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Trusts

by Fiducenter



Contents
A. Introduction
B. Legal Aspects
C. Types of Trusts
D. Benefits of using a Cyprus International Trust
E. Uses of a Cyprus International Trust
F. Trustees

 

A. Introduction

A trust exists in relation to identified assets (the “trust fund”), whereby the owner of these assets (the “settlor”) creates a trust by appointing a trustee to hold and manage the trust fund for the benefit of certain other persons (the “beneficiaries”). In effect, the settlor vests the legal title of the trust property in the trustee, who manages it in accordance with the instructions of the settlor, which are written and expressed in a trust deed of will. The settlor may also appoint a person (the “protector”) to act as a guardian in ensuring that the trustees act in accordance with his instructions.

Although the trustee has legal ownership of the trust property, beneficial ownership belongs to the beneficiaries. Thus, the trustee merely holds and manages the trust property which is an independent fund only available to the beneficiaries.

B. Legal Aspects

Cyprus Trust Law was reformed in 1992 by the passing of the International Trusts Law 1992, which builds on the existing Cyprus Trust Law (Trustees Law, Cap. 193) itself based on the English Law. The new Law of 1992 was passed to revamp the existing conditions, aiming to attract foreign investors.

A Cyprus International Trust is characterized by the following:

  • the settlor is not a permanent resident of Cyprus;
  • no beneficiary (other than a charity) is a permanent resident of Cyprus;
  • the trust property does not include any immovable property situated in Cyprus;
  • at all times, there is at least one trustee resident in Cyprus;
  • the trust remains valid for up to 100 years, unless it is a charitable or purpose trust that may continue indefinitely;
  • income can be accumulated for the whole duration of the trust.

A trust can still qualify as an international trust for the purposes of the Law even if the settlor, trustee or the beneficiaries are Cyprus international business companies or international partnerships (businesses beneficially owned by non-Cyprus residents).

A trust may own shares in a Cyprus company which does not own immovable property situated in Cyprus. Dividends, interest or other income received by a trust from a Cyprus international business company are neither taxable nor subject to WHT.

Fiducenter offers trustee services for Cyprus International Trusts through a company created specifically for this activity.

C. Types of Trusts

The most common types of trusts are:

  • Fixed trusts: the share or interest of the beneficiaries in the trust property is specified by the settlor.
  • Discretionary trusts: the trustees may, at their discretion, determine what share or interest of the trust property should be awarded to each beneficiary. The trustees’ powers may go even further to determine who the beneficiaries will be as well.

D. Benefits of using a Cyprus International Trust

  • No Taxation – exemption from all taxes in Cyprus.
  • Confidentiality – there is no duty to register and/or prepare and file accounts or tax returns according to the Law, and therefore neither the settlor nor the beneficiaries are anywhere disclosed. In fact, the Law prohibits any trustee or any other third party from disclosing anywhere such information.
  • Flexibility – the applicable Law allows relocation of jurisdiction and vice versa, provided that the Law of the new jurisdiction recognizes the validity of the trust and the respective interests of the beneficiaries.
  • Protection - the trust remains valid even if the settlor becomes bankrupt, unless it is proven that the trust was made with the intent to defraud the creditors of the settlor at the time of the transfer.
  • Retirement - a foreigner who retires in Cyprus and creates a Cyprus International Trust is still exempt from tax if all the property settled is out of Cyprus and the income is earned abroad, even if he is a beneficiary.

Whether or not the income receivable by a trust can benefit from the provisions of a DTT will depend on the terms of the particular treaty. For example, a treaty may state only that income will be taxable where the recipient is resident and may, or may not, have a requirement that the resident must be the beneficial owner of the income. Countries whose legal system endorses the principles of equity and, in particular, the distinction between legal and beneficial ownership, may accept that the legal right to receive income in the name of the trustee is sufficient to entitle the trustee to enjoy benefits under a DTT.

On the other hand, countries that do not make this distinction will consider the income as belonging to the beneficiary and thus will not grand treaty benefits to the trust. However, this can be overcome by the use of a Cyprus company, which is fully entitled to DTT provisions, under the trust as a consolidation vehicle for the trust property.

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E. Uses of a Cyprus International Trust

¦ Protection of wealth: ensuring that persons that cannot be trusted with the management of the settlor’s estate (ie. minors, handicapped persons, etc.) are well provided for, even after the settlor’s death.

¦ Inheritance/ estate planning: for distribution of the settlor’s estate according to his wishes, which may not comply with his/her local inheritance Law.

¦ Asset protection: as long as the trust is not created with the intention to defraud settlor’s creditors, assets settled are protected in case the settlor becomes bankrupt in the future.

¦ Protection of assets, such as assets acquired while working abroad by expatriates who settle these into a trust before repatriating.

F. Trustees

The Cyprus International Trust can have a maximum of four trustees, that can be either legal or physical persons.

Confidentiality takes a prominent position in the Law, which is imposed on the trustees as persons authorized to have knowledge of information or documents which disclose the name of the settlor or any of the beneficiaries. The trustees are not allowed to disclose any such information or documentation to any third party unless a court order is issued. The Law itself provides that the Court shall issue an order for disclosure of information if it is satisfied that the disclosure of the information or the document required to be produced is of paramount importance to the outcome of a court case before that Court.

The trustee must keep property and records relating to the trust of which it is a trustee duly separate from its own property and records.

The trustee is liable to Corporation Tax only on the income received in a trustee capacity.

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Contact Details:

Vashiotis Business Center
1st floor, office 101
1, Iakovou Tompazi Street
3107 Limassol

P.O. Box 54810
3728 Limassol

Tel: +357 25 504 000
Fax: +357 25 504 100
Email: fiducenter@fiducenter.com.cy
Website: www.fiducenter.com.cy

Working hours: 08:30 - 18.00 local time (GMT+2)


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