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Cyprus International Trust

Click here to download CIT law and commentary

Click here to download CIT (Amendment) Law 2012.

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Cyprus International Trusts (“CITs”) have evolved considerably since 1992 when they were formally introduced in the Cypriot legislation. The 1992 law was not a self-contained law as it built on the 1955 Trustees Law, Cap.193. In March 2012, the Ministry of Councils passed a long-overdue amendment to the 1992 CIT law, which made CITs more flexible and attractive to foreign investors. The salient advantages of CITs such as confidentiality, asset protection and avoidance of forced heirship, were significantly enhanced resulting in significant interest from foreign investors. In September 2013, and following the regulation of trustee services in Cyprus, the CIT Law was further amended to provide for the creation of a trust register to be maintained by the authorities supervising the providers of trustee services. This development has been welcomed by trustee professionals in Cyprus for solidifying the island’s position as a leading trusts jurisdiction.

1.    The Law

The legal framework governing the establishment of trusts in Cyprus is based on the Trustees Law, Cap. 193, which follows largely the English Trustee Act of 1925, and the International Trusts Law No.69 (I)/92 as recently amended (the “Law” and “CIT Law”). The principles of equity and case law are also applicable.

2.    Nature of a Trust

A Trust is a settlement whereby the Settlor, transfers property, Trust Property, to an independent person, the Trustee, for the latter to hold for the benefit of the Beneficiary(ies). While Trusts have originally been utilised to plan and preserve family wealth, in recent years and in Cyprus particularly, the tax regime applicable to Trusts has transformed them into effective tax planning vehicles.

To set up a Trust, a Trust Deed is required to be drafted and signed by the Settlor and the Trustee, setting out the conditions under which the Trust Property will be transferred, held and ultimately administered by the Trustee.

3.    Conditions for establishing a valid Trust

As per the Law, the following conditions must be met for the formation of 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 Beneficiary(ies), either physical or legal person(s), with the exception of a charitable institution, must not be resident of Cyprus during the calendar year which precedes the year of creation of the Trust; and
  • At least one of the Trustees is, for the duration of the Trust, a Cyprus tax resident person.
A Trust can appoint a Protector, a person other than the Trustee, to whom powers of any nature have been granted by the Trust Deed, including the power to veto the decisions of the Trustee and also to appoint or cancel the appointment of the Trustee.

Resident of Cyprus:

In all instances, the term ‘Cyprus tax-resident’ has the meaning attributed to it by the Cyprus Income Tax Law. In brief, a physical person is considered as tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year. A company is considered as tax resident of Cyprus if its management and control is exercised in Cyprus. While there is no definition in the Income Tax Law of ‘management and control’ in practice, and based on UK case law, it is considered that management and control is exercised where:

  • The majority of the directors reside;
  • The majority of board meetings are held; 
  • The majority of significant decisions are taken.
Registration requirement:

Pursuant to an amendment of the CIT Law as well as the Law on the provision of Administrative Services (known as the “Fiduciaries Law”) in 2013, it is now required that all Trusts be registered with one of the three authorities supervising and regulating the provision of trustee services, and for a trust registry to exist containing specific information on Trusts. The three supervising authorities are the Cyprus Securities and Exchange Commission (for Administrative Services Providers), the Cyprus Bar Association (for Advocates) and the Institute of Certified Public Accountants of Cyprus (for Accountants and Auditors).

The trust registries maintained by each of the supervising authorities contain the following information on CITs:

  • Name of the trust;
  • Name and full address of every trustee at all material times;
  • Date of creation of the trust;
  • Date of any change in the law governing the trust to or from Cyprus law; and
  • Date of termination of the trust.
With this latest amendment, Cyprus has balanced the high threshold of confidentiality which has traditionally made CITs attractive, while keeping in line with EU and local anti-money laundering laws.

4.    The three certainties for a establishing valid Trust:

Since the creation of the notion of Trusts, it has been judicially held by leading UK case law that, for a valid Trust to exist, the following three certainties must be present:

  • Certainty of intention;
  • Certainty of subject matter; and
  • Certainty of objects.
The Settlