A Trust is a private agreement established by an individual, “the Settlor” by which title to property is transferred to ‘‘the Trustee”, to hold the same in a fiduciary capacity for the benefit of another “the Beneficiary” or for the specified purposes.
A trust can be created during a person’s lifetime and survive the person’s death. Once assets are put into the trust they belong to the trust itself, not the trustee, and remain subject to the rules and instructions of the trust contract.
A Cyprus International Trust (a ‘CIT’) may be described as a Trust created by a non-resident Settlor for the benefit of non-resident Beneficiaries.
The International Trusts Law 69 (I)/ 1992 as amended in 2012 (the ‘Law’) has marked a significant development in the area of Trust Law with the creation of international trusts in Cyprus, offering an excellent opportunity for non-residents to create a trust in Cyprus. Cyprus is now the most favourable trust jurisdiction in the EU.
Legal benefits of creating a Cyprus International Trust:
- Asset protection from foreign claims: The validity of a CIT is not in any way affected by any succession provisions or forced heirship provisions in any country nor by the bankruptcy laws, legal action by creditors, or repossession of the property of the Settlor unless it can be proved that the Trust was set up to defraud the creditors and an action is brought by them within two years from the date of the transfer of the Trust assets to the trustees. When a creditor contemplates that the Settlor used the CIT to defraud him the burden of proof is upon the creditor to prove such a sham within 2 years of creation of the CIT. After the 2 year period the creditor will be barred from bringing an action against the trustees.
- Stringent confidentiality provisions: A significant aspect of the Law is that it affords the right of confidentiality in relation to the identity of the beneficiary, with the exception of circumstances where a court order is issued, compelling the trustee to disclose such confidential information (and of course disclosure made to banks for the purposes of opening a bank account in compliance with the banker’s duty of confidentiality).
- A CIT does not become void even where the Settlor becomes insolvent or bankrupt;
- Significant control of the Trust by the Settlor: Significantly, the settlor can reserve powers to himself, be a beneficiary in trust property, give binding directions to the trustee in connection with the trust property, act as a director or officer of any corporation wholly or partly owned by the trust without affecting the validity of the trust.
- Abolition of restrictions on the duration of Trusts: A CIT which was set up after 2012 has no limit on the period over which it is valid and enforceable.
- Corporate tax planning purposes: One of the main reasons for making a CIT is to avoid or mitigate taxation liabilities. Significantly, all income whether trading or otherwise, derived from sources outside Cyprus, of a CIT is not taxable in Cyprus unless the CIT has Cyprus sourced income. Dividends, interest or other income received by a CIT from a Cyprus company are neither taxable nor subject to withholding tax. Gains on the disposal of the assets of a CIT are not subject to capital gains tax in Cyprus. Also, assets of a CIT are not subject to estate duty in Cyprus. The only fee payable to the Republic of Cyprus is a one-off stamp duty charge of about Euro 430 applicable on execution of the trust agreement (but of course no copy of the trust agreement is kept by the Commissioner of Stamp Duty).
It is possible to create a CIT with an underlying Cyprus or offshore company owned by such trust. A common structure is that of a Cyprus or offshore company whereby the CIT owns the shares of the company and the assets and trading or investment operations belong to the CIT.
For more detailed information, contact our team of specialists at Parparinos Milonas Corporate and Legal Consultants.