International Trusts in Cyprus

 

To fully accomplish its targets towards attracting foreign investors to create international trusts, Cyprus enacted in July 1992 the International Trust Law (No. 69(I) of 1992, “ITL”) which modernizes the existing statute (The Trustees Law Chapter 193) and regulates international trusts particularly designed for non-resident settlors. Legally, that was easy since the doctrines of equity which form the basis of trust law, have long been part of the Cyprus legal system as Cyprus had been an ex British Colony.

 

Significant provisions of the Cyprus International Trust Law afford some distinctive opportunities for an extensive range of investors in contrast with the other common-law international jurisdictions. Particularly, the law enables International Business Companies and International Business Partnerships to act as trustees to an International Trust.

 

  1. What qualifies a trust as an International Trust under the ITL?

Under section 2 of the Cyprus International Trusts Law, a trust qualifies for a Cyprus International Trust where:

 

  • The settlor is not a permanent resident of Cyprus;
  • At least one trustee is a permanent resident of Cyprus;
  • No beneficiaries (other than a charitable institution) are permanent residents of Cyprus; and
  • The trust property does not include any immovable property in Cyprus.

 

 

  1. How a trust is created?

A trust may be as simple or as complicated as the Settlor desires and may be created either by oral declaration or by written document. Subject to a stamp duty there are no particular formalities for the creation of a trust in Cyprus, except in relation to trusts created by will, whereby certain requirements have to be fulfilled. Trusts created during the lifetime of the settlor are almost always in writing and the document is called a “Trust Deed” or Instrument of Trust.

 

However, it must be noted that the trust must satisfy the well-established requirements of the three “certainties”, the so called certainty of intention, certainty of subject matter and certainty of objects. Explaining this, by the instrument purporting to create the trust, the settlor must manifest an intention to create a trust, the trust fund must be specified with reasonable certainty and the beneficiaries under the trust must be ascertainable.

 

There is no registration or reporting requirement for trusts established in Cyprus. The only authority to be informed of the creation of an International Trust is the Central Bank of Cyprus and only in cases where the International Trust owns shares in a Cyprus Company.

 

If the “Cypriot” trustee of the International Trust will be a Cyprus Company, in the case of non-EU equity participation, prior permission from the Central Bank of Cyprus must be obtained for the operation of the company under the Capital Movement Law ( 115(1)/2003).

 

 

 

  1. Where the trust fund is located?

Anywhere in the world (but not any immovable property in Cyprus)

 

Under section 7 of the Law, the trustees of an International Trust have wide powers of investment, which must be exercised with the prudence and diligence of a reasonable man.

 

  1. What the trust fund includes?

Any kind of assets movable, immovable, cash shares etc

 

  1. Validity of an International Trust
  • Asset Protection Planning and Forced Heirship

 

A settlor who transfers or who in any way disposes of assets to an international trust shall be considered as being capable of doing so, if at the time of such transfer such person is of full age and of sound mind according to the law of the country of which he is permanent resident. The transfer or disposition or the validity of the international trust will not be affected in any way by the law relating to inheritance or succession in force in the Republic or in any other country.

 

The International Trust is irrevocable unless a specific power of revocation is contained in it and cannot be set aside by the settlor’s creditors unless and to the extent that the creditors can show that the intention of making the trust was to defraud them. The burden of proof of such intent lies with the creditors.

Section 3 of the Law includes the most significant provision according to which the Cyprus trust can be used as an asset protection vehicle. Section 3 alongside with section 9 renders a Cyprus international trust immune from forced heirship and ‘claw-back’ rules. Persons who were born or whose father was born in one of the “self governing Dominions” or persons not domiciled or possessing immovable property in the Republic are exempt from the forced heirship rules.

 

  1. Presumption against avoidance of an international trust

If an international trust does not contain an express power of revocation it shall be deemed to be irrevocable by the settlor or his legal personal representatives notwithstanding that it is voluntary.

 

  1. Duration of International Trust

International trust may continue for up to 100 years from the date it came to existence and will then terminate if not terminated sooner pursuant to a relevant direction. Charitable or purpose trusts referred to in the law are excluded and can last indefinitely.

 

  1. Accumulation of income

A direction relating to the accumulation of income is valid for any period within the period of the duration of the trust.

