The Cyprus International Trusts regime enables Cyprus non-tax residents to create a Cyprus Trust and enjoy the highest degree of asset protection and create estate planning internationally along with numerous tax benefits and high level of confidentiality.
The definition of a Cyprus International Trust (CIT) has become more flexible:
- Allows the settlor / beneficiary to become a Cyprus resident as long as neither the settlor nor the beneficiary take up residence during the calendar year preceding the year the trust was set-up the previous restriction on investment in immovable property in Cyprus has been lifted. It is now possible for the trust property to include real estate in Cyprus at least one of the trustees, during the whole duration of the trust, is a permanent resident of Cyprus.
- A trust can still qualify as a CIT for the purposes of the law even if the settlor, trustee or the beneficiaries are Cypriot companies or partnerships. In fact this provides unique opportunities for a wide range of investors.
The trust will be subject to the Cyprus’ International Trust Law 1992-2013. CITs are favourable from a business and tax perspective and confidential. Also if the beneficiaries are not Cypriot tax residents, they are exempt from Cyprus taxation.
A CIT is established by a settlor (individual or legal entity) and is a means whereby property (the Trust Property) is held by one or more persons (the Trustees) for the benefit of another or others (the Beneficiaries) or for specified purposes. A Protector who can be the Settlor may be appointed to oversee the work of the Trustee. As one of the trustees needs to be a Cypriot tax resident and a regulated person under the Law regulating companies providing administrative services of 2012/2013.
For the creation of a trust a trust deed must be signed, defining the following:
- The settlor
- the trust assets
- the beneficiary/ies
- the duration; the trust may exist in perpetuity
- the protector (enforcer); (i.e. you or a trusted person in a corporate capacity)
- the trustees and their powers
International trusts are governed by the local trust law and are not taxed in Cyprus.
In fact, CIT enjoy important tax advantages providing significant tax planning opportunities to interested parties. The following tax privileges are indicative of the possible options for tax minimization:
- all income, whether trading or otherwise, of a CIT (ie a trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus
- dividends, interest or other income received by a trust from a Cyprus company are also neither taxable nor subject to withholding tax provided that the beneficiaries are not tax residents in Cyprus. Even though a trust with shares in a Cypriot company may not be a CIT, the exemption relies on the fact that Cypriot tax is imposed only on Cyprus residents. As the beneficiaries are not residents of Cyprus, no tax is imposed on the distributions made to the trust
- gains on the disposal of the assets of a CIT (except in the case it holds Cyprus real estate) are not subject to capital gains tax in Cyprus
- a CIT created for estate duty planning purposes would not be subject to estate duty in Cyprus
Local trusts ie trusts under which either the settlor or any beneficiary is a Cypriot resident, will still be treated as transparent vehicles for income tax purposes. In the case of Cypriot international trusts, provided that no local profit is included, no Cypriot tax will be levied on their income, capital or distribution.
A CIT has many advantages, including:
- may exist in perpetuity
- its income can be accumulated for the entire duration of the trust
- if its terms so provide, the law applicable to it can be changed to a foreign law, provided that the new law recognizes the validity of the trust and the respective interests of the beneficiaries
- asset protection is the cornerstone of the International Trust Law. The current legislation is designed to limit the power of creditors to set aside transfers of assets into a trust. The law makes it difficult to invalidate the trust even in the event of a settlor’s bankruptcy unless clearly fraudulent intention was behind the creation of the trust. The onus of proof lies on the creditor and any action must be brought within two years from the payment or transfer
- the income and the profits of a CIT derived or deemed to be derived from a source outside Cyprus are completely exempt from income tax or any other tax imposed in Cyprus such as capital gains, special contribution etc. The property of the trust is not subject to estate duty
- no law, Cypriot or foreign, relating to inheritance or succession affect any transfer or disposition in favour of the trust in any way or otherwise affect its validity
The International Trusts (Amending) Law of 2012/2013 requires that CITs are registered with Cyprus Securities and Exchange Commission (“CySEC). The Name of the trust and details of the trustee must be submitted to CySEC, but not the actual trust deed.
