Q &A – CYPRUS INTERNATIONAL TRUST
- 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.
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.
- Legal protection of the settlor’s assets.
- Tax planning purposes.
- Succession planning purposes.
- Confidentiality Protection.
- Charity purposes.
- Commercial purposes.
- 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.
In addition, a company is considered tax resident of Cyprus if its management and control is exercised in Cyprus.
Discretionary Trust which allows the trustee to exercise his/her discretion to bring the most beneficial outcome for the beneficiaries and may also determine what portion should go to each beneficiary.
Fixed Trust which allows the settlor to decide how the capital of the trust is to be apportioned, to whom and for how long.
Protective Trust is considered more suitable when the intention is to protect the assets and capital in the trust from certain events, like the bankruptcy of the beneficiary.
Charitable Trust may be used where the trust is set up for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community.
- The revocation, amendment of the terms of the trust or any trusts or powers arising wholly or partly from the trust;
- The allocation, distribution, payment or other disposition of income or capital from the trust property or issuance of directions for conducting such a concession, distribution, payment or disposal;
- The exercise of powers of a director or officer or the issuance of binding directions regarding the appointment or removal of any Board member or officer of any company, which is owned by the trust, either wholly or partially;
- The issuance of binding directions to the trustee in connection with the purchase, retention, sale, management, loan, pledge or charge over property of the trust or the exercise of any powers or rights conferred on such property;
- The appointment or termination of any trustee, inspector for the application of the trust, protector or beneficiary;
- Changing the applicable law governing the trust or place of management of the trust;
- The restriction of the exercise of any power or the discretionary power of the trustee, requesting that these be exercised only with the approval of the settlor or any other person expressly mentioned in the terms of the trust.
- To administer the trust property prudently; and
- To comply strictly with the terms of the trust;
The terms of a trust are set in the Settlement of Trust, also referred to as Trust Deed or Trust Instrument. Any action taken by a trustee that contravenes the terms of the trust deed is a 'breach of trust' and makes the trustee personally liable for the full extent of any loss incurred.
The general rule is that the trustees do not have the power to vary the terms of the trust under any circumstances. The only case when the trustees may vary the trust is when all the beneficiaries are of full age and capacity. If so, then the beneficiaries can together authorise the trustees to deal with the trust property in a manner different to that specified in the trust instrument.
In accordance with the Law, the Trustees of an International Trust have extensive investment powers, which ensure, that the Trustee is capable of performing his tasks. Some of the most important powers are: to make capital distribution, to borrow, to guarantee, to mortgage, to employ, to invest/lend money, to make payments for/on behalf of beneficiaries as well as to advance money to another trust.
Yes. An International Trust is subject to stamp duty of €430 which is payable on the vacation on the creation of an international trust.
- They may pursue a personal action against the trustees;
- They may be able to follow the trust property itself or to claim anything into which it has been converted. This is an equitable claim and the beneficiaries are held to have a first charge on the trace assets. But there are limitations to this as the tracing must end where:
- No traceable product can be found, or
- Where the trust is traced in a bona fide purchaser without notice of the trust, or
- They may be able to institute criminal proceedings against the trustees;
- 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.
- Income, profits and gains from non-Cyprus sources are discharged from taxes in Cyprus including the exemption from Income Tax, Capital gains Tax, the Special Defence Contribution and any other tax at the time of writing.
- The international profits and earnings are taxable in Cyprus only if the beneficiary is a tax resident in Cyprus.
- Royalties, interest or dividends received through a Cyprus International Trust from a Cyprus company are not taxable and not subject to any withholding tax.
- Non-tax residents of Cyprus who are also beneficiaries are only taxed on Cyprus sourced income in accordance to the Income Tax Laws of Cyprus.
- There is no inheritance tax or estate duty.
- The extensive network of Double Tax Treaties in which Cyprus has entered into, is a powerful tool in planning for the legitimate avoidance of taxation and provides a considerable number of advantages to high-net-worth individuals who have chosen to form their legal entities in the Republic of Cyprus.
Trusts may exist for the duration of a lifetime plus 21 years or in the case where no natural person is involved it can exist for merely 21 years.
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.
A Cyprus International Trust can be transferred to another's country jurisdiction and vice versa, meaning that a Trust established in another jurisdiction may be transferred to Cyprus.
Disclaimer: This infosheet is intended for general information purposes only and should not be construed as legal advise or legal opinion on any specific facts or circumstances. A client relationship is not created or continued by sending and/or receiving this infosheet. ATCA CO. LIMITED will be pleased to provide further information regarding the matters discussed in this infosheet.