TRUSTS


CYPRUS INTERNATIONAL TRUSTS: ADVANTAGES AND FORMATION PROCESS

What is a Trust?

A Trust is a fiduciary arrangement that provides a third party (i.e. trustee) to hold assets on behalf of the beneficiary or beneficiaries. A Trust may be created in a lifetime, or on death by a person (the settlor) who gives property or other assets to another person (trustee) to hold it for the benefit of the Trust beneficiary or beneficiaries.

On the other hand, a Trustee has certain responsibilities and obligations that require exceptionally careful consideration. Thus, a Trustee’s duties will include but not be limited to managing the assets in the Trust and ensuring that any decisions surrounding said assets are done so in the best interests of the beneficiaries.

Trusts may be arranged in many ways and provide exactly how and when the assets in a Trust pass to the beneficiaries.
The reasons for which one may wish to set up a Trust may be such as:

(i) protection of assets;

(ii) international tax planning;

(iii) as a means of settling succession matters and

(iv) as an aid in asset management.

Hence, a Trust arrangement is an effective way to provide and support for beneficiaries of your choice. It also serves as a guard for protecting various assets. Finally, Trusts provide you with peace of mind for the future ensuring and providing additional security to you and your loved ones.

Type of trusts and taxation

The Law that deals with the trust relationship and governs Trusts in Cyprus is the Trustee Law of 1955 (Cap 193), which is very similar to the UK’s Trustee Act 1925.

Cyprus International Trusts are governed by the International Trusts Law of 1992 that is based on the Trustee Law 1955.

International Trusts’ two main characteristics and concepts are that neither the Settlor nor any of the Beneficiaries were residents in Cyprus for the tax year preceding the year of establishment of the Trust.

The second major term is that there is at least one Trustee resident in Cyprus at all times.

Both domestic and international trusts are effectively treated as transparent vehicles for income tax purposes (that is, tax is levied on the trust as a proxy for the beneficiaries as if its income were income of the beneficiaries).

It is important to note that the amendments made to the International Trusts Law of 1992 in 2012 have allowed Cyprus International Trusts have Cyprus tax residents as beneficiaries.

Therefore, Beneficiaries who are considered tax residents in Cyprus will be subject to taxation in Cyprus at normal rates on income earned from the Trust.

Furthermore, it is worthy to note that section 12(2) of the International Trusts Law provides that a founding document of an international trust is subject to a stamp of Euro 430 or any other specified amount, as defined by each Council respectively.

There is a variety of trusts available for a settlor to choose from in Cyprus. The choice of the type of trust will depend on the requirements of the settlor and the individual circumstances and the goals to be set and reached by the Trust.

The more frequently used due to their advantageous regime trusts are described in the following passages:

Discretionary Trust

The major characteristics of the Discretionary Trust are:

The beneficiaries cannot be taxed on the trust fund, up until the moment when the Trustee exercise their discretion in their favour. This is happens because beneficiaries have no legal right in the Trust fund;

In the event of a bankruptcy the assets of the beneficiaries under the Trust are not available to their creditors;

Flexibility of Discretionary Trust allows Trustees to alter interests under the trust, if circumstances change.

Discretionary Trust may be used by individuals seeking to keep confidentiality who may set up a company the shares of which are owned by a Discretionary Trust.

Fixed Trust

As opposed to the Discretionary Trust in the Fixed Trust the Trustees are given precise directions concerning the Trust assets management/distribution/allocation (as the case may be). In such a Trust trustee distribute the income of the trust property to the specified individuals during their lifetime and hereupon distribute the capital to the beneficiaries in the specified shares.

Fixed and Discretionary Trust

This variant is suitable for those who aim to give the trustee discretion concerning income distribution over the individuals for a specific period of time, whereas the capital is required to be distributed over beneficiaries in fixed shares. Thus, it is evident that the elements of both kinds of trusts namely Fixed and Discretionary are maybe combining where a settlor of a trust is aiming to do so.

Trading Trust

This is a trust that has a trading purpose and is normally used for business running purposes. A Limited Liability Company performs as the Trustee for the Trust for the reason of which the Trust existence is unknown to outsiders.

Purpose Trust

The name of this trust speaks for itself. It may be used for specific corporate purposes or to accumulate corporate earnings etc.

Trustees’ statutory obligations

Trustees obliged to:

- Provide details of Trust beneficiaries and accounts to the competent regulatory bodies of Cyprus for registering the Trust as provided under relevant legislation;

- Make filing and returns to the Inland Revenue;

- Pay taxes on the trust income as applicable;

- Provide details of the Trust Accounts.

Applicable law

By virtue of Law, Trusts settled in Cyprus are governed by the laws of Cyprus. However, an international trust applicable law may be expressly changed to a jurisdiction of a foreign law provided that the new law recognizes the validity of the trust and the interests of the beneficiaries. Similarly, Trusts established in a foreign jurisdiction can choose Cyprus law as the law applicable to the regulation of its founding document provided that this is allowed by the law of the foreign jurisdiction.

Residence of trusts

Because Trust is not a legal entity, its residence defined followed the residence of Trustee(s). Thus followed the Cyprus International Trust Law provisions at least one Trustee should be a Cyprus resident for a Trust be considered a Cyprus International Trust. Concerning domestic Trusts regulated by the Trustee Law, a court have the discretion to appoint a new Trustee in a case where a Trustee remains out of Cyprus for more than a year.

Registration of trusts

Under the Law professional corporate and fiduciary service providers obliged about established or administered by them Trusts to:

  • Identify and verify the main protagonists of trusts governed by Cyprus law;
  • Maintain accurate and up-to-date information and documentation concerning the trustee, the settlor, the beneficiaries, any protector or class of beneficiaries, fund manager, accountant, tax consultant, and any other person exercising effective control over the trust, as well as on the activities of the trust.

  • Consequently, professional corporate and fiduciary service providers must submit information as required by law to the relevant competent authority within 15 days of the establishment of a Trust.

    Where a Trust has had a place to be modified or change any of its particulars these changes (including the Trust termination date or a change in the governing Trust law), must be notified within 15 days of the date of the change in question.

    It is important to note that in the event of a Trust termination or a change of the Trust governing law from Cyprus law to another jurisdictions, the relevant information will be kept in the register for five years.
    Trusts are subject to registration with relevant responsible supervising respective services competent bodies such are:
  • Cyprus Bar Association;
  • Institute of Certified Public Accountants of Cyprus;
  • Cyprus Securities and Exchange Commission.

  • Respectively, the competent body must maintain registers of Trusts (subject to Cyprus law), containing the following information:
  • The Trust name;
  • The Trustee name (at all relevant times);
  • The date of the Trust creation;
  • The date of the applicable law change in relation to the Trust;
  • The Trust termination date.

  • The maintained by relevant competent body Trusts’ registers are not publicly accessible, however are available for inspection upon request by other competent authorities/body, (e.g. upon a Court Order).


    Note: The above information is subject to recent amendments made in relevant Anti-Money Laundering Laws. For more detailed information and interpretation of relevant legislation please contact us directly.
    Our Services

    Our experienced Associated Lawyers will guide you through all the process of your Trust drafting and the type of Trust you chose that will depend on the individual circumstances of your case as well as on your desire and the way you wish to pass on your assets to the Trust beneficiaries. For more information please contact us directly.


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