Cyprus is regarded as one of the finest countries for the establishment of international trusts due to its significant advantages over other jurisdictions.
THE REQUIREMENTS FOR CREATING A CYPRUS INTERNATIONAL TRUST
To have a valid Cyprus international trust, the following requirements must be met:
- The settlor, whether physical or legal, must not be a resident of Cyprus during the calendar year before the trust’s establishment;
- With the exception of a charitable institution, the beneficiaries, whether physical or legal persons, must not be residents of Cyprus during the calendar year before the year of establishment of the trust; and
- At least one of the trustees must be a resident of Cyprus for the duration of the trust.
All three must exist at the same time.
The term “resident of Cyprus” has the meaning assigned by the Cyprus Income Tax Laws. A physical person is deemed a tax resident of Cyprus if he or she remains in Cyprus for more than 183 days in a tax year. If a company’s management and control is exercised in Cyprus, it is regarded a tax resident of Cyprus. It must, above all, be also able to prove substance.
A CYPRUS INTERNATIONAL TRUST’S CHARACTERISTICS
A settlor is assumed to have the ability to transfer assets to a Cyprus international trust provided he or she is of full age and sound mind under the legislation of the country in which he or she resides at the time of the transfer.
The settlor’s powers
The settlor’s powers were expanded in 2012, when the Law was amended, to include the following:
Revocation, amendment of the terms of the trust or any trusts or powers arising wholly or partly from the trust; allocation, distribution, payment, or other disposition of income or capital from the trust property, or issuance of directions for conducting such a concession, distribution, payment, or disposal; the issuance of binding directions to the trustee in connection with the purchase, retention, sale, management, loan, pledge, or charge over trust property, or the exercise of any powers or rights conferred on such property; the exercise of powers as a director or officer, or the issuance of binding directions regarding the appointment or removal of any Board member or officer of any company owned wholly or partially by the trust; appointment or removal of any trustee, inspector for the trust’s application, protector, or beneficiary; appointment or removal of any investment manager or investment adviser; modifying the applicable law governing the trust or the location (forum) of the trust’s management; and limiting the exercise of any power or discretionary power of the trustee, requiring that these be exercised only with the approval of the settlor or any other person expressly named in the trust’s terms.
A Cyprus international trust can last indefinitely. If the settlor is given the choice in the trust deed, he or she can cancel the trust and have the property returned to him or her.
Extension of the settlor’s authority – Sham trusts
The Cyprus International Trusts Law expressly allows the settlor to reserve certain rights for himself/herself without jeopardizing the legality of the Cyprus international trust. Such powers may include the ability to revoke or amend the terms of the trust; to grant, distribute, pay, or dispose of income or capital of the trust in any form; to give binding instructions to the trustee in relation to the purchase, retention, sale, administration, financing, pledging, or encumbering of the Trust Property; to appoint or remove any trustee, enforcer of the trust, protector, or beneficiary; to appoint or remove any trustee, enforcer of the trust, protector, or beneficiary; to appoint or remove an investment manager or investment adviser; to amend the applicable law that regulates the Trust or the forum in which the Trust is administered.
However, if such powers are retained by the settlor, there is a risk that the trust may be deemed a sham and hence invalid. Appointing a protector is a feasible and desirable approach. A better approach is to select a protector and delegate these rights to the protector. By doing so, the settlor distances himself/herself from the management of the trust and eliminates the danger of the trust being regarded a sham. In addition, the trust may be attacked by the settlor’s creditors or subject to the compelled heirship laws of succession.
The trustee’s responsibilities and powers
The trustee has a variety of authorities and tasks under the trust. For example, he must follow the conditions of the trust, act impartially, treat the beneficiaries equitably, operate in good faith, exercise reasonable care and skill, and other fiduciary obligations. Also, according to trust law, the trustee has certain powers such as the power to sell and generally invest as if they were the absolute owners of the trust property, invest in any property, movable or immovable, located anywhere in the world including Cyprus in accordance with all local laws, give receipts, compound liabilities, raise money by sale charge or otherwise, devolve the powers of the trust, insure the property, employ agents, and appoint new or additional trustees.
The trustee, in general, does not have the authority to change the terms of the trust. The trustee will only be able to do so if all of the beneficiaries are of full age and capacity and can permit the trustee to handle an issue differently from what is provided in the trust. If a beneficiary is a minor or of unsound mind, the court may change the terms in the beneficiary’s best interests.
