A trust is an arrangement between the settlor and an independent person, the trustee, whereby the settlor transfers property to the trustee, to hold, for an indefinite period as the case may be, for the benefit of the beneficiary. In order to set up a trust, a trust deed is required to be drafted and singed by the settlor and trustee, setting out the conditions under which the property will be held, administered and ultimately transferred by the trustee. A trust can appoint a protector, a person other than the trustee, to whom powers of any nature shall be granted by the trust deed, in order to protect the rights and interests of the beneficiary by overseeing the activities of the trustee and ensuring that the trustee is acting in the best interest of the beneficiary in all material times.
The International Trust Law no. 69 (I)/92 (CIT Law) together with the Trustees Law 1955, Cap 193 (Law) govern the establishment of trusts in Cyprus. The CIT Law was amended in 2012 modernising and significantly enhancing the asset protection features of CITs and permitting for the first time the holding by a CIT of immoveable property based in Cyprus.
Benefits of Cyprus International Trusts (CITs)
A CIT may last for an indefinite period, there are no life duration limitations unless otherwise provided by the trust deed.
A CIT is deemed to be irrevocable by the settlor unless otherwise provided in the trust deed.
Avoidance of forced heirship rules
Succession laws do not challenge or affect the validity of the transfer of the property to the trustee of the CIT.
The assets of the CIT are protected against potential claims. A CIT will not be void or voidable in the event of the settlor’s bankruptcy or liquidation. The CIT may be set aside by the settlor’s creditors (there is a two year limitation period from the date of transfer of the CIT property to file such action) if it is proven to the satisfaction of a Cypriot court that the trust was made by the settlor with the intent to defraud his/her creditors.
Wide investments capabilities
The trustee is able to invest trust funds in any kind of investments, the income is accumulated for the whole perpetuity period with no forced distributions.
Preservation of wealth
CITs are one of the most popular wealth management tools.
CITs are treated as tax transparent, hence are not subject to any form of Cyprus taxation provided the beneficiary/ries are not Cyprus tax residents (income tax), and the trust does not own/dispose immovable property situated in Cyprus (capital gains tax). In case the beneficiary/ries are Cyprus tax residents or even non-residents, they shall be subject to income tax in Cyprus for any income earned or deemed to be earned from sources within Cyprus, for example where the trust property includes Cyprus immovable property. The favourable Cyprus tax regime applicable to CITs has transformed them into effective tax planning vehicles, attracting many investors.
Government or other official are prohibited from disclosing any information or documents in connection with the trust property, trustees, settlor, and/or beneficiaries. Trustees of a CIT are also bound by confidentiality and cannot disclose any information in relation to the trust unless they are ordered by a Cypriot court or are required by law in certain circumstances.
Despite the existence of a registry, there is no actual registration of the CITs and this ensures confidentiality.
Assets can be added to the trust at any time, and the trust assets are separated from the settlor’s personally-owned assets.
The settlor has the right to reserve many powers including the powers, amongst others, to revoke or amend the trust, to instruct the trustee, to appoint or remove trustees, the protector or the enforcer, to change the law regulating the CIT or the place of its administration.
Consistent with EU and local anti-money laundering laws and regulations
This is a great advantage as there is no fear that CITs might be challenged on the grounds of non alignment with the laws therefore their enforceability is not threatened. Although consistent with these laws CITs have maintained a legal regime that offers asset protection and confidentiality to the highest degree.
Conditions for the formation of a CIT
- The settlor, whether a physical or legal person, cannot be a resident of Cyprus in the calendar year preceding the year of the creation of the trust;
- The beneficiary/ries, whether a physical or legal person, cannot be a resident of Cyprus in the calendar year preceding the year of the creation of the trust; and
- At least one trustee is, for the duration of the trust, a Cyprus tax resident.
Key concepts of CITs
- All matters in relation to a CIT are determined in accordance with Cyprus law and the Cyprus Courts have jurisdiction.
- The trustees’ powers and protectors’ duties are governed exclusively by Cyprus law.
- The Settlor shall choose the law that shall govern the CITs and where Cyprus Law is chosen to govern the CITs the provisions of the International Trusts laws of Cyprus apply without the threat of foreign conflicting legislation. In such case, the CITs are fully sheltered and protected from foreign judicial claims and the validity of the CIT is not affected or disputed in any matter by virtue of any provisions of any law in any jurisdiction which does not recognise the notion of trusts or is in conflict with the provisions of International Trusts laws of Cyprus.
There is a fixed stamp duty of €430 payable upon the creation of the CIT, and where there is a delay to stamp the trust deed there will be a late payment penalty, the amount of which depends on the length of the delay.
For more information about Harneys Fiduciary in Cyprus please see: www.harneysfid-cyprus.com