The main legal framework governing trusts in Cyprus is a combination of English Law i.e. the Principles of Equity and Statute Law i.e. The Trustees Law of Cyprus (Cap 193), which, is modelled on the English Trustee Act of 1925 and the International Trusts Law of Cyprus (Law 69(I) of 1992 as amended by Law 20(I)/2012), making Cyprus one of the most competitive jurisdictions to set up such a Trust.
WHAT IS A TRUST
The trust is an instrument where the person who creates the trust (the “Settlor”) appoints another person or persons (the “Trustees”) to hold property of the Settlor (the “Trust Property”) for the benefit of others (the “Beneficiaries”). Under such a deed, the Trustee becomes the legal owner of the Trust Property whereas the Beneficiaries become its equitable owners.
The trust can be created at a time where the Settlor is alive or on his death (for example through a testamentary disposition). In the latter scenario, inheritance laws are applicable. Here we are dealing only with Trusts created during the life of the Settlor.
WHAT IS A CYPRUS INTERNATIONAL TRUST (“CIT”)
The creator of a CIT i.e. the Settlor and the Beneficiaries must not be tax residents in Cyprus during the year preceeding the year of creating a CIT (they may become tax residents subsequently)
USES OF THE CYPRUS INTERNATIONAL TRUST
BENEFITS OF THE CYPRUS INTERNATIONAL TRUST
Difficult to Challenge
There is a two-year limitation period for challenging a CIT (or challenging the transfer of assets to the CIT) and the only reason it can be challenged is for defrauding creditors; the burden of proof being on the creditors to prove that the CIT (or the transfer of assets to the Trust) was made with the intent to defraud them.
Secondly, the laws of succession applicable in any country (including court orders or decisions or Governmental Authorities) will not affect the validity of a CIT or the transfer of property to the Trustee of a CIT.
Law Governing the Cyprus International Trust
If the law chosen to govern the CIT is Cyprus law, then as a matter of public policy the provisions in the CIT will be upheld regardless of conflicting provisions in the laws of Cyprus or laws of other jurisdictions. For this reason, any inheritance laws in any other jurisdiction will not be applied.
Flexibility of the Trust
The Settlor (provided this is expressed in the instrument) can reserve powers, which include the power to amend the trust, appoint or remove trustees, protectors or enforcers, or change the law governing the trust.
It should be noted that amendments require the approval of the court.
Under our law, the Trustees of a CIT have an obligation not to disclose information or documents unless ordered to do so by the court or are required by law (For example the Trustee must register the Beneficiaries for tax purposes). What is required however is for the trust to be registered at the Trusts Registry for as long as the trust is governed by Cyprus Law. This registry is not available to the public for inspection but can only be inspected by the Competent Authorities.
Divesting of Personal Assets
An individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve this by transferring them to an International Trust created in Cyprus.
Individuals moving to a high tax country may obtain fiscal advantages in their new country by placing funds in an International Trust created in Cyprus.
Investing in Business Overseas
An individual, who wishes to invest in business overseas but wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up an International Trust in Cyprus to invest in overseas business.
Investment Holding Company
A trust can be used in one country to own an underlying investment holding company in another. This type of tax planning device has many advantages in providing the maximum possible protection for both settlor and beneficially alike.
An individual with assets outside his country of residence and whose country of residence may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to an International Trust created in Cyprus.
Global Estate Planning
An individual, through the use of a trust can arrange to be succeeded in inheritance by persons who due to the legislation of the individual’s country would otherwise be excluded from the inheritance.