Cyprus International Trusts: Why You Probably Want One

 

A Cyprus International Trust is a trust that can very importantly have 100% foreign ownership and is one that allows asset owners (settlors) to transfer their holdings to a trustee (which can either be a legal entity or a physical person) that will manage and hold these assets for the benefit of the current asset owners’ (settlors’) chosen beneficiaries. The assets that can be held within a Cyprus International Trust (CIT) can include but are not limited to assets such as cash, real estate holdings, shares and corporate or government bonds. CITs are governed by the International Trust Laws 1992 to 2013 (The Law).¹

Such trusts can prove to be an extremely useful tool for individuals with high net worth who look to secure the planning of the succession of their assets either to close relatives of the next generation or any other beneficiary they choose to transfer their assets to.

According to Article 2 of the Law, for the settlor to be eligible for the creation of a CIT he/she must not have been a resident of Cyprus the year prior the establishment of the trust. Another necessary requirement for the creation of the CIT is that a minimum of one of the trustees has to be a resident of Cyprus at the time when the trust is established and throughout its period of validity. Finally, unless the beneficiary is chosen to be a non-profit charitable organisation, all chosen beneficiaries similarly must not have been residents of Cyprus the year prior the trust’s establishment. It is worth noting that both settlors and beneficiaries can either be natural persons or legal persons.²

Aside of the advantage of full foreign ownership, Cyprus International Trusts carry a variety of benefits both for settlors and beneficiaries. These include:

1. Robust Asset Protection: The benefit of strong asset protection, as the laws of the Republic of Cyprus ensure the protection of all assets of a trust from any potential risks and threats that may arise due to the settlor’s actions or transactions. Such threats may include government or creditor claims on the assets of the trust or even claims from close relatives.
2. Benefits from Taxation: Several benefits of tax exemptions. In fact, in Cyprus, not only there is no estate duty but also any capital gains or income received from outside the island of Cyprus, are not subject to taxation in the island. This also applies to a CIT’s gains that come from dividend payments or interest payments of a Cypriot corporation, as these are also not taxable. Beneficiaries who are non-residents of Cyprus taxed only on Cyprus sourced income in accordance to Cyprus Income Tax Laws.
3. Confidentiality: The details of a CIT and its Beneficiaries are submitted to the Cyprus Securities & Exchange Commission (CySec). The Register is closed to public access but for government statutory authorities.
4. Possible Perpetual Trust Duration: There is no restriction on the duration of CITs and therefore one can be created with a potentially perpetual lifespan, or any duration that the relevant parties deem appropriate.
5. Ability to Re-domicile: A CIT gives the ability of re-domiciliation which allows continuance of the CIT from the jurisdiction where it was incorporated to any other jurisdiction in a cost-effective way while also eliminating the need of dissolving the whole trust. The re-domiciliation process will depend on the re-domiciliation jurisdiction.
6. Reservation of Settlor’s Powers: Following section 4 A of the Law, settlors of Cyprus International Trusts can maintain certain powers in relation to the trust such as the power to assign a new trustee or beneficiary, give binding directions to trustees, restrict the trustee’s powers and the exercise of the trustee’s independent judgement or even amend or revoke a CIT’s terms and provisions.³ Settlors may grant themselves certain powers which they can exercise by acting as protectors of the trust.⁴
7. Almost unbreakable validity: Following section 3 of the Law, the only way a CIT can be declared void is if it was formed with the intention to defraud the creditors at the time when the payment/transfer of the monies/assets was made to the CIT. Legal proceedings against the trustees to avoid such transfer, on the grounds of fraud, must be initiated within two (2) years from the date of the transfer.⁵ Therefore and according to the case of Knight v Knight (1840), a CIT that was created with the clear intentions to create a trust and which shows with certainty which property is part of the trust and who are the beneficiaries,⁶ will be inalienable and irrevocable.

 

Cyprus International Trusts present countless benefits to potential candidates that look to reserve their assets and ensure their safe and cost-effective transition to their chosen beneficiaries or successors. Even more enticing is that not only are CITs easy and quick to set up but also the fact that they provide settlors the flexibility to adjust the terms, duration and even location of their CIT at any time and according to their own preference.

This article is provided for information purposes only and it does not constitute legal or any other professional advice.

Please refer to the original article for a list of sources.

 

For further information, please contact:

Doros Lycourgos, Partner

Papadopoulos, Lycourgos & Co LLC, Nicosia

e: d.lycourgos@paplyclaw.com

t: +357 22 676 126

 

#WLNadvocate #Cyprus #startup #law #legal #lawfirm #lawyer #international #business #government #EU #corporatelaw #CyprusInternationalTrust #finance #assets