The Register of Trusts should contain:
- the name of the trust
- the name and full address of every trustee at all relevant times
- the date of establishment of the trust
- the date of any change in the law governing the trust to or from Cyprus law and the date of termination of the trust
- Furthermore, in case of an official request in the process of an investigation by the Competent Authorities we are obliged to disclose to CySEC the following:
- name of the trustees
- name of the settlor
- names of beneficiaries or information on the class of beneficiaries including the beneficiaries to whom any distributions have been made pursuant to the trust
- name of protector (if applicable)
- Fund manager, accountant, tax consultant (if applicable)
- The activities of the trust
- Any other person who exercises effective control over the trust.
The person providing trust services must have this information available in the Republic of Cyprus for disclosure to and inspection by the relevant Competent Authority at all times.
Finally, note that the names of the trustees, settlor and beneficiaries is information that is disclosed to banking institution(s) with which the SPV is (or will be banking with) as part of their due diligence procedures.
Furthermore the trust must keep accounting records and prepare accounts, as the trustee, who is acting as a tax agent to the trust, must submit the trust’s tax returns.
Regarding confidentiality, the law prohibits the trustee, protector, and any other person from disclosing information concerning the trust. Unless a court order is issued which is possible only for proven criminal offences, no documents or information can be disclosed on any of the following:
- settlor or beneficiaries
- the way the trustee exercises powers or discretion
- reason for any particular exercise of a trustee power
- accounts of the CIT
It should be noted that if a beneficiary submits a request to a trustee for the disclosure of the accounts of a CIT or documents relating to receipts and payments of a trustee, the trustee has the power to disclose such information to the beneficiary if in the trustee’s opinion the disclosure is necessary and in the best interests of the trust.
Uses of a Cyprus Trust
CITs are widely employed in what may be loosely termed ‘family situations’ but also in commercial and business transactions and as a vehicle for charitable and other purposes.
For example a CIT may be created:
- to hold for property for minors or successive generations of a family
- to protect property against spendthrift people
- to provide secrecy and confidentiality to the successors of the trust
- to provide for a couple on their marriage whilst ensuring that the property so provided is ‘tied up’ in the event of that marriage failing
- to establish a fund for the benefit of family members according to future needs as and when they arise
- as an investment vehicle (typically via unit trusts)
- to provide pensions for employees and dependants
- to provide an incentive to the workforce: e.g. via employee trusts of various kinds
- to make provision for abstract purposes which are not charitable (‘the purpose trust’)
- to enable charitable objects to be carried out
- as part of commercial arrangements: e.g. to protect commercial lenders
About the Author
Alexandros is a director, heading our tax and legal services. He possesses considerable experience in advising clients to structure their international activities with emphasis on financial services. He has been involved in diverse projects covering tax planning, licensing of financial services companies, internal audit, compliance functions and regulatory issues.
Alexandros is qualified as a Chartered Accountant and holds a bachelor’s degree from the University of Nottingham. He is an adviser to Oneworld ltd for international tax, legal and financial services issues.
Oneworld ltd is a major fiduciary and business services group with headquarters in Cyprus (EU member country) for 30 years and in Dubai over the last 10 years, and provides boutique and tailor made professional services including incorporation, fiduciary, administration, banking, accounting, corporate migration services, as well as setting up and administering private funds and trusts.
Oneworld’s Citizenship and Residency advisory desk provides citizenship and residency services around the globe.
There are no typical Oneworld clients. From dynamic young enterprises to global corporations, from high net worth individuals to their families and consultants. We serve them all. We are not just looking after their fortunes but their futures. We are not just their advisors, we are their partners. Which is why we are prominent in fiduciary, business and financial services.