Cyprus International Trust and Trustee Services

A Cyprus International Trust (“CIT”) is an English common-law based vehicle to accommodate a client’s needs in relation to privacy and asset protection.  

It is utilized by high-net-worth individuals (HNWIs) globally in order to protect their assets, tax planning and structuring and wealth management. It offers confidentiality, protection and flexibility to non-Cyprus residents, in line with European Union law and the benefits of the attractive tax system of the Republic of Cyprus.

Cyprus is a full member of the European Union since 2004, and its legal system is heavily based on the English common law. It is a well-established international financial center with an array of tax advantages for the establishment, management and administration of CITs, making it an excellent choice for HNWIs from around the world.

In this guide we will present detailed information about CITs and the related Cyprus trusts law, and the tailor-made legal services Paris Mavronichis & Co LLC can provide.

Advantages of the Cyprus International Trust (CIT)

CITs are one of the most attractive vehicles for what may be loosely termed ‘family situations’ but also in commercial and business transactions and charitable and other purposes. The most common advantages of CIT are the following:

• Asset Protection – The main advantage of a CIT is the separation of the legal ownership from the beneficial ownership. Assets transferred to a Trust are no longer part of the property owned by the Settlor and cannot be claimed by his creditors and potential claimants. The assets could be protected if the Settlor is experiencing financial difficulties due to bankruptcy, divorce or a professional negligence claim and also from any claims based on a lack of recognition of the Trust or infringement of forced heirship rules (see further below in the “Validity of CIT” paragraph).
• Confidentiality and Anonymity – The Trustees, the Property and/or any other person concerned as regards the identity of the Settlor or of any Beneficiary, the accounts and the assets of the Trust are bound by confidentiality and cannot disclose information or documents unless they are required by law in certain defined circumstances or they are ordered by a Cyprus Court in civil or criminal proceedings if the court is convinced that such information is material to the outcome of proceedings relevant to the Trust property or the parties to the Trust. In addition, the Trust Deed is not a public document. Neither the Settlor nor the Beneficiaries will be the registered owner of any of the assets placed inside the Trust, and this offers high-net-worth individuals a simultaneous protection of their wealth along with security, privacy and anonymity.
• Tax Planning – Settlors residing in high taxation jurisdictions may minimize their taxation on income or wealth by transferring their property to a CIT in order to be able to take advantage – (as under a proper tax structure) – of the beneficial extensive double taxation network of Cyprus and the non-taxability of any income of the CIT in Cyprus.
• Estate Planning – The CIT can be used as vehicle of protecting family fortunes for future generations by safeguarding capital and avoid it being frittered away by spendthrift beneficiaries, as well as providing for the succession of family wealth.
• Management of funds – The use of a CIT can be employed by licensed professionals that offer regulated services for the purpose of managing funds on behalf of their clients. This can include, for example the holding of property that the Settlor does not wish to hold personally or where a minor may not be able to hold property in his/her own name but a Trustee can often hold and manage it on its behalf until its maturity in order to take control.
• Reduced political risk – If the Trustee and the assets placed in the CIT are situated in a stable jurisdiction, a CIT can provide protection against the nationalisation or seizure of assets.
• Investing in business overseas – A client who wishes to invest in business overseas but wishes to ensure that the profits and dividends are not remitted to the country of his residence, may establish a CIT in order to use it as a vehicle for his investment.
• Credible jurisdiction – All matters in relation to a CIT are determined in accordance with Cyprus Law and the Cyprus Courts have jurisdiction.
• Limitation of action against the CIT – A CIT may be challenged only on defraud of creditor grounds with a two (2) year limitation period.
• Period of CIT – The term of the CIT may be for an indefinite period.
• Governing Law of the CIT – All matters in relation to a CIT are determined in accordance with Cyprus Law and the Cyprus Courts have jurisdiction. In the case of a CIT which is expressly governed by Cyprus Law, the provisions of the International Trusts Laws of Cyprus apply without reference to other applicable rules of conflict and as a matter of public order. However, the law regulating a CIT may be changed to another foreign law.

The concept of the CIT

There are the following key players to this arrangement:

• The Settlor is the person (whether natural or legal), who establishes i.e., settles the CIT and is the owner of the assets being contributed into the Trust. Once contributed, the assets become the Trust Assets.
• The Trustee is the person (whether natural or legal), who accepts to hold and manage the Trust Assets in its name under certain terms for the benefit of another person(s) (the “Beneficiary/ies”).
• The Beneficiary (ies) is/are the person or persons (whether natural or legal) who are to receive the benefits of the Trust Assets.
• The Protector is the person, other than the Trustee, who has the power to veto and or provide consent to the Trustee prior to exercising any of its powers under the provisions of the Trust Deed, provided such explicit powers are drafted into the Trust Deed.

