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Cyprus International Trusts

Summary

The purpose of this proposal is to provide an overview of the advantages of the Cyprus International Trust (“CIT”) and the special characteristics that render it a valuable and effective contemporary mechanism established by the Cyprus International Trusts Law 1992 for, among others, the management of funds, the establishment of collective investment, the investment in business overseas, the protection against high taxation, the protection of assets and the promotion of causes and charities.


Structure of the CIT

A trust is the legal relationship created when a person (the “settlor”) places assets under the control of another person (the “trustee”) for the benefit of some other person (the “beneficiary”) or for a specified purpose.


Parties to the CIT

The “settlor” is the person who creates the trust; he is the owner of the initial property placed under trust. The settlor, being either a natural or legal person, shall not be a resident of the Republic during the calendar year immediately preceding the creation of the trust, however, settlors may relocate to Cyprus after a year following the CIT establishment.

The “trustee” is a person to whom particular property has been transferred or has been granted according to the provisions of the trust deed or the trust agreement, who will hold it for the benefit of one or more of other persons/beneficiaries. The trustee has the legal title to the trust assets. In order for a CIT to be in force, at least one trustee shall be a resident in the Republic during the whole duration of the trust.

The “beneficiary”, on the other hand, has beneficial or equitable title to the trust assets. Save in cases of bare trusts the beneficiary is usually unable to have a say in the management of the trust property or the termination of the trust. No beneficiary, whether a natural or legal person, other than a charitable institution shall be a resident of the Republic during the calendar year immediately preceding the year in which the trust was created. However, beneficiaries may relocate to Cyprus after a year following the trust creation.


CITs main characteristics and benefits


  • They enjoy significant tax advantages a. Income, gains and profits from non-Cyprus sources are exempt from income tax, capital gains tax, special defence contribution or any other taxes in Cyprus. b. Worldwide income, profit and gains are taxable in Cyprus only where the beneficiary is a Cyprus tax resident; beneficiaries who are non-residents of Cyprus are taxed only on Cyprus sourced income in accordance with the Cyprus income tax laws. c. Dividends, interest or royalties received by a CIT from a Cyprus international business company are neither taxable nor subject to any withholding tax. d. 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. e. There is no estate duty or inheritance tax in Cyprus. f. The CIT may be used to distribute untaxed income in Cyprus to the beneficiaries, that is to say, family members. g. Pre-migration: persons who have the intention to migrate to a high tax jurisdiction may obtain tax advantages in their new country by protecting assets in a CIT in Cyprus.

  • They have unlimited duration

  • They are irrevocable by the creditors

  • They ensure confidentiality of trust information

Formalities

In order for a CIT to be established it shall:

  1. Comply with the residency requirements of the settlor, the trustee and the beneficiary.

  2. Be registered in the Trust Registry according to the Trust Registry Law 196(I)/ 2012. The Cyprus Bar Association establishes and maintains a register with respect to each trust governed by Cyprus Law. The Commission, the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC) each establishes and keeps a Trust Register. The Cyprus Bar Association establishes and keeps a Trust Register with respect to each trust governed by Cyprus law and where one of its trustees is an exempted person resident of Cyprus who is supervised by the Cyprus Bar Association in its capacity as a Competent Authority. The Institute of Certified Public Accountants of Cyprus (ICPAC) establishes and keeps a Trust Register with respect to every trust governed by Cyprus law and where one (1) of its trustees is an exempted person resident of Cyprus who is supervised by the Institute of Certified Public Accountants of Cyprus in its capacity as a Competent Authority. The Commission establishes and keeps a Register of Trusts with respect to every trust governed by Cyprus law which does not fall under the above. All trustees resident in Cyprus and of a trust governed by Cyprus Law are obliged to - within fifteen (15) days of the creation of the trust or the adoption of Cyprus Law as the applicable governing law - notify the Competent Authority maintaining the relevant Register of Trusts.

  3. Show: - Certainty of intention of the settlor to create the trust, which is typically evidenced in the trust instrument - Certainty of subject matter, in other words, the trust property must be readily identifiable and, - Certainty of objects, in other words, the identity of all intended beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust. The beneficiaries may be a specified class of beneficiaries that is an ascertainable group of people

  4. Comply with the formal requirements relevant to “wills” in case the CIT is created by will.

  5. Comply with the payment of stamp duty which amounts to EUR 427,50 and is payable upon formation of the CIT.

Settlors’ powers

The powers of settlors of CITs are to revoke, or amend the terms of a trust; to advance, distribute, pay or otherwise apply income or capital of the trust property; to exercise the powers of a director or officer; to issue binding directions to the trustee in connection with the purchase, retention, sale, management, lending, pledging or charging of the trust property; to appoint or remove any trustee, enforcer, protector or beneficiary; to appoint or remove any investment manager or advisor; to change the proper law of the trust or the forum of administration of the trust and to restrict the exercise of any power or discretion of a trustee by requiring that they are only exercised with the consent of the settlor or any other person specified in the terms of the trust.


Trustees’ powers

The trustees of an International Trust have extensive management and investment powers, which ensure, that the trustees have very wide discretion in performing their tasks.


Trustees’ duties

The trustees shall manage the trust property with the necessary duty of care and comply strictly with the terms of the trust deed. The trustees shall avoid acting in ways that bring them in conflict with their duties as trustees or make profit from their positions as trustees, unless authorised by the trust instrument. Trustees’ duties shall not be delegated, save for instances where this is provided by the law.


Trustee’s liabilities

Unless the trust instrument expressly provides otherwise, trustees are not entitled to any payment for their services. They may, however, be reimbursed from the trust property for any expenses they incur in performing their duties. Any action taken by the trustee that is in excess of their powers or contravenes the terms of the trust instrument is a “breach of trust” and the trustee is personally liable for the full extent of any loss incurred as a result of such a breach.

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