International Trust in Cyprus
A trust generally may be determined as an establishment whereby an owner (more appropriately called the “settlor”) of a thing – usually a proprietary asset – delivers it or delegates it in the custody of a person (called a “trustee”) for use or for management or for safe custody. This is a general definition based on equity principles reflecting this type of arrangement given that the Law does not contain a definition as to what constitutes a “trust”.
In a trust, the legal title to the proprietary asset and any ensuing rights are transferred to the trustee who becomes the legal owner for the purpose of its management for the benefit of the beneficiary(ies), who may be the settlor(s) and/or any third person(s).
It should be taken into account that the trustee owes fiduciary duties to the beneficiaries and must adhere to the standards established by the Law as well as professional standards in case of a professional trustee (e.g. trustee services provided by lawyers).
Trusts performs many functions and have a lot of benefits, including the protection and preserving of assets, tax planning or just avoiding the expense and delays of obtaining probate under a will. They also guarantee a high degree of confidentiality.
In 2012, Cyprus adopted the Regulation of Fiduciaries, Administration Businesses and Company Directors Law (the ‘Law’). The Law says that all individuals or entities suggesting trustee, administration or similar services must be approved as ‘applicable and expedient’, and licensed by the Cyprus Securities and Exchange Commission.
The main legislation ruling the activity of trusts in Cyprus is a merger of English common law, the Trustees Law of Cyprus (Cap 193), which is shaped on the English Trustee Act of 1925, and the International Trusts Law of Cyprus (Law 69(I) of 1992 as amended by Law 20(I)/2012).
According to the Regulations, trustees must be aware of the identity of the settlor and ultimate beneficiaries of a trust. This information is keeping in absolutely severe confidentiality. Disclosure to third parties is possible only in very particular circumstances and must be accompanied by a court order.
There is no public register of trusts in Cyprus. The ownership of trust assets in most cases can remain entirely confidential.
Despite the fact some of the tax incentives that were associated with trusts have been eroded in last years, they still propose great benefits – in particular for individuals who are shifting, or planning to shift, their domicile, residence or citizenship; those with families live abroad; those planning asset protection; and those who wish to dispose of their estate on death freely and without a lengthy and expensive probate procedure.
In order to establish a valid a trust the 3 certainties, as they are called, must be met:
(i) The Certainty of Intention: this refers to the intention of the settlor who is to transfer the property to create a trust. This may be expressed both orally and in wrining. Such intention is usually expressed in writing through a trust creating instrument/deed.
(ii) The Certainty of Subject Matter: there must be certainty as to both an identifiable property being subject of the trust as well as the portion of the property or ensuing rights that the beneficiaries will receive. Generalities or vagueness to the description of the subject matter of the trust may lead to the invalidity of the trust.
(iii) The Certainty of Objects: this certainty refers to the fact that the trustee should know who the beneficiaries are and they should be identifiable. The beneficiaries cannot be a large or vaguely identified group that the settlor would not be in a position to identify who the beneficiaries are.
It should be highlighted that absence any of the 3 certainties, a trust would be void ab initio. Thus, the 3 certainties should be carefully appraised before establishment a trust settlement.