The International Trust Law (No. 69/1992) legislation facilitates the formation and administration of an international trust. The law built on the existing Cyprus trust legislation of 1995 (The Trustees Law, CAP. 193). The amendment of Cyprus trust legislation introduces innovative provisions and provides considerable incentives for the establishment of trusts in Cyprus. Furthermore, Cyprus becomes an attractive centre for international trusts. As a result, new investment opportunities have emerged.
Trust is defined as a legal relationship created when an individual (the “Settlor”) places assets under the responsibility and control of an individual (the “Trustee”) for the benefit of some other person or people (the “Beneficiaries”) or for a particular purpose. That is to say, the trustee has the power and is obliged to act for the beneficiaries. According to the Clause 2 of the Cyprus International Trust Law, the Settlor and the Beneficiaries must not be residents of the Republic of Cyprus. However, at least one of the trustees must be a permanent resident of the Republic of Cyprus. It should be underlined that a Cyprus offshore company has the power to act as a trustee.
The provisions of the Clause 2 ensures the jurisdiction of the Cyprus Courts over the trust.
As a result of the 2012 amendment of the Cyprus International Trust Law, there are almost no limits on the duration of the Trust and trust property may include real estate in Cyprus.
There are different types of trusts. Each type of trust serves different needs. Among the most popular are the discretionary trusts, the fixed trusts, the protective trusts, purpose trusts, charitable trusts and the trade trusts.
- The discretionary trusts enable trustees to determine the allocation of the income and capital according to his or her discretion. International trusts belong to the category of discretionary trusts. In other words, discretionary trusts embed a degree of flexibility.
- The fixed trust are not as flexible as the discretionary trusts. In the case of the fixed trusts, there are restrictions regarding the distribution of the income and the capital. The trustees have not any discretion regarding the way they will distribute the income or capital of the Trust. Beneficiaries acquire the income from the whole or fixed shares of the trust fund that is set in advance.
- Protective Trusts protect the beneficial interest of individuals who are not able to regulate their own affairs.
- Purpose Trust may assist in corporate offshore planning. They are usually used to accumulate business profits for general business purposes rather than for any particular group of individuals.
- Charitable trusts have as main goals the achievement of one or more of the following goals: the relief of poverty, the advancement of education, the advancement of religion and other purposes beneficial to the public in general.
- In the case of the trade trusts the trustee is a limited liability company that has the power to manage the operations of a business and the trusts have trading functions and employs people to manage its business operations.
Advantages of Cyprus International Trusts:
- Duration: an international trust may last for up to 100 years. In the case of charitable or purpose trust then the duration is unlimited.
- Confidentiality: Based on the Fiduciary Law, there is no requirement for the disclosure of the names of the Settlor, the Beneficiaries or the Protector. Nonetheless, the Trustee is obliged to give the necessary information to the Supervision Body. The name of the Trust, the date of the establishment, the date of termination, the name and the address of the Trustee are kept on a confidential basis.
- Flexibility: Cyprus Law enables the removal of a trust from its jurisdictions and vice versa. That is to say, it is provided the necessary flexibility whether a change of circumstances may necessitate this kind of transfer, for fiscal or other reasons.
- Accumulation of Income: The Cyprus Law allows trust income to be accumulated through the duration of the trust.
- Power to alter the applicable law of an International Trust: This option is found in the majority of modern offshore trust laws. Precisely, it allows the Cyprus Law Trust to be altered to a foreign law. On the other hand, it enables a foreign trust to adopt the Cyprus Law.
- Revocability: The trust can be cancelled at any time.
- Taxation of International Trusts: International Trusts are exempt from taxation in Cyprus. The only tax duty is a Fixed Stamp Duty of €430 that is paid on the date of trust creation. Specifically if the beneficiary is not a tax resident of Cyprus, then the income and profits of International Trust coming from sources outside Cyprus are not taxed. In case, the beneficiary is a tax resident of Cyprus the income and profits of an International Trust coming from sources inside and outside Cyprus are taxed in Cyprus. International Trusts do not dependent on Estate Duty in Cyprus. Finally, the income of the trust is not taxable in Cyprus even in case the settlor is a beneficiary, under the condition that the beneficiary is not a resident in Cyprus, and the income comes from sources outside Cyprus.
- In the case of International Trusts, registration under the provisions of any Cyprus law is not compulsory.
How to establish a Cyprus International Trust:
Another great advantage of Cyprus is the limited bureaucratic procedure.
- The necessary trust details that will forward the preparation of the trust: settlor’s name and address, beneficiaries’ names and addresses, names and addresses of trustees and trust property.
- A letter of wishes written by the settlor in which he or she will help the trustees to execute the wishes of the settlor. Our legal team may assist you to prepare a letter of wishes.
- Preparation and approval of a Trust Deed.
- Once the settlor approves and signs the Trust Deed, the Trust becomes totally applicable.
Cyprus International Trust Law establishes the island as a major trust centre within the EU and internationally. Some other substantial advantages of the Cyprus Trust Law are the asset protection, adequate management of family wealth and succession planning.
Michael Chambers & Co. LLC’s is able to assist you in any matter related to International Trusts, asset protection and succession planning. If you wish to contact one of our lawyers, please contact us.