|Cyprus International Trusts|
What is a Trust
The concept of the Trust is essentially Anglo-Saxon and is unique to such legal systems. The Cyprus Trust Law is substantially the same as the English Law of Trusts. The English equitable principles on Trusts are applicable in Cyprus as well, because Equity is part of the law of Cyprus. The Cyprus Trustees Law Chapter 193, is based on the English Trustee Act.
Creation of Trusts
A Trust may be created by the owner of property during his lifetime by Deed or upon his death by Will. The Trust Property can include all kinds of assets situated anywhere in the world provided the Trustees have legal control and ownership of the assets according to the law governing the Trust in question.
There are no particular formalities for the creation of a Trust and indeed the categories of Trusts that can be created is restricted only by the result that the Settlor ultimately wishes to achieve.
The Trust as a vehicle for financial planning
There are many reasons for which the Settlor may wish to create a Trust but some of the principal reasons are:
to avoid or mitigate taxation liabilities. Trusts have traditionally been a very important tax planning device and even today a very high proportion of tax saving schemes involve Trusts
to preserve property in the family, by ensuring that an individual is well provided for, without giving that individual the opportunity of exhausting the family assets because of mismanagement or unsuitable marriage
to benefit disabled or mentally handicapped persons by making them beneficiaries without passing control of the property to them
to keep control as Trustee over the enjoyment and ultimate destination, despite giving the assets away
to provide flexibility over the identity of the beneficiaries and the extent of the interest taken by them in order to take account of future developments
to make gifts for charitable and religious purposes to be held by Trustees for such purposes
to manage funds for the benefit of third parties e.g. pension or retirement funds
Advantages of a Cyprus Trust
There are many situations where Cyprus Trusts can prove advantageous. Some of such situations are listed below, though this list is by no means exhaustive:
an individual who has income arising overseas which he does not wish to remit to his country of residence, can arrange for such income to be directed to the Trustees of a Cyprus Settlement to be held on Discretionary Trusts, in accordance with the Trust Deed and his Letter of Wishes
an individual with assets outside his country or residence, which country may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to a Discretionary Trust
an individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve that by transferring them to a Cypriot International Trust
persons permanently leaving one country and taking up residence in another, may obtain fiscal advantages in their new country by placing funds in an appropriate Settlement in Cyprus
an individual who wishes to ensure that the profits and dividends received are not remitted to the country of his residence, may set up an Offshore Settlement to in-vest in overseas business
an individual who wishes to keep the ownership of a company anonymous and confidential, can do this by setting up a Discretionary Trust which owns the shares in the company. This is a particularly useful and popular vehicle for carrying out trading and financial activities, particularly for residents of countries which do not recognize the concept of Trust
a Trust can be used in one country to own an underlying investment holding company in another. This type of tax planning device has many advantages providing the maximum possible protection for both Settlor and Beneficiaries alike.
Types of Trust
As already mentioned most types of Trusts can be set up in Cyprus. The choice of type will obviously depend on the circumstances of the Settlor and the objectives he is trying to achieve in creating the Trust.
A Trust which is common in Cyprus is the Discretionary Trust which gives the Trustees discretion to exercise their own judgement as to the manner and amount by which the Beneficiaries might benefit.
The Beneficiaries may be defined either by name or by reference to a class or per-sons (i.e. the Settlor's children or grandchildren) or merely left to the full discretion of the Trustees. It is usual for the Settlor to indicate to the Trustees his wishes as to the disposal of the Trust property by means of a Letter of Wishes.
Where the Settlor wishes to give a more positive guidance than relying on a Letter of Wishes, it is possible to include a further party into the Trust Deed who is known as the "Protector" or "Nominator". The Protector's role is negative in that he can only prevent the Trustees from exercising their discretion in certain circumstances. The Trustees will usually exercise their discretion with the prior consent of the Protector or Nominator.
Another type of Trust is a Fixed Trust which does not give the Trustees any discretion when distributing the Trust assets to the Beneficiaries. An example of this type of Trust is one which requires the Trustees to distribute the income of the Trust property to a particular individual during that individual's lifetime and there-after distribute the capital to a named Beneficiary or Beneficiaries in specified shares.
Fixed and Discretionary Trust
It is possible to have a combination of a Fixed and a Discretionary Trust. The Trustees may have discretion as to the distribution of income for a period of time, but are required to distribute the capital ultimately in fixed proportions. Conversely, they may be required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of Beneficiaries.
A Protective Trust may be created by virtue of which a Beneficiary may be given a life interest which may become effective upon the happening of certain defined events such as the bankruptcy of the Beneficiary. TRUSTS WILLS AND TESTAMENTS 4
The simple Declaration of Trust
This form is a variation of the Discretionary Trust. The Settlor is not named in the Trust Deed and the Trustees declare that they hold the assets which were transferred to them on Trust. In this case, the Trustees accept a Letter of Wishes.
