Cyprus has become a popular trust jurisdiction because of the following reasons:
• Short limitation period (of two years) for challenging a trust. Burden of proof is on the creditor;
• Flexibility in adopting a foreign law
• Low cost of establishment and administration
• Availability of competent professional trustees
• Ease of communication
• Favourable tax jurisdiction
• Confidentiality-non disclosure of information
In a Cyprus International Trust, the Settlor transfers the property/assets to a legal or physical person, called the “Trustee”, who holds the property for the benefit of the Beneficiary in accordance with the terms of the “Trust Deed”.
The following conditions must be met in order to have a Cyprus International Trust:
• the Settlor, must not be a resident of Cyprus during the calendar year, preceding the year of creation of the Trust;
• the beneficiaries, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the Trust;
• at least one of the Trustees must be an eligible resident of Cyprus.
It must be noted that one year subsequent to the creation of a Trust the beneficiaries and the settlors may relocate to Cyprus.
To ascertain whether the Settlor has created a valid Trust under Cypriot Law, one must examine whether or not the following “three certainties” exist:
Certainty of Intention – we must be able to demonstrate the Settlor’s express intention to create the trust;
Certainty of Subject Matter – the assets which will form the trust property must be readily identifiable and tangible;
Certainty of Objects – the identity of the beneficiaries must be clearly stated and sufficiently defined in cases where this involves as large group of people.
Types of Cyprus International Trusts
Express private trusts – The most common form of a Trust which is created by the Settlor expressly either by using a deed, in writing, by will and in some exceptional circumstances an oral statement could be seen as sufficient.
Fixed Trusts provide that the Beneficiaries shall only be entitled to the specified trust property which is indicated by the Settlor upon the creation of the Trust.
With Discretionary Trusts the Settlor has vested to the Trustees a discretion in regards to the sum each Beneficiary shall be entitled from the trust property.
Charitable trusts limited to using income as a charitable purpose.
Benefits of creating a Cyprus International Trust
• Income, gains and profits sourced from outside the Republic of Cyprus are exempt from Income Tax, Capital Gains Tax, the Special Defence Contribution or any other tax in Cyprus. These are only taxable when the beneficiary is a tax resident of the Republic of Cyprus. Where the beneficiaries are not tax residents of the Republic of Cyprus, they are taxed only on income sourced from within the Republic of Cyprus.
• Dividends, interest or royalties received by a Cyprus International Trust from a Cyprus company are not taxable and not subject to any withholding tax.
• There is no estate duty or inheritance tax in Cyprus.
• A trust in Cyprus is subject to strict confidentiality. Any information or documentation of a trust may only be disclosed subject to an order of a court.
• Registration of the Cyprus International Trust in the Trusts Registry is mandatory. The Trusts Register is not available to the public, but is available for inspection by the Competent Authorities such as the Cyprus Securities and Exchange Commission or to the Cyprus Bar Association or to the Cyprus Association of Certified Accountants. Such information will remain in the Trust Register for a term not exceeding 5 years after the termination of a trust and such trust register is not publicly available.
• There are no reporting requirements in the Republic of Cyprus for Cyprus International Trusts.
• When a creditor contemplates that the Settlor used the Cyprus International Trust to defraud him the burden of proof is upon the creditor to prove such a sham within 2 years of creation of the Cyprus International Trust. After the 2 year period the creditor will be barred from bringing an action against the trustees.
• With the creation of a Trust, the client can protect his assets against expropriation or
other potential claims brought against him by governments or creditors.
• The Cyprus International Trust can be used to shield assets against claims arising in tort or contract as a result of transactions entered into by the previous owner of the Trust property.
• The Trust is also a means for high net worth individuals to shield property from their spouses or former spouses.
There are no particular formalities for the creation of trusts and a trust need not be declared in writing. It is advisable, however, for trusts to be created in writing and be signed and witnessed. Stamp duty of €430 only is payable at the creation of an international trust.
According to the provisions of the International Trusts Law 1992 (as amended in 2012) all Trusts established, construed and governed by the Laws of Cyprus should be registered with the Cyprus Bar Association which establishes and keeps a Trust Register.
It is furthermore provided that the Competent Authorities may exchange information with each other for the purpose of carrying out their duties under the Fiduciaries Law and the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing Law.
Our team of lawyers stands ready to assist with the establishment and administration of the Trust and to provide legal advice as to any related matter thereof.