A CIT is a trust whereby there is a minimum of one Trustee that is resident in Cyprus at all times and neither the Settlor nor any of the Beneficiaries were residents in Cyprus for the tax year before the year the CIT was created. Moreover, the provision of such fiduciary services, i.e. appointment of trustee is a regulated service, thus, licenced professionals may only offer such services.

The term “resident of Cyprus” has the meaning given to it by the Cyprus Income Tax Law i.e., “a physical person is considered tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year.”

A company is considered a tax resident of Cyprus if its management and control are exercised in/from Cyprus.

Pursuant to the above, a Trustee can either be a natural person, or a legal person (a Private Trustee Company).

The Law

CITs are governed by the Trustees Law (Cap. 193), which, is modelled on the English Trustee Act of 1925, and the International Trusts Law No.69 (I)/92 as amended. The International Trusts Law of Cyprus is founded on the well-established principles of equity and trusts and is designed to complete the spectrum of services the island offers as an international financial center. Thus, it is widely considered as the most attractive trust legal framework in the world.

Conditions for establishing a valid CIT

According to the Law, in order to qualify as a valid CIT the below statutory requirements must be met:

• The Settlor of the CIT must not be a permanent resident or tax resident of the Republic of Cyprus during the year preceding the year creating the CIT. However, Settlors of a CIT can relocate to Cyprus after the establishment of the CIT and reap off the benefits of the Cyprus Non-Domicile Scheme.
• The Beneficiaries and/or Class of Beneficiaries must not be permanent residents or tax residents of the Republic of Cyprus during the year preceding the year creating the CIT.
• At least one of the Trustees to be appointed by the Settlor must be a tax resident of the Republic of Cyprus.

The Settlor has the power to appoint a Protector who shall be vested with specific powers to prevent in certain circumstances the Trustee(s) from exercising their discretion, provided such powers are specifically drafted and incorporated in the trust deed, including the power to appoint or cancel the appointment of the Trustee. Likewise, the Settlor may reserve certain powers for himself, that will be explicitly incorporated in the trust deed.

Furthermore, for a valid Trust to be created the following criteria must be met:

• The Settlor must be of full age and capacity (sound mind);
• The following three certainties must exist:
• Certainty of intention: There must be certainty of the intention of the Settlor to create the Trust, evidenced by the trust instrument. The wording chosen for the trust instrument must demonstrate a distinct and clear intention that the assets are to be held on trust for the benefit of a third party.
• Certainty of the subject matter: This means that the Trust Assets must be readily identifiable otherwise the Trust will be void due to uncertainty. For example, such assets can be specific movable or immovable property, case in the bank, securities and shares etc.
• Certainty of objects: The identity of the Beneficiaries of the Trust must be ascertained or ascertainable at the time of setting up the Trust.

Trust Assets

The Trust Assets can include any kind of movable and immovable property situated in Cyprus or anywhere in the world.

Validity of the CIT

The validity, interpretation or effect of a CIT, the disposition of Trust Assets, the management of the trust, the performance, existence and extent of the operations of the Trust, the powers, obligations or duties of Trustees, are all determined in accordance with Cypriot law.

The validity of the CIT may be challenged only on grounds of defrauding creditors with a two (2) year limitation period from the date of the establishment of the CIT. Notwithstanding the existence of any contrary provision of the laws of the Republic of Cyprus or of any other country, a CIT shall not be void or voidable and no claim can be made in respect of the assets that have been transferred to the Trust, despite:

• the Settlor’s bankruptcy or liquidation;
• any action or proceedings against the Settlor by his creditors;
• the Trust being voluntary and without consideration;

unless and to the extent that it is proven to the satisfaction of the court that the CIT was made with the intent to defraud the creditors of the Settlor at the time of the transfer of her assets to the trust. The onus of proof of such intent on the part of the Settlor lies with such creditors.

The bulletproof nature of CITs cannot be overturned by virtue of the above reasons, nevertheless a CIT must not be considered as a “sham” or an “illusory” trust.

If the CIT does not provide that it may be revoked, it is deemed to be irrevocable.

