Cyprus International Trusts very much follow the way UK trusts operate. A trust is legally defined as a relationship by a person (the Settlor) who places assets under the control of the Trustee for the benefit of a third party (the Beneficiary). These assets are separate and do not form part of the Trustee's own estate. The title of the trust assets stands in the name of the Trustee and the Trustee is empowered to manage the assets held in trust in accordance with the terms of the trust agreement. The Trustee can also be a Beneficiary. A Trust could have fixed or unlimited duration.
A Cyprus International Trust is a Trust whereby the following are met:
A resident has the meaning assigned to it by the Income Tax Law, meaning either a person residing in the Republic for more than One Hundred Eighty Three (183) days a calendar year, or a legal entity that its management and control are exercised in the Republic.
A person wishing to establish a Cyprus based trust now has the following options:
The recent amendments have reinforced further the advantages offered by the formation of a Cyprus International Trust. The key features of the recent amendments relate to changes concerning residency provisions (section 2 of the 1992 Law), the Settlor' s (addition of new section 4a to the 2012 amendment) and the Trustee's powers (section 8 of the 1992 Law), the trust's duration, (section 5 of the 1992 Law), the applicable law, charitable trusts (amended section 7 of the 1992 Law) and property ownership.
The new changes in more detail:
The new changes are envisaged to work positively for those seeking to invest in Cyprus both in relation to investing in a Cyprus company and in Cyprus real estate.
More specifically for those seeking advise on which type of trust is suitable for their investment, the following are provided as a guidance:
A Discretionary Trust is a trust whereby the Trustees have “discretion” about how to use the trust's income and about how to distribute the trust's capital. A Discretionary Trust is used in those cases whereby there is a need to protect the beneficiaries from taxation, as in that case the beneficiaries have no legal right on the trust until the trust funds are distributed to them by the Trustees.
Similarly, where there is a need to protect beneficiaries from any creditors in the event of bankruptcy, as through a Discretionary Trust the beneficiaries will have only contingent interest in the trust fund.
A Fixed Trust is usually set up as a way of preventing the Trustees from using their full powers in the way assets are distributed to the Beneficiaries as in that case the Trustees will have to follow the terms of the Trust.
A Purpose Trust is set up in order to advance a specific purpose. It is a trust that has no beneficiaries as it is usually set up for a charitable purpose. A purpose Trust can be executed by the Settlor, his personal representatives or by an enforcer.
An Accumulation and Maintenance Trust is usually set up in those cases whereby assets are needed to be held on behalf of someone until a certain future event will take place, such as a child reaching adulthood or a person getting married.
There are no formalities in setting up a Cyprus International Trust and it can be done simply through a Deed or by a will.
Confidentiality is important and is ensured in the formation of a Cyprus International Trust (section 11 of the 1992 Law), except by Court Order concerning the disclosure of information that is material to the outcome of civil or criminal proceedings.
The Deed of Trust is a document private to the individuals concerned. That means that the names of the persons referred to in the Trust are not disclosed to any state authority.
Also, a will through a trust is not open to public for inspection. That offers a strong advantage in comparison to jurisdictions where a will becomes open to public for inspection.
Moreover, confidentiality is safeguarded by the fact that there is no requirement to publish the results of an International Trust.
Trust assets are protected in the event of a bankruptcy or a liquidation by the Settlor, as no claim can be raised by the creditors, unless it is proven in Court that the Trust was created with intention to defraud. The burden of proof lies with the creditors.
Without prejudice to the provisions of Council Regulation (EC) No. 44/2001, Cyprus Courts have jurisdiction in relation to a Cyprus International Trust in the following cases:
Where a choice as to the applicable law has not been made, the law with which the Trust has the closest link is applied. This is usually considered to be where the control of the Trust is exercised, where the Trust assets are located, the Trustee's place of residence, the purposes of the Trust are and where these will be implemented.
A Trust established in Cyprus can be transferred to another jurisdiction and vice versa. That is particularly beneficial in a case of a change of circumstances where for example tax reasons would demand such action.
The Trustee, the Beneficiary or the Protector can lodge to the Courts an application in relation to any matters concerning a Cyprus Trust and the Courts have powers to issue any order in relation to any aspect of the Trust.
A foreign Trust is governed by the laws of the country where it has been set up. A foreign Trust is not enforceable in the Republic if it is deemed by the Courts to be against the public interest.
The new amendments of 2012 apply to all International Trusts irrespectively of the time they were set up unless they are inconsistent with the provisions of the Amended law. Any previously valid transfer or disposal is not being affected by the new amendments.
There is no capital gains tax on the disposal of assets of a Cyprus International Trust and there is no withholding tax on dividends paid out by a Cyprus trust.
The Trustee is always under the obligation to comply with Anti-Money Laundering legislation, but the application of such legislation does not give rise to any need for disclosure of the necessary documents to the authorities, save for when a court or administrative order is issued for this purpose.
A Cyprus International Trust may be suitable in all those cases where a beneficial tax structure is required or where there is a need to safeguard assets.
Some practical examples include the following scenarios:
A Cyprus International Trust is revocable only if that is specifically expressed in the instrument of the Trust.
Stamp duty is payable upon the set up of a Cyprus International Trust and that currently is set at EURO430. We need to emphasise that the Cyprus Trust is valid even if this fee is not paid and that the payment of this fee must be paid only if any person is intending to rely upon the contents of the Trust document in Court.