Cyprus stands out as a prime destination for establishing trusts, offering a robust legal framework with significant tax incentives. The trust is arguably the most important legal concept created by equity and one of the greatest achievements of English jurisprudence, and there is a plethora of trust types that one can establish in Cyprus, including fixed trusts, discretionary trusts, charitable trusts etc., with each trust structure aiding individuals and corporations alike to meet different needs and objectives.
One of the most renowned trust structures that Cyprus offers, is the so-called “international trust”. International trusts are a key feature of Cyprus trust law and, following the extensive amendments in 2012 to the International Trusts Law 69(I)/92, Cyprus has been characterised as one of the most competitive jurisdictions to set up such a trust, due to their numerous benefits compared to other jurisdictions.
Overview
For a Cyprus international trust to be established, the following conditions must be satisfied:
- The settlor (legal or natural person) must not be a resident of Cyprus during the calendar year preceding the year of creation of the trust;
- The beneficiaries of the trust (legal or natural persons) must not be residents of Cyprus during the calendar year preceding the year of creation of the trust, with the exception of charitable institutions;
- At least one of the trustees must, throughout the lifetime of the trust, be a resident of Cyprus.
The term “resident” has the meaning attributed to it by the Income Tax Law which provides that a resident of the Republic is an individual who resides in the Republic for a period which exceeds one hundred and eighty three days in a tax year or a company which is managed and controlled in the Republic.
Benefits
There are numerous advantages in setting up a Cyprus international trust, some of which are outlined below:
Asset Protection
- A Cyprus international trust serves as a shield for safeguarding assets against various risks, including potential claims by governmental bodies or creditors, as well as the threat of expropriation.
- It offers a proactive measure for shielding assets from potential future creditor actions.
- It provides a protective barrier against claims from spouses or former spouses.
- Utilizing a Cyprus international trust is an effective strategy to safeguard assets against potential future claims arising from tort or contract disputes stemming from transactions initiated by the prior owner of the trust property.
Confidentiality and Reporting
- Trustees are bound by a strict duty of confidentiality towards both the settlor and the beneficiaries of a Cyprus international trust. They are prohibited from disclosing any information or documents unless ordered to do so by a specific court order or legislation.
- While registration of a Cyprus international trust in the Trusts Registry is obligatory, this process does not entail the submission of the relevant Trust Deed nor is the beneficiaries' identity open to the public. Importantly, this information remains inaccessible to the public and is solely accessible to competent authorities for inspection purposes.
- Cyprus international trusts are not subjected to any reporting requirements in Cyprus.
Managing Family Wealth, Estate Planning, Inheritance planning
- Cyprus international trusts offer an ideal solution for high net-worth individuals seeking strategic asset planning, particularly those with extended or complex family arrangements.
Tax Benefits
- Income, gains and profits from sources outside Cyprus are exempt from taxes in Cyprus.
- Worldwide income, gains and profits are taxable in Cyprus only if the beneficiary is tax resident in Cyprus.
- Beneficiaries who are non-tax residents in Cyprus are taxed on income sourced within Cyprus, as per the provisions of the Cyprus's Income Tax Law.
- Dividends, interests or royalties received by a Cyprus international trust from a Cyprus-based company are exempt from taxation and not subjected to any withholding tax.
- Cyprus does not impose estate duty or inheritance tax, providing further advantages for individuals utilizing a Cyprus international trust.
Reservation of Powers
- When setting up a Cyprus international trust, the settlor may reserve certain powers to themselves, which powers are expressly outlined within the trust instrument. Such powers may include the power to revoke, alter or amend the terms of the trust, appoint or remove any trustee, enforcer, protector, beneficiary, investment adviser, or to provide limited instructions to the trustee etc.
Perpetuity
- A Cyprus international trust may continue in perpetuity. The Equitable rule against perpetuities applicable to trusts in general, has been excluded.
Final Remarks
The amendments to the Cyprus International Trusts Law in 2012 have positioned Cyprus as a leading jurisdiction, offering one of the most highly favourable legislation for international trusts in the world. This legal framework provides unparalleled protection and opportunities for settlors, trustees, and beneficiaries, empowering them to efficiently structure their family or business arrangements in a manner that best suits their needs and objectives.
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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