Cyprus International Trusts

Introduction

Cyprus offers two types of express trusts. The first is the common law express trust and the second is the Cyprus International Trust which is a type of express trust with specific characteristics in statute that make it more attractive for international tax and estate planning purposes. This guide offers a brief introduction to Cyprus International Trusts.

Use of Cyprus International Trusts

Cyprus International Trusts are typically used in estate and tax planning, including in pre-immigration situations. When properly used, trusts are an excellent tool for asset protection and confidentiality and are sometimes necessary for safety in high-risk occupations, protecting wealth from creditors, flexibly structuring investments or for providing for one’s family needs in the future.

Benefits of Cyprus International Trust

There are three major benefits for Cyprus International Trusts: The first is their asset protection features, the second the ability of the Settlor to reserve management and other powers in relation to the Trust and the third is the attractive taxation regime.

1. Asset Protection and Confidentiality

A very important aspect of the Cyprus International Trusts is the two-year limitation period for all claims against the creation of the Trust or the transfer of assets to the Trust and only on the ground of proving an intention to defraud pre-existing creditors. Time starts counting on the date of transferring the assets irrespective of whether the creditors had notice of the transfer or not. The onus of proving the intention to defraud creditors is on the creditors themselves. In addition, the Law imposes an obligation of confidentiality on the Trustee/s, Protector and professionals related to the Trust and also provides a presumption of irrevocability for the Trust. Other features of common law express trust such as the existence of strict fiduciary duties that are unaffected by the Law.

2. Taxation

For non-resident Beneficiaries, the tax is 0% for income arising outside Cyprus, whereas normal tax rates apply for income created in Cyprus. However, it should be noted that amongst other benefits, income created from dividends and interest is taxed at 0%. Cyprus non-domiciled tax resident Beneficiaries are taxed on the normal rates of taxation but excluding income created from dividends and interest which is tax-free. (Please see our taxation guide for more details)

3. Settlor reserved powers

The Cyprus International Trusts Law allows the Settlor to reserve extensive powers in the control of the Trust and the Trustees. The Law specifically excludes an intention to defraud creditors (and similarly to create a sham trust) if the Settlor has reserved any or all of the following powers, which are an indicative list of those provided by the Law. The Settlor can reserve amongst other the following powers:

-To revoke or amend the trust as well any related trusts and powers. -To allocate distribute or dispose of income or capital or issue such directions to the Trustees. -To add remove or replace Trustees Protector or Beneficiary. -To exercise the powers of a director or officer of a company controlled by the Trust or order the Trustees to do so. -To direct the Trustees as to the purchase sale financing and security over property. -To require any decisions of the Trustee to have the pre-approval of the Settlor or other person nominated by the Settlor.

The Trustee is not in breach of trust when acting in accordance to instructions received from the Settlor where he/she has reserved any of the aforementioned powers. As a general note, Settlors should reserve powers wisely in order to avoid the risk of being forced by a foreign Court or authority to use them in a specified manner (e.g. pay an ex-wife, other creditors or tax). In addition, proper drafting is necessary in order to address the aforementioned risk.

The requirements for the creation of a Cyprus International Trust are the following:

-The Settlor was not resident in Cyprus for the year preceding the creation of the Trust. -At least one of the Trustees (or the single Trustee) is a Cypriot resident. -The Beneficiary was not resident in Cyprus for the year preceding the creation of the Trust.

Note: The above information should only be used as a general guide. Legal advice should be sought for the specific matter in question.