07-12-2012

Cyprus International Trusts

Authors

  • Christiana Aristidou, Attorney at law
    Partner at Democritos Aristidou & Co Law Firm
    Andreas Hadjioannou, Director, BA (Hons), MSc., Fiduserve Management Ltd

Background, Legislation and the Competitive Advantages of Cyprus

Originating from the English law of Equity, the Trust is a widely used instrument in common Law jurisdictions such as Cyprus. Through the years and through statutory amendments, the legislation in Cyprus has been modernized to ensure that Trusts remain to the forefront of estate planning and succession tools available to practitioners and advisors for the benefit of their Clients. The uses of Trusts range from the traditional probate avoidance, succession planning, conveyance of assets between generations, asset protection and privacy, to the more ‘modern’ uses as wealth management tools, as a result of the rapid globalization of the investment process and products, and the tremendous expansion to the investment options now available to Trustees. The original legislation in Cyprus was enacted in 1992 and it is known as the International Trusts Law (Law No. 69(1)/1992). This has been amended by the International Trusts (Amendment) Law of 2012, to bring the legislation in line with trends and development in the area of asset protection and in line with the needs of Investors/Estate Planners today. The amendment was necessary considering the growing number of new investment opportunities, investments practices and developments in International Trust legislation and practices. Combined with the other characteristics and strong points of Cyprus that have made it one of the most prominent International Financial Services Centers, the Cyprus International Trust is an instrument of great flexibility, offering settlors and beneficiaries the highest degree of protection and unmatched tax optimization structuring opportunities.

Residency and registration requirements

The settlor or the beneficiaries must not be a resident of the Republic in the year prior to the establishment of the trust. Here, the term “resident“ has the same meaning given to it under the various Income Tax laws of 2002 to 2011. At least one of the trustees must be a resident of the Republic for the whole duration of the trust. No Registration is required and there are no reporting requirements for Cyprus International Trusts. As a result, the names of the settlor, the trustee, the beneficiaries and the protector are not disclosed to any authority. The disclosure of any information relating to a Cyprus IT can be enforced only by a Court order, which must be based on evidence of fraud or criminal wrong- doing involving the Trust or one of the participants of the Trust. The above confidentially rules apply to Trustee Companies and also to Cyprus banks where the Trust may maintain its accounts.

Jurisdiction and Asset Protection

Any questions relating to the validity or the administration of a CIT or a disposition to a CIT will be determined by the laws of Cyprus without reference to the laws of any other jurisdiction. Furthermore, the law provides that a Trust or a disposition made to a Trust shall not be void or voidable in the event of the settlor’s bankruptcy or liquidation, or in the case of legal proceedings against the settlors by creditors, unless it can be proven that the trust was created with the intend to defraud the creditors of the settlor at the time when the payment or the transfer of the assets was made to the Trust. Also, a claim in relation to an asset transfer to or disposition by the Trust, can be submitted in court only within a two year period from the relevant date of transfer or disposition. This renders the CIT a formidable asset protection instrument. There is no limitation to the duration of a CIT.

Settlor Powers

The settlor has a number of rights, interests and powers which, if exercised prudently, do not affect the validity of a trust. It should be noted here that a settlor must use these rights and powers with due care so as not to overwrite the statutory and fiduciary role and duties of the trustee, the result of which would be the creation of unwanted claims by tax authorities of the settlor’s jurisdiction regarding the effective management of the trust and its assets, thereby invalidating the trust. Some of the rights and powers granted to settlors under the Law include the following:

  • The power to revoke, vary or amend the terms of a trust or any trusts or powers arising under it;
  • The power to advance, appoint, pay or otherwise apply income or capital of the trust property or to give directions for the making of such advancement, appointment, payment or application;
  • The power to act as, or give binding directions as to the appointment or removal of, a director or officer of any company wholly or partly owned by the trust;
  • The power to give binding directions to the trustee in connection with the purchase, retention, sale, management, lending, pledging or charging of the trust property or the exercise of any powers or rights arising from such property;
  • The power to appoint or remove any trustee, enforcer, protector or beneficiary;
  • The power to appoint or remove any investment manager or investment adviser;
  • The power to change the proper law of the trust or the forum of administration of the trust;
  • The power to restrict the exercise of any powers or discretions of a trustee by requiring that they shall only be exercisable with the consent of the settlor or any other person specified in the terms of the trust.

