Trust Legislation In Cyprus

Cyprus International Trusts provide a variety of possibilities for international tax planing and estate planning. They are exempt from capital gains tax, income tax, estate duty and can hold shares in a Cyprus company without a tax
liability on dividends received, reports Oliver Taylor.

Cyprus is a nation known for its relaxed lifestyle, stable government and high-income economy, also benefiting from its reputation as a prominent fiscal international centre, tourism destination and business hub in the Mediterranean. Forming a trust in Cyprus can be an effective strategy for high net worth individuals and families to ensure their assets are appropriately used to support current and future generations. This may be for charitable purposes or to hold real estate for a minor until they reach adulthood, and the structure offers a longstanding, proven method through which the implementation of precise and effective succession planning can be done. 
 

Legislation governing the establishment of trusts in Cyprus is based on the English system and is a combination of the English Principles of Equity and Statute Law. Cyprus International Trusts are regulated by the International Trusts Law 69(I)/1992 and the law on the Cyprus International Trust (CIT) was amended in 2012 to make Cyprus one of the premier jurisdictions to establish such an entity. The Cyprus International Trust may be used to provide for one’s family, for charitable or for commercial purposes. Where the commercial use of the structure is concerned, this can be used as to provide for employees’ pensions, as part of commercial arrangements to protect commercial lenders, or as an investment vehicle or for other non-charitable purposes. Where family matters are concerned, the Cyprus International Trust may be used to discreetly hold property for the benefit of others, for minors and/or their successors, to protect property allocated to a married couple so that it is ‘tied up’ in the event of the future breakdown of their marriage, as well as to protect assets against inheritors who may otherwise spend frivolously. CITs are widely employed in what may be loosely termed ‘family situations’.
 

WHAT CONSTITUTES A TRUST IN CYPRUS?

Wealth can take awhile to accumulate and without a disciplined approach and robust measures, can evaporate rapidly. The numerable factors that may negatively affect a family’s assts include business challenges, an increase in taxation, risky investment decisions, political changes, and family disputes. A trust can be a tax-efficient structure, reducing unnecessary costs and assisting in the more concentrated, organic growth of wealth.  Essentially, a trust places protective structures around wealth, making sure that assets are handled carefully by independent trustees. A well-structured trust will defend wealth against unfounded claims that may arise from creditors or family disputes.  A trust is a a settlement or legal agreement affecting at least there parties which include: 
 

The Trustee: The person who agrees to hold the trust in his/her/its name for the benefit of the Beneficiary, under the terms of the trust. They are also responsible for managing the property.
 

The Settlor: The person (which can be legal or natural) who creates the trust. He or she is the owner of the property to be divested into a trust.

The Beneficiary/Beneficiaries: The companies, individuals or any other entities receiving the benefits of the trust property. 
 

The Protector: Appointing a protector is optional. They consist of the companies or individuals that are appointed by the Settlor to protect the trust assets, who have the right to control the trustee, but do not have the right to intervene in trustee obligations and undertakings. The protector even has the right to dismiss a trustee. 
 

CYPRUS INTERNATIONAL TRUSTS

With a legal framework rooted in English common law, Cyprus trust legislation combines many of the key features of other top-tier trust jurisdictions worldwide, with Cyprus International Trusts (CITs) becoming an increasingly popular vehicle among international HNWIs and families for the purposes of asset protection, tax and succession planning. The benefits of the Cyprus International Trusts include: 
 

Family Wealth Management - The Cyprus International Trust is an ideal vehicle for HNWIs with extended or complicated family structures. Trusts may exist for the duration of a lifetime of a natural person, plus an additional 21 years.
 

Confidentiality and Robustness - Under Cyprus legislation, Trustees of a Cyprus International Trust have a legal obligation not to disclose information or documents, unless ordered to do so by a court or a requirement by law. There is also a two-year limitation period on challenging a Cyprus International Trust, or for challenging the transfer of assets to a Cyprus International Trust. Moreover, laws of succession applicable in any country (including court orders, decisions or government authorities) shall not affect the validity of a Cyprus International Trust or the transfer of property to the Trustee of a Cyprus International Trust. 
 

Asset Protection - A Cyprus International Trust can be used to protect assets against risks, creditors, future claims by governments, as future protection from claims of spouses or former spouses, in addition to protecting assets against future claims in tort. 
 

Taxation - Cyprus abolished inheritance tax on 1st January 2000, with all Cyprus citizens as well as foreigners domiciled in the country and/or owing property there, being charged zero tax on the estate they leave behind for their loved ones. Beneficiaries who are non-tax residents of Cyprus are taxed only on income sourced from Cyprus, income, gains and profits from non-Cyprus sources are exempt from taxes in Cyprus.

When opening an account on behalf of a trust, the Trustee, the Settlor, the Protector, and the Beneficiaries can expect to be legally subject to standard due diligence and banking compliance procedures. However, in Cyprus, there are no reporting requirements for Cyprus International Trusts. In order to create a valid Cyprus International Trust, the following conditions must be met: 
 

>The Settlor (which can be a legal or a natural person) must not be a permanent resident of Cyprus during the year preceding the creation of the trust.
 

>The Beneficiaries (which can be legal or natural persons) must not be residents of Cyprus during the year preceding creation of the trust.

>At least one of the Trustees should be a permanent resident of Cyprus, for the duration of the trust. 
 

>There is a requirement that €430 be paid in stamp duty, in addition to a small €30 registration fee.
 

In addition to this, three certainties must also be present, consisting of: 
 

Certainty of Objects - The identity of all the beneficiaries of the trust must be ascertained, or ascertainable at the time of establishing the trust.

Certainty of Intention - Evidence of expression in tension of the settlor to create the trust, as evidenced by the Trust Deed

Certainty of Subject Matter - The trust property has to be readily identifiable, otherwise the trust is void for uncertainty. 
 

The Settlor shall be of sound mind and of legal age. The trust property may also include all kinds of assets situated in Cyprus or anywhere in the world. The types of Cyprus International Trusts that may be chosen, include Private Trusts, Express Private Trusts, Constructive Trusts, Implied Trusts, Charitable Trusts, Fixed Trusts, Resulting Trusts, and Discretionary Trusts. 
 

THE CYPRUS TRUST REGISTRY

Legislation requires that resident trustees register all Cyprus International Trusts with one of three competent authorities such as the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC), or with the Cyprus Bar Association. The trust registries maintained by supervising authorities will be responsible for possessing the following in formation about the trusts; name and address of the trustee, name of the trust, date and creation of the trust, date of any change in the law governing the trust to or from Cyprus Law (where applicable), as well as the date of termination of the trust. The identities of the trust Settlor and Beneficiaries however, are not revealed in the Cyprus Trust Registry.   EG