Any action performed by the trustee that is in excess of or beyond his declared power constitutes a breach of trust, and the trustee is personally accountable for the entire extent of the damage caused as a consequence of the breach. In such a circumstance, the beneficiaries may file a lawsuit.
THE CYPRUS INTERNATIONAL TRUSTS LAW’S OTHER PROVISIONS
Relocation to Cyprus of the settlor and beneficiaries
The Cyprus International Trusts Law allows the settlor and beneficiaries to migrate to Cyprus and become tax residents of Cyprus upon the formation of the trust.
Cyprus law has exclusive jurisdiction
Any issues concerning the validity, interpretation, modifications, revocation, powers of trustees, protectors, and administration of a Cyprus international trust are resolved in accordance with Cyprus law, without reference to the relevant legislation of any other state. Section 3(1A) of the Cyprus International Trusts Law identifies the list of matters that are solely regulated by Cyprus law. In addition, the trustee may petition to the court for instructions on how he or she should act in connection to a specific situation. In addition, the court may issue any appropriate order pertaining to the trust, and such an application may be made by the trustee, protector, trust enforcement supervisor, or any other interested party.
The Cyprus International Trust’s governing legislation/Amending the governing law
According to clause 12A (3) of the Cyprus International Trusts Law, Cyprus international trusts are governed by the law chosen by the settlor in accordance with the terms of the trust deed. If no law has been chosen, the court must be able to identify one. However, as noted above, the choice of law has some restrictions to the matters listed in clause 3 (1A) of the Cyprus International Trusts Law, which are controlled exclusively by Cyprus Law, regardless of the requirements of the foreign law chosen. If Cyprus law is adopted, the requirements of the Cyprus International Trusts Law take precedence over any other opposing provisions of Cyprus law.
Furthermore, the legislation specifically allows for the modification of the trust’s governing law, in both circumstances for a change from a foreign law to the law of the Republic of Cyprus and a change from the law of the Republic of Cyprus to any other jurisdiction. However, in order for such a modification to be permitted under Cyprus International Trusts Law, the following requirements must be met:
- In the event of a change from the legislation of the Republic of Cyprus to a new law, the new law must recognize the legality of the trust and the respective interests of the beneficiaries; or
- In the event of a change from a foreign law to the law of the Republic of Cyprus, such change is acknowledged by the trust’s prior suitable legislation.
Advantages of a Cyprus International Trust
Cyprus International Trusts provide the following benefits:
- Confidentiality (as authorized by relevant regulations from time to time);
- Difficult to contest since the only reason it may be challenged is for defrauding creditors. The creditors bear the burden of evidence in this case;
- Tax advantages for the parties concerned;
- Asset protection from creditors, forced heirship regulations, or legal action;
- Flexibility in the trustee’s powers;
- Low administrative costs;
- Indefinite duration; and no duty to prepare or file audited financial statements.
Exclusion of forced heirship rights
The Republic of Cyprus’s or any other country’s Inheritance Law shall have no effect on any transfer or disposition made to a Cyprus International Trust, and the legitimacy of such transfer shall not be disputed.
Asset safeguarding
In the case of the settlor’s bankruptcy or liquidation, an international trust must not be void or voidable, regardless of any provision of the law of Cyprus or any other country. An International Trust may be set aside only if the settlor’s creditors can establish to the court that the trust was created with the aim to defraud the creditors. The creditors bear the burden of evidence.
Tax Advantages
A Cyprus International Trust, in particular, benefits from the country’s present favorable tax regime, with the following advantages:
- There are no capital gains. Tax is levied on the sale of a Cyprus trust’s assets
- There is no estate or inheritance tax
- Income from domestic or foreign sources is taxed in Cyprus if the beneficiary is a Cyprus tax resident. If the beneficiaries are non-tax residents of Cyprus, only income earned in Cyprus is taxable under Cyprus’s income tax legislation.
Stamp Duty
Stamp duty applies to a Cyprus International Trust. A late payment fine is imposed if the trust deed is stamped thirty days after its creation date. The amount of the late payment penalty is determined by the length of the delay.
Registration
For the purposes of the Fiduciaries Law, each supervisory body (CySec, the Cyprus Bar Association, and the Institute of Certified Public Accountants of Cyprus) will maintain a register of trusts, and Trustees will be required to register the Trust with the relevant supervisory body. In addition, CySec is required to retain a trust register under the new requirements of the Prevention and Suppression of Money Laundering Activities Law.