 

  1. Variation of an International Trust by the Court

The persons referred to below may be able to apply to the Court for an order approving any arrangement which varies or revokes the terms of the International trust or enlarges or modifies the powers of management or administration of trustees:

 

(a)  any person incapacitated at law having directly or indirectly, an interest, whether vested or contingent, under an international trust, or

(b)  any person, whether ascertained or not, who may become entitled, directly or indirectly, to an interest under an international trust,or

(c)  any person unborn, or

(d)  any person in respect of an interest of his that may arise to him by reason of any discretionary power

 

Any person referred to in the paragraphs (a) to (d) above shall persuade the court that the projected arrangement shall be for the benefit of him without materially adversely affecting the rights of other interested parties.

 

The trustee or any beneficiary under the international trust may also apply to the Court for an order to confer upon the trustee a power to proceed with any transaction which is in the opinion of the Court expedient towards the better management or administration of the international trust in those instances in which such a power is not conferred upon the trustee by the trust instrument or by law.

 

  1. Confidentiality and Non-disclosure

Confidentiality is of paramount substance. Section 11 of the ITL prevents trustees, government or Central Bank officials from disclosing to anybody any information or documents in relation to:

 

  • the name of the settlor or any of the beneficiaries;
  • the trustee’s deliberations as to manner in which a power or discretion was exercised or a duty conferred or imposed;
  • the reason for any particular exercise of such power or discretion or performance of duty or the material upon which such reason had been or might have been based;
  • the exercise or proposed exercise of such power or discretion or the performance or proposed performance of such duty;
  • the accounts of the international trust.

 

However, a beneficiary is entitled to request from the trustees information about the accounts of the trust. Furthermore, the court may order the disclosure of information or documents in criminal or civil proceedings cases, where the disclosure is important.

  1. Relocation of International Trust

International Trusts Law permits the removal of an International Trust from Cyprus and vice versa, given that the following conditions exist:

 

  1. There must be a stipulation in the trust deed allowing such a change of jurisdiction;
  2. When a trust moves to another jurisdiction from Cyprus, Cyprus law requires that the new jurisdiction recognizes the validity of the trust and the respective rights of the beneficiaries;
  3. When a trust is to be moved from another jurisdiction, the move must be recognized by the laws of the jurisdiction it intends to leave and which had governed the trust previously. This can be useful in cases where an alteration in circumstances may cause such a transfer to be beneficial for fiscal or other reasons.
  1. Benefits relate to Cyprus International Trusts:
  • Income, gains and profits are exempted from income tax, capital gains tax, special contribution or any other taxes in Cyprus.
  • No law relating to inheritance or succession affects any transfer or disposition in favour of the trust in any way nor does it affect its validity.
  • No exchange control regulations
  • No estate duty shall be chargeable in respect of assets belonging to International Trust.
  • The same person can be the settlor, the trustee (through Cyprus IBC (offshore company), in which he/she can be the sole director and he/she can be the only beneficial owner of the shares and beneficiary.
  • An alien who creates an International Trust in Cyprus and retires in Cyprus is still exempt from tax if all the property settled and the income earned is abroad, even if he is a beneficiary
  • An International Trust may form a Cyprus international business company, partnership or branch and obtain the benefits available to them.
  • Dividends, interest or other income received by a Trust from a Cyprus international business company are neither taxable nor subject to any withholding tax.
  • An International Trust may carry out business in Cyprus subject of course to the laws of the country which are imposed on the beneficiaries and not on the trust itself.
  • There are no registering or reporting requirements of any nature in Cyprus for the International Trust.
  1. Saving of the existing laws

According to section 14 of the ITL, the Laws of the Republic applicable to trusts and to the transfer of assets to trusts in force prior to the commencement of this law shall continue in force and shall apply to international trusts except where they are inconsistent with or have been modified by the provisions of this law.

 

Additionally, it is also expressly provided by the law that the Laws and Regulations from time to time applicable to investments made in the Republic by non-permanent residents of the Republic shall also apply to any investments of an International Trust in the Republic.

 

  1. Final Note

Cyprus is an attractive place for direct investment and setting up. It can compare positively with most trust jurisdictions worldwide, and Cyprus International Trusts afford an especially proficient mean of organising and protecting the business and assets of the settlors worldwide.