Succession, heirship or other laws applicable in foreign jurisdictions or court judgments or orders or arbitral awards or decisions by foreign Competent Authorities do not affect the validity of a CIT or the transfer of property to the Trustee of a CIT.

Tax benefits of a CIT

Cyprus is an ideal jurisdiction for setting up an International Trust due to its attractive tax regime. CITs are generally viewed as transparent from a Cyprus tax perspective so no Cyprus tax applies at the level of the CIT but the Beneficiaries, if applicable, may be subject to Cyprus tax with respect to the CIT income allocable to them, regardless of any distributions from the CIT.

The International Trust (Amending) Law of 2012 (the “2012 Law”) introduced a uniform tax regime applicable to all persons on the basis of the tax residency test.

In the case of a Beneficiary who is resident in Cyprus, income and profits of a CIT which are earned or deemed to be earned from sources within and outside Cyprus (worldwide) is subject to taxation in Cyprus based on the standard tax provisions applicable to resident individuals which include an exemption on dividends for resident individuals who are not domiciled in Cyprus and an exemption on capital gains from disposals of shares in companies that do not hold real estate situated in Cyprus.

In the case of a non-resident Beneficiary, only Cyprus source income and profits (e.g. rental income and capital gains from real estate situated in Cyprus) are subject to Cyprus tax.

The below tax advantages shall apply provided the income is earned from the sources outside of the Republic of Cyprus:

• Income, gains and profits from non-Cyprus sources are exempted from income tax, capital gains tax, special contribution or any other taxes in Cyprus.
• No estate duty or inheritance tax in Cyprus.
• No taxation of International Trusts or their income in Cyprus.
• May be used to reduce or eliminate inheritance tax of the Settlor.
• May be used to distribute untaxed income in Cyprus to the Beneficiaries.
• No exchange control regulations.
• Trust capital received in Cyprus by a foreigner resident or retired in Cyprus from trusts not resident in Cyprus is not taxable on the Trustee.
• Dividends, interest or royalties received by a CIT from a Cyprus international business company are not taxable and not subject to withholding tax.

Registration of CIT with the Registers of Trusts of regulated bodies in Cyprus

Cyprus Bar Association (“CyBAR”) is the body regulating the operation of lawyers in Cyprus. The provision of Trustee services can only be provided by a regulated entity licensed to provide trustee services, such as a Cyprus lawyer or a Private Trustee Company owner by a Cyprus lawyer. It is obligatory to register with the Register of Trusts of the CyBAR certain information about the CIT, namely only the name of the Trustee, contact details, name of the Trust, date of establishment and governing law are disclosed.

Trustees are also required to register the trust with the Cyprus Beneficial Ownership Register of Express Trusts and Similar Legal Arrangements (“CyTBOR”), established and maintained by the Cyprus Securities and Exchange Commission (“CySEC”) whereby all information on the express trusts, similar legal arrangements, trust parties, structure and their beneficial owners are disclosed.

It is very important to note that access to CyTBOR is not open to the general public.

Paris Mavronichis & Co LLC: A leading law firm in the provision of Trustee services in Cyprus

As one of the leading law firms in Cyprus, we offer tailor-made Trustee services catering to the unique business and personal needs of our clients while ensuring the utmost confidentiality in the provision of our services.

Our team of qualified and highly experienced professionals are well-versed in the establishment, management and administration of Cyprus International Trusts and we offer, inter alia professional Trustee and Protector services. We are well suited to assist you with Wealth Structuring, Wills and Succession, Probate and Estate Planning.

Through our ancillary legal services such as Corporate and Commercial, Tax Structures, Immigration and Relocation, and our established network of trusted and sophisticated professional service providers across the globe, we are in the advantageous position to provide a holistic one-stop solution service from a multi-jurisdictional point of view.

Our Legal Services

Paris Mavronichis & Co LLC can assist you in every step of the procedure:

• Establishment, Management and Administration of Trusts
• Trustee and Protector Services
• Probate and Estate Administration
• Estate Planning
• Wills and Succession
• Trust Re-Domiciliation
• Trust Related Advisory
• Wealth Management

Please feel free to contact us for a free consultation if you have any question and to discuss how we can be of assistance to you.

DISCLAIMER:

PARIS MAVRONICHIS & CO LLC accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

The material contained herein is provided for informational purposes only and does not constitute legal advice nor is it a substitute for obtaining legal advice from an advocate.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced advocate. PARIS MAVRONICHIS & CO LLC will be glad to assist you in this respect.