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CYPRUS INTERNATIONAL TRUSTS

Owing to their characteristics, structure and associated advantages, Cyprus International Trusts (CITs) have established the Republic of Cyprus as a preferred Trust jurisdiction over the years. CITs are regulated by the International Trusts Law of 1992(L.69(I)/1992), as consolidated and amended, and are an essential tool for preserving confidentiality and asset protection of foreign investors. The definition of a CIT, as provided by Section 2 of the Law, is a trust in respect of which:

  • The Settlor is not a tax resident of the Republic of Cyprus during the year preceding the year in which the Trust was formed (the Settlor may, however, relocate to Cyprus following the establishment of the Trust);
  • At least one (1) of the Trustees is a resident of the Republic of Cyprus; and
  • Νone of the Beneficiaries, whether natural or legal persons, with the exception of a charitable institution, is a resident of the Republic of Cyprus during the calendar year preceding the year in which the Trust is established (the Beneficiaries may, however, relocate to Cyprus after a year following the creation of the Trust).
Understanding Trusts

Key Definitions

Settlor = the person who creates the Trust and is the owner of the initial property placed under the Trust. The Settlor may choose to retain some powers for himself/herself.

Trustee = the person (may be an individual or a company) who agrees to hold the property on trust for the benefit of the Beneficiary or Beneficiaries based on the provisions of the Trust. The Trustee has the legal title to the Trust Property, whereas the Beneficiary or Beneficiaries have an equitable title to the Trust Property.

Protector = (optional appointment, particularly in CITs) where appointed, such person has the right to control the Trustee and/or dismiss the Trustee and appoint a new Trustee. The Protector does not have the right to intervene in the exercise of powers vested upon the Trustee under the Trust Deed.

Trust Property = the property held by the CIT during the relevant period, which may include any type of assets situated anywhere in the world, including in the Republic of Cyprus.

Beneficiaries = the legal or natural persons who have a right or interest in the Trust Property. Beneficiaries may be persons who, on the date of the establishment of the CIT, have not yet been born, or part of a class of persons.

Formation of Trusts
  • The Settlor must be of full age and sound mind.
  • Certainty of intention, subject-matter and object (known as the “three (3) certainties”):
  • Certainty of Intention: evidence of the express intention of the Settlor to create the Trust.
  • Certainty of Subject Matter: the Trust Property must be readily identifiable, e.g., shares in a company, money, immovable property, and so forth.
  • Certainty of Objects: the identity of all the Beneficiaries must be ascertainable.
Types of Trusts

A Trust may be drafted as a Discretionary or a Fixed Trust, a combination of a Fixed and a Discretionary Trust, a Protective Trust, a Purpose Trust or a Trading Trust. It is advisable to consult a legal advisor when deciding which type of trust is the ideal for the case at hand:

Discretionary Trusts: these afford the Trustees with discretion with regards to the amount and manner Beneficiaries can enjoy the benefits offered by the Trust Deed.
Fixed Trusts: these do not afford the Trustees with any discretion in distributing the Trust’s assets to the Beneficiaries.

Fixed & Discretionary Trusts: these afford the Trustees with discretion to the distributing of assets to the Beneficiaries over a specific period of time.

Protective Trusts: these are usually opted for when the Beneficiary is given a life interest which may become discretionary if certain events occur (e.g., following bankruptcy of the Beneficiary).

Purpose Trusts: these are defined by Section 2 of the Law, namely: (i) Trusts with Beneficiaries being specific natural or legal persons, immediately identifiable or not, and (ii) Trusts with Beneficiaries being (as a whole) specific individuals or entities, who can be identified by reference to a personal relationship or affinity.

Trading Trusts: these usually have a company (legal person) acting as a Trustee, which has the power to carry on business activities and employ staff to manage its business.

Advantages of CITs:

Asset Protection

  • The CIT may be used to protect assets from claims arising in relation to transactions entered into by the Settlor including, without limitation, claims relating to negligence, breach of contract, and claims of spouses or former spouses.
  • The CIT may only be challenged on the ground that it was formed with the intent to defraud creditors with a two (2) year limitation to bring a legal action forward.
  • Succession, heirship or foreign laws and Judgments of Courts from other jurisdictions do not invalidate the Trust or the transfer of property to the Trustee.

Confidentiality

  • The Trustees to a CIT are bound by confidentiality and may only disclose information or documents if ordered by a competent Court in the Republic of Cyprus or in other limited circumstances prescribed by the Law.
  • The Trust Property can be the shares of a Cyprus company with a Cypriot nominee shareholder who will hold the shares of the company for the beneficial owner.

Tax Benefits & Incentives

  • Income, gains and profits from sources outside of Cyprus are exempt in Cyprus from income tax, Capital Gains Tax (CGT), Special Defence Contribution (SDC) or any other taxes.
  • Worldwide income, profit and gains are taxable in Cyprus only where the Beneficiary is a tax resident of Cyprus. Beneficiaries who are non-residents of Cyprus are taxed only on the income derived in Cyprus.

  • The income and gains of a CIT which are earned or deemed to be earned from sources within and outside Cyprus are subject to every form of taxation imposed in Cyprus in the case where the Beneficiary is resident in Cyprus.

  • Where the Beneficiary is not a resident of Cyprus, the income and profits of an international trust which are earned or deemed to be earned from sources within Cyprus, are subject to every form of taxation imposed in Cyprus.
  • Dividends, interest or royalties received by a trust from a Cyprus international business company are not taxable and not subject to withholding tax.
  • There is no estate duty or inheritance tax in Cyprus.
  • The Trust may be used to distribute untaxed income in Cyprus to the Beneficiaries, such as family members.

Additional Advantages

  • The proper law of the Trust is the law of the Republic of Cyprus and the law of the Trust may be changed to the legal system of another jurisdiction.
  • CITs are easily established and administered in Cyprus.
  • The Trust may last of an indefinite period of time.
Our CIT & Trusts Practice Portfolio

At ServPRO, our Corporate & Legal Team is ready to help you plan and prepare for the appropriate form of a Cyprus International Trust (CIT), as well as to assist you with the establishment and administration of the Trust, including the provision trustee and protector services.

Our team has a stellar track record in delivering practical solutions to corporate clients with a spherical, solution-driven and detail-oriented approach, while demonstrating an aptitude of professionalism, integrity and commercial acumen.

Contact us today for an initial, complimentary consultation.

LET’S WORK

TOGETHER.

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