The concept of "trust" is undoubtedly one of the most useful and widely used tools created by English law and the principles of equity. The term "trust" denotes the obligation imposed on a person ("trustee"), to hold and manage property ("trust property"), for the benefit of other(s), ("beneficiary/ies"). The "trust" is created by the person who "settles" property into the trust fund by transferring it to the trustee, referred to accordingly as the "settlor".
Typically, the trustee has power to administer and manage the trust property for the benefit of the beneficiaries, subject to the provisions of the trust instrument. Hence, where a trust is created, while the legal title of the trust property is transferred to and held by the trustee, the beneficial interest in the property belongs to the beneficiaries.
The reasons why a trust may be created are countless. Trusts may be used as a mechanism to manage property or funds; they may be used to protect assets (since the property's legal title is transferred by the settlor to the trustee and belongs beneficially to the beneficiaries, it does not form part of the settlor's assets or estate). Trusts may be used for the settlor to provide for other persons, during or after his/her lifetime; they may be used in cases where property cannot be personally held (e.g. have minor persons as beneficiaries), or even in cases where it is wished to protect against spendthrift beneficiaries. Trusts may be used to manage pension or employee benefit schemes or for charitable purposes.
The type and provisions of a trust can be adjusted according to the reason or purpose for which the trust is established. For example, trusts may be "fixed" in cases where the settlor determines what each beneficiary is entitled to receive out of the trust property; or they may be "discretionary" in cases where the trustee is afforded discretion as to what to distribute to the beneficiaries and how to do it.
Why a "Cyprus International Trust"
Cyprus law regulating trusts is modelled and to a great extent mirrors English law and principles. Further, the Cyprus International Trusts Law 69(I)/1992 as amended by Law 20(I)/2012 adds to "Cyprus International Trusts" significant benefits and renders them one of the most attractive tools for non-Cypriot high net-wealth individuals.
The advantages of Cyprus International Trusts (CIT) include:
Asset Protection: A CIT or transfer of assets to it, may be set aside by the settlor's creditors, only if it is proved to the satisfaction of the Court that it was made to defraud creditors. The burden of proof is on creditors and action must be taken by creditors within two years as from the date the assets were transferred.
Proper Law: If the trust is chosen to be governed by Cyprus Law, then all questions and matters relating to the trust must be determined by Cyprus Law without reference to laws of other jurisdictions.
Perpetual Duration: The duration of a CIT may be indefinite.
Tax Benefits: Generally, trusts are transparent for Cyprus tax purposes. The amending law of 2012 introduced a uniform tax regime applicable to all persons on the basis of the tax residency test. Income and profits 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 of a beneficiary who is resident there. In the case of a non-resident beneficiary, only Cyprus-source income and profits are subject to Cyprus tax.
Flexibility of Powers: A CIT may be irrevocable or revocable. The settlor may reserve powers; appoint a "protector" whose consent may be required for the exercise of certain powers by the trustee; or an "enforcer" responsible to safeguard the execution of the settlor's wishes.
The requirements for the creation of a CIT
For a trust to be considered as a "Cyprus International Trust", the settlor and the beneficiaries must not be Cyprus tax residents the year preceding the year of creation of the trust; and at least one of the trustees must be resident of Cyprus at all times. There is no restriction to the settlor or beneficiaries to visit or be located in Cyprus after the creation of the trust.
How we can assist
We would be happy to discuss with you your circumstances to help you assess whether the creation of a Cyprus International Trust would suit your purposes.
We can offer a full range of services: advice and planning prior to the creation of the trust; assistance with the creation of the trust; and ongoing support for the management and administration of the trust.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.