The Cyprus International TrustThe International Trust Law was enacted in 1992 with the aim of providing incentives for the establishment and administration of Trusts in Cyprus by non-residents. This has enabled the creation of what we call 'International Trusts', that is, Trusts set up under the provisions of the International Trusts Law.
Trusts have been created for a number of reasons in an effort to minimise overall tax liability. The end result is the constant growth of a trust as a tool for international tax planning as well as a vehicle for business structuring and asset protection. Since 1992, when Cyprus enacted the International Trusts Law, Cyprus proved a favourable jurisdiction for the creation and establishment of International Trusts.
Concept and the Parties of the TrustA person being either an individual or a company ('the trustee') is required to hold and manage various assets ('the trust fund') in its name for the benefit of other persons ('the beneficiaries'). The composition of a Trust is made up from the following parties:
- The settlor - A settlor is a person who has put property into the trust. Property is normally put into the trust when it is created, but it can also be added at a later date. It can act as a beneficiary or a trustee but is not a permanent resident of Cyprus.
- The beneficiary - A beneficiary is anyone who benefits from the property held in the trust ('trust fund'). It can be either the settlor or the trustee and is not a permanent resident of Cyprus (charitable institutions are excluded).
- The trustee - Trustees are the legal owners of the trust property. They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used. At least one trustee is resident in Cyprus (a Cyprus IBC or a partnership).
- Trust Fund - the Trust property does not include any immovable property in Cyprus.
- The Protector - the person that can restrict the trustee from exercising key powers.
Advantages of Using a Cyprus International Trust
- Income, gains and profits arising overseas are exempted from income tax, capital gains tax or any other type of tax in Cyprus
- Dividends, interest or any other type of income received from a Trust by a Cyprus International Business Company are also exempted from income tax or withholding tax
- A Trust is not subject to estate duty in Cyprus
- A foreigner who creates a Cyprus International Trust and retires in Cyprus, is still exempt from tax if all the property settled and the income earned is abroad, even if he is a beneficiary
- Asset protection - (a) individuals can protect their assets from inheritance or capital gains tax and high inflation rates in their own country.
- (b) Unless it is proved that the Trust was established to defraud the creditors of the settlor, the trust shall not be void or voidable in case of any bankruptcy or liquidation of the settlor.
- (c) The individual may wish to divest his personal assets for fiscal or any other reasons.
- Estate Planning - an individual through the use of a Cyprus International Trust can arrange to be inherited by persons who due to the legislation of the individual's country, would otherwise be excluded from the inheritance (minors, mentally handicapped persons etc.)
- An individual can arrange for income received overseas to be remitted in the Cyprus International Trust
Other non-tax advantages may include:
- The same settlor can be the trustee (therefore the sole director and the beneficial shareholder) and also the beneficiary
- Cyprus International Trusts are not subject to exchange controls as well as bank deposits in Cyprus banks
- Confidentiality - No government or the Central Bank of Cyprus can disclose to anyone information regarding the various parties of the Trust
- Cyprus's favourable legal system and geographical position
- The presence of many reputable International Fund Management companies
- No reporting requirements for Trusts
Types of Trusts
- Discretionary Trust - Trustees of a discretionary trust generally have 'discretion' about how to use the income of the trust. They may be required to use any income for the benefit of particular beneficiaries, but the trustees can decide:
- how much is paid
- to which beneficiary or class of beneficiaries payments are made
- how often the payments are made
- what, if any, conditions to impose on the recipients.
- The trustees may, or may not, be allowed to 'accumulate' income within the trust for as long as the law allows rather than pass it to the beneficiaries. Income that has been accumulated becomes part of the capital of the trust.
- Fixed Trust - In a fixed trust, the entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion.
- Fixed and Discretionary Trust - A combination of a Fixed and Discretionary Trust.
- Trading Trust - A trading trust is simply a trust which trades or is in business. Because a trust is not a separate legal entity, in the same sense as a company, the business is actually undertaken in the names of the trustees of the trust, and it is often not apparent that the trustees are in fact acting as trustees of a trust.
- Purpose Trust - A purpose trust is a type of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind.
The above is intended to provide a brief guide only. It is essential that appropriate legal advice is obtained.