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The Cyprus International Trust: Basic Features
For the purpose of attracting foreign investors to establish international trusts in Cyprus, the International Trusts Law 69(I)/1992 has been passed which deals with the regulation of international trusts. The Law is not a self-contained law on trusts but it builds on the existing Cyprus Trust Law which is based on the English law. (The English principles of Equity are applicable in Cyprus and the Cyprus Trustee Law Chapter 193 is based on the English Trustee Act 1925). The new law gave freedom of movement of funds and it removed certain doubts as to whether the existing legislation could cover arrangements such as those which are common in other jurisdictions. Especially the recent amendment of the Law by its amending law N. 20(I)/2012 brought by even more favourable conditions for international trusts. Cyprus trusts have definitely become increasingly popular vehicles for international tax planning and asset protection purposes.
A Cyprus International Trust is a trust created by a non-resident settlor for the benefit of non-resident beneficiaries. A trust can still qualify as an international trust for the purposes of the law even if the settlor, trustee or the beneficiaries are companies or partnerships.
The following criteria must be satisfied for the creation of an International Trust in Cyprus:
a) The settlor must not be a permanent resident in Cyprus. According to the 2012 amendment, this is required only for the year preceding the formation of the trust, therefore the trust can benefit settlors who want to move to Cyprus.
b) No beneficiary other than a charity is a permanent residents in Cyprus. Again this is required only for the year preceding the formation of the trust and beneficiaries may afterwards move to Cyprus.
c) The trust property may now also include any immovable property situated in Cyprus.
d) There must be at least one trustee resident in Cyprus at all times.
The new law confirms the validity of a trust created by any person who is full of age and of sound mind regardless of any provisions relating to inheritance or succession of the new law of Cyprus or the law of any other country. The International Trust is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors unless and to extend that the creditors can show that the trust was made with the intent to defraud them. The burden of proof of such intent les with the creditors and an action against the trustees to avoid the trust, on grounds of fraud, must be brought within two years from the date when the relevant transfer of assets is made to the trust.
The duration of the trust may continue until the one hundredth anniversary from the date on which it came into existence and accumulation may continue for the duration of the trust. Purpose and charitable trusts may carry on indefinitely.
Change of governing law
The possibility of changing the law governing an international trust is expressly provided for in the new law. It allows a Cyprus trust governed by Cyprus law to be changed to a foreign law trust and permits a foreign trust to adopt Cyprus law if such a change is recognized by the law of the country concerned. This feature explicitly provides for flexibility in the re-domiciliation of an international trust if the circumstances so require.
The law states that the settlors, trustees and beneficiaries should not disclose information to third parties relating to international trusts, unless a Cyprus Court orders that such information be disclosed. Moreover, there is no requirement to publish the financial results of an international trust. The Deed of the Trust is private to the parties concerned whereas when a person dies his Will becomes open to the public inspection in many overseas jurisdictions.
Despite their public confidentiality, trusts must nevertheless be registered by the person establishing the trust to the Trusts Registers maintained by the Competent Authorities, which according to the person establishing the trust will be the Cyprus Bar Association, the Cyprus Securities and Exchange Commission or the Institute of Certified Public Accountants of Cyprus. The Trusts Registers maintained by the Competent Authorities are not publicly available but are available for inspection by other Competent Authorities, if requested.
Types of trusts
It is possible for a settlor in Cyprus to establish a discretionary trust based on Cap. 193, which states that the powers of trustees can be expanded by the settlor in the trust deed. A discretionary trust grants the trustees discretion to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may also be given discretion in deciding when to pay any money to any of the members of the class. Thus, none of the beneficiaries has any right to be paid any money out of the trust fund, since the trustee may exercise his discretion and postpone any such payment or even decide not to pay a particular beneficiary at all. The settlor may also prepare a “letter of wishes” on any matters concerning the trust. Other trusts including fixed trusts, combinations of a fixed and a discretionary trust, trading trusts, purpose trusts etc are all possible under the Cyprus International Trust Law.
Taxation of the Cyprus International Trust
The income and gains of an international trust derived or deemed to be derived from sources outside Cyprus is exempt from all kinds of tax in Cyprus and no estate duty is chargeable in respect of assets belonging to an international trust. The only charge which will be payable on to the revenue in Cyprus in respect of an international trust is a once off amount of 430 Euros in the form of stamp duty on the instrument creating the trust. If the trust money is placed on deposit with a local bank in Cyprus, the interest earned is exempt, because interest earned on foreign capital imported from abroad and deposited with a bank in Cyprus is exempt. Interest on deposits with Cyprus offshore banking units or with any bank around the world is also exempt, as it is not considered as income accruing in, derived from or received in Cyprus.
There are no stamp duties on the settlement of property in a Cyprus trust. A stamp duty of 430 Euros is payable on the formation of an international trust. A trust can be established within a few days and the cost of creating the trust will vary, according to the complexities involved, from 500 Euros to 3000 Euros. The annual cost of administering the trust depends on the work involved and the time spent. The fee can at special circumstances be calculated as a percentage of the trust property being administered.