Under a Trading Trust the Trustee is usually a limited liability company which has powers to carry on business and the Trust has trading functions and has employees to manage its business. Third parties are not aware of the existence of the Trust as all documentation used is the name of the Trustee company.
Contents of a Deed setting up a Cyprus Trust
The Deed setting up a Cyprus Trust will normally include the clauses covering:
the transfer of the Trust property from the Settlor to the Trustees
a provision whereby the Trustees can accept further property as part of the Trust property
the length of the Trust period. The maximum period in Cyprus is a life in being, plus 21 years
a statement of the Beneficiaries by name and/or class
the powers and duties of the Trustees
a statement of the law the Trust Deed is subject to
a statement of the period during which income may be accumulated. Accumulations may be made for the whole period of the Trust.
Cyprus International Trusts enjoy important tax advantages, providing significant tax planning possibilities to interested parties. Although taxation considerations relating to Trust are fairly complicated, the following advantages are perhaps worth mentioning:
the income of an International Trust is not taxable in Cyprus. The “deeming” provisions are also not applicable in the case of an International Trust because the Beneficiaries are not resident in Cyprus
if the Trust money is placed on deposit with a local bank in Cyprus, the interest earned is exempt, because interest earned on foreign capital imported from abroad and deposited with a bank in Cyprus is exempt. Interest on deposits with Cyprus Offshore Banking Units or with any bank around the world is also exempt, as it is not considered as income accrued, derived or received in Cyprus.
an alien who creates an International irrevocable Trust in Cyprus and retires in Cyprus is still exempt from tax if all the property settled and the income earned is abroad, even if he is a Beneficiary. If the retired Settlor remits income to Cyprus other than Trust distributions, which is of investment nature, he is taxable at 5 per cent. The same applies to Trust distributions of investment nature
an International Trust created for estate duty planning purposes would not be subject to estate duty in Cyprus, as the Settlor who is not domiciled in Cyprus, has divested himself of property and the Trust has no property in Cyprus. Whether the Settlor and the Beneficiaries avoid estate duty in their own country will depend on that country's legislation. The existence of a double taxation treaty may be an advantage but they may have to be resident or domiciled in Cyprus.
ADMINISTRATION OF TRUSTS
Our office can provide either individual Trustees, who are usually qualified advocates, or a Corporate Trustee, through one of our subsidiary companies offering trustee services. It is also possible that a new company is set up specifically for this purpose tailored to the specific needs of the Settlor.
The Trustees will manage the Trust property and will follow the Settlor's wishes as ex-pressed to them in the Letter of Wishes or in subsequent correspondence. The Trustees may invest Trust moneys and again they will be guided by the Settlor.
Our firm and the Trustee companies do not act as investment advisers. Therefore, professional advice will always be taken by the Trustees. The Settlor may choose the adviser if he so wishes. The existence of a number of reputable international fund management companies in Cyprus greatly facilitates the placement of the assets of Cyprus Trusts. The Trustees will keep full books of account of the affairs of the Trust and regular reporting to the client is part of the service offered.
1.3.2 Trustee companies
Our Trustee Company was incorporated in Cyprus to undertake a variety of Trustee services on behalf of clients. The company is a wholly owned subsidiary.
The objective of the company is to assist clients by making available to them the services of an incorporated body, which undertakes the administration of Trusts, thereby avoiding the disadvantages of appointing an individual as Trustee.
The services provided by the two Trustee companies include:
acting as Trustee of new or existing Discretionary, Charitable, or other Trusts and Set-tlements
acting for clients under a Power of Attorney
acting under a Declaration of Trust
acting as Nominee for clients
The main advantage of a Trust company is continuity. A Trust company is a continuing entity which can administer the running of a Trust efficiently. On the contrary, individual Trustees may not be able to carry out their duties effectively because of illness, or they may be hampered by lack of time or specialized knowledge. Furthermore, there is the risk that they may die before completing the administration, thereby necessitating the appointment of a new Trustee who will have to familiarize himself with the history of the Trust documents, which in turn will result in additional work and costs.
Moreover, an individual Trustee may not be able to negotiate tax points with the relevant revenue authorities, necessitating the employment of a tax specialist. A corporate Trustee, belonging to a legal firm has access to partners and staff with collective experience in many fields.
There are no stamp duties on the settlement of property in a Cyprus Trust. A nominal stamp duty of € 100 is payable on the formation of a Trust and € 10 upon distribution of Trust property by the Trustees. A Trust can be established within a matter of a few days and the cost of creating the Trust will vary, according to the complexities involved, from € 1,200.00 onwards.
Where the Trustee companies or one or more partners of the firm are appointed Trustees, the annual cost of administering the Trust will depend on the work involved, on the basis of time spent. The fee is not calculated as a percentage of the Trust property. Experience has shown that for the administration of a Trust with approximately 25 transactions annually, the cost involved would be in the region of € 3,750.00.