LICENSED ENTITIES AND TRUSTS’ REGISTER
Trust creation, administration, and management are regulated activities subject to the provisions of the Law Regulating Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, as amended, hereinafter referred to as the “Fiduciaries Law,” and may be offered only by licensed legal persons pursuant to a license granted either by the regulating authority, which is the Cyprus Stock Exchange or by fiduciaries, namely lawyers who are members of the Cyprus Bar Association and accountants who are members of the Institute of Certified Public Accountants of Cyprus. The Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus, and the Cyprus Stock and Exchange Commission are required to keep trust registries in which specific information on trusts established in Cyprus is submitted.
When registering a trust with the appropriate regulating authority, the following information must be submitted: the name of the trust; the names and addresses of the Trustees; the date of establishment of the trust; the date of change of the proper law of the trust, if any; and the date of termination of the trust once it has been established.
This information is not available to the general public and may only be accessed by the regulatory authorities. Furthermore, no information is provided about the trust deed’s text, the settlor, or the beneficiaries.
Any person who provides trustee services, administers, and manages trusts, must collect and keep available in Cyprus at all times for possible disclosure to the relevant regulatory authority the following information, where applicable: the identity of all trustees; the identity of the settlor; the identity of all beneficiaries or information on the class of beneficiaries; the identity of the protector (if applicable); the identity of the fund manager, accountant, tax official (if applicable), the trust’s activities; and the identification of any other person who has authority over the trust.
The UBO Trust Registry
If a company’s shareholder is an express trust or a similar legal structure, the name of the trust must be entered into the UBO Companies Register, and its information must also be entered into the UBO Trust Register, depending on its place of administration. The word “express trust” refers to a trust that is made explicitly and willingly by the settlor, as opposed to a trust that arises by operation of law or a trust or decision that the settlor has no clear purpose to make.
Any express trust or similar legal arrangement must be registered if: (a) its trustee is located or resides in the Republic of Cyprus, or (b) its trustee, which is located or resides outside the EU, establishes a business relationship or acquires immovable property in the Republic of Cyprus on behalf of the express trust.
Information should be entered into the UBO Trust Register
A. For explicit trusts or other similar legal arrangements
- Name;
- Country and date of establishment;
- Law that applies;
- Date of termination (if relevant);
- In the case of a similar legal arrangement, the type of such arrangement;
- Information on the trustee’s country of establishment or domicile, as well as his address;
- If the trustee is located outside the EU and establishes a business relationship in the Republic, the date of the establishment of the business relationship, the name of the person to whom such business relationship is established, and the document governing such relationship;
- If the trustee is located outside the EU and acquires immovable property in the Republic on behalf of an express trust, the registration number of such immovable property and its title;
- CySEC may require further information and/or supporting documentation for identification purposes.
B. For the Trust’s Ultimate Beneficial Owners (Trustee, Settlor, Protector, Beneficiaries, any other physical person exercising final control of the trust through direct or indirect ownership or by other means)
- name and surname;
- Name of the father; birth date; birthplace; nationality or nationalities;
- Residential address; identity document number, type, and country of issue;
- Death Date (if applicable);
- The date the UBO became the beneficial owner;
- The nature and scope of the beneficial owner’s rights, whether directly or indirectly owned;
- The beneficial owner’s function in a trust or similar legal arrangement;
- CySEC may require further information and/or supporting documentation for identification purposes.
Access
CySEC can grant unrestricted access to the UBO Trust Register to the Cyprus Securities and Exchange Commission, Cyprus Tax Department, Cyprus Customs Department, and Cyprus Police; any liable entity in the context of due diligence and identification measures for their client; and any natural or legal person with a legitimate interest, however, this is subject to the Cyprus Securities and Exchange Commission’s approval; and any natural or legal person who has a controlling interest in a company or other legal entity, for example, by direct or indirect ownership, shares in the bearer, or other forms of control, provided however that the Cyprus Securities and Exchange Commission will have to approve such a deal.
Any natural or legal person will have access to the names, month and year of birth, country of residence, and the nationality of the persons engaged in the trust, as well as the nature and extent of the rights they possess in the trust if access is given. The information in the UBO Trust Register will not be available to the general public (unlike the UBO Companies Register), but only to specified authorities and those who have a justifiable interest.
Lastly, the trust laws of Cyprus are among the most beneficial in the world, capable of providing unparalleled security and advantages to any interested party. It’s a crucial tool for estate and tax planning that’s both flexible and effective. Cyprus, as a trust jurisdiction, has emerged as a major participant and a sought-after location for international trusts. Also because the details of the people engaged are not known to the general public, Cyprus trusts provide an added degree of security.