In Cyprus, Trusts are governed by The Trustees Law, Cap. 193, (“The Trustees Law”), which is based on the English Trustee Act of 1925 and the International Trusts Law, No. 69(I)/92 (“The International Trusts Law”), as amended by Law No. 20(I)/2012.
Cyprus has become one of the most well-established and reputable financial centres in Europe for the setting up and managing of a Cyprus International Trust. The International Trusts Law enables the creation of trusts with tax planning benefits and asset protection features.
Cyprus International Trust is ideal for high-net-worth individuals who have complicated family structures and aim to optimise their tax planning.
A Trust is defined as the legal relationship which is created when the Settlor puts assets under the responsibility and management of a Trustee for the benefit of the Beneficiary.
The Settlor: Is the creator of the trust and the individual that holds the property.
The Settlor can also be a beneficiary.
The Trustee: Is the party responsible for managing the trust always in the benefit of its beneficiaries. Given that the Trustee would be responsible for the managing of the assets he must have business knowledge and experience and must also comply with the terms and conditions of the Trust Deed.
The Beneficiaries: The parties for which the trust has been set-up for, that will benefit from it and have the rights or interest In property, which is subject to the trust.
The Protector: The individual appointed by the Settlor to protect the trust assets. Appointment of a protector is not mandatory.
For a trust to be valid, the settlor, who is transferring the property to the trustee, must be competent to do so, namely, at the time of the transfer he/she must be of age and mentally sound as per the law of the country, he/she is resident.
In addition to the above, a trust to be valid must satisfy the requirements of the so called, “three certainties”: Certainty of intention: There must evidence of express intention by the Settlor to create the trust.
Certainty of subject matter: The trust property must be readily identifiable otherwise the trust is void for uncertainty. Certainty of objects: The identity of all the beneficiaries of the trust must be ascertained or ascertainable at the time of setting up the trust.
The Cyprus International Law provides that the following conditions must be met in order to establish a Cyprus International Trust:
The settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the trust; and
The beneficiaries, either physical or legal persons, with the exception of a charitable institution, must not be residents of Cyprus during the calendar year, which precedes the year of creation of the trust; and
At least one of the trustees is, throughout the lifetime of the trust, resident of Cyprus.
The word “resident” bears the meaning given to it by the Income Tax Laws of 2002, as amended. Namely, a physical person is considered tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year. In addition, a company is considered tax resident of Cyprus if its management and control is exercised in Cyprus.
Setting up a Cyprus Trust can be used for various purposes such as:
A Cyprus International Trust can be used to protect the settlor’s assets against expropriation or claims brought against by government or potential claimant. Such a Trust can also be a mean for high-net-worth individuals to protect their assets from their spouses or former spouses.
Cyprus International Trust is invalid or revocable only if it was established with the intention of defrauding the creditors of the Settlor at the time of transfer of the assets to the Trustee. Such claims must be brought within two years of the transfer. Notwithstanding any contrary provisions of the law of the Republic of Cyprus or of any other country, an international Trust shall not be null and void and no claim may be made in respect of assets which have been transferred to an international trust in the event of the bankruptcy or liquidation of the assets of the settlor or in case of institution of legal proceedings against the settlor by his creditors unless and to the extent that it is proved in court that the international trust was established with the intention of defrauding the creditor of the settlor at the time of the transfer of the assets to the trust. The Cyprus International Trusts Law specifies that the burden of proof of such intent of the settlor, namely, to defraud the creditors rests with the creditors seeking to annul the transfer made to a Cyprus International Trust.
Trusts are set-up in full discretion and anonymity. Any information regarding the trust will only be disclosed in the event of a court order.
However, as per the 5th AML EU Directive, member states are obligated to disclose details of their Ultimate Beneficial Owners holding more than 25% of beneficial interest in the company to the public registry of beneficiaries. The Companies’ Registry is now open to the public and in this respect, any person or governmental authority, may have access and get the information as to who the ultimate beneficiaries of are companies are.
In connection with the Trusts, there is a separate registry, the so-called “Trusts Registry”. The disclosure obligations apply to trustees of express trusts administered in a member state. The trustees will need to register beneficial ownership information on all existing trusts as well as new trusts created after the legislation. As per the Directive, only the authorities and persons that can demonstrate legitimate interest many have access to the Trusts’ Registry.
The Cyprus International Law permits the settlor to reserve certain powers and rights for himself and such reservation of rights, does not affect the validity of the Cyprus International Trust or the execution of it in any way. These powers can revoke, diversify or modify the terms of a trust, to appoint or remove any trustee, enforcer, protector, beneficiary and investment adviser or to direct the trustee accordingly.
In Cyprus there are no reporting requirements relating to the activities of the Trust.