A trustee who acts in accordance with the exercise of the above powers is not deemed to be acting in breach of trust.

Investment Powers

The Trustees may exercise their investment powers as if they were the owners of the assets, in effect allowing them to invest in a very broad range of investments. The investments may include any movable or immovable property, including immovable property situated in Cyprus and the investment in shares of Cyprus private limited companies. In the context of the network of double tax treaties Cyprus has in place, this offers the opportunity to have an optimized structure both from a tax point of view and also from an asset protection point of view.

Charitable Trusts

The Law provides that an International Trust may be created as a charitable trust and includes a broad range of purposes which may be considered as charitable.

Taxation

Cyprus International Trusts enjoy significant tax benefits. The income and profits of a Trust derived or deemed to be derived from a source outside of Cyprus are not subject to any taxes in Cyprus, including income taxes, capital gain taxes, special defense contribution, estate duty, etc. It should also be noted that as a result of the specific jurisdictional provisions in the Law, no Law, Cypriot or foreign, relating to succession or inheritance, can be applied to the Trust or to its income and profits. Only income generated from within the Republic or apportioned to a resident beneficiary shall be subject to the taxation rules of the Republic.

Our Services as Trustees

Fiduserve Management Ltd and Democritos Aristidou & Co. Law firm are leading Trust Practitioners with the resources and knowledge to advise clients in relation to the formation, management and administration of Cyprus International Trusts. As Trustees, we will exercise our statutory and fiduciary duty of care towards the Trust’s beneficiaries. At the same time, we will operate within the limits set by the settlor and passed on to us in his letter of wishes specifying the objectives of the trust and the distributions to the beneficiaries. The objectives set out by the settlor will form our guidelines for the effective management, preservation and enhancement of the Trust’s assets. As Trustees, we will gain in-depth knowledge of the Trust’s Objectives, enabling us to exercise independent control over the management of the Trust’s assets. The decision making in relation to the transfer and acquisition of assets, the distribution of funds to the beneficiaries, and other trustee functions, lies with us and it is exercised with the statutory duty of care and in line with the Settlor’s wishes at the creation of the Trust. Our approach is to ensure that the investments of the Trust are always stable, sufficiently liquid and diversified, striving for the optimum balance between our statutory duty of care and investment powers. We will work with the settlor to draft a customized deed of Trust incorporating the settlor’s wishes in areas such as the beneficiaries and the distributions to them, the investments of the trust, the management of the companies wholly or partially owned by the trust, etc. We will maintain proper records for each addition or disposal to the trust, for each apportionment of income to a beneficiary, for each addition or removal of beneficiaries, bank account information, and all other information relevant to the trust. We will ensure that income is apportioned correctly to the entitled beneficiaries who will be kept sufficiently informed. We will also arrange for the preparation and audit of the trust’s annual financial statements.

More in this category: « Succession-Wills
GREEK LAW DIGEST Web Portal of the Republic of Cyprus CYPRUS INVEST PROMOTION AGENCY
ΝΟΜΙΚΗ ΒΙΒΛΙΟΘΗΚΗ ΚΥΠΡΙΑΚΟ ΕΜΠΟΡΙΚΟ ΚΑΙ ΒΙΟΜΗΧΑΝΙΚΟ ΕΠΙΜΕΛΗΤΗΡΙΟ CYPRUS BAR ASSOCIATION
     

 

Login

Log in to your account or