Trust Deed (TD) and for all intents and purposes is considered as a separate legal entity. The name of the Trust appears in the TD.
A Typical Cyprus Trust in its simplest form is structured as follows.
- There is a non-Cyprus resident who is the Settlor, that is the owner of the assets the subject-matter of the Trust (Trust Fund).
- A Cyprus Trustee company is appointed as Trustee usually jointly with the Settlor. At least one of the Trustees must always be Cyprus resident (individual or company).
- The title to the assets is passed to the Trustee by the Settlor who in this way divests himself of legal ownership of the assets. The Trustee holds the assets as equitable owner to administer manage and protect them for the benefit of the Beneficiaries in accordance with the powers granted to them in the TD.
- The Trust assets forming the Trust Fund are well defined and listed say in Schedule A of the TD.
- There is a defined and complete list of Beneficiaries or class of beneficiaries (that is beneficiaries during the lifetime and or after the death of the Settlor). The list can be attached to the TD say as Schedule B. The beneficiaries must be non-Cyprus residents (excepting a Charity). The Settlor himself can either be the sole beneficiary or one of the beneficiaries. The benefits of the beneficiaries are also well defined. The Settlor can pick and choose the beneficiaries with no restrictions at all. He has no obligation to name his wife or children or other members of his family as beneficiaries. The rules of succession, inheritance and similar rules or laws do not come into play.
- The rules against perpetuity do not apply. No requirement to fix a period for the duration of the Trust but if fixed it will be terminated on the date fixed.
- There is a great number of other provisions in the TD notably how a Trust can be revoked, trustees and beneficiaries be changed, amendments made.
- Powers of investment of the trust fund are included.
- Manner of effecting valid changes through Declarations by means of an instrument and several other provisions.
D. Special Tax Advantages of a Cyprus International Trust
- Income, gains and profits from non-Cyprus sources are exempt from taxes
- Dividends, interests or royalties received by the Trust from a Cyprus company are not taxable and not subject to any withholding tax
- No estate duty or inheritance tax
- Beneficiaries who are non-tax residents of Cyprus are not subject to any tax. They are taxed only on income emanating from Cyprus sources if any.
- No capital gains tax on the disposal of assets held in countries outside Cyprus.
Cyprus sourced income is taxable.
In case all the beneficiaries are Cyprus tax residents the Trust will be considered a local Trust and will be subject to all forms of local taxation. In case of a mixture of resident and non-resident beneficiaries the percentage of the beneficiaries is taken into account in treating the Trust either as local or international Trust for tax purposes.
E. Features of Cyprus International Trust
- Governed exclusively by Cyprus law ( protection against foreign laws)
- Registration requirements preserve full confidentiality as the TD is not delivered to the relevant Regulating Authority. Some basic information only is filed that is name of the Trust and of the Trustees; date of establishment and of termination and contact details. Further there are no reporting requirements.
- There can be revocation or amendment of the TD, replacement of Trustees, change of beneficiaries.
- Alleged fraudulent transfers to the Trust Fund can only be pursued on clear evidence of intention to defraud and within a time limitation of two year from the date of the TD.
- The investment powers in the TD can be extremely wide.
- Settlor cannot be a Cyprus resident in the year prior to the creation of the Trust. Apart from that the Settlor and Trustees can re-locate to Cyprus after the formation of the Trust.
- The Trust can be re-domiciled in another jurisdiction.
- Settlor can be both a natural or legal person.
- There must be at least one Cyprus Trustee throughout the period of duration of the Trust.
- Cyprus immovable property cannot be part of the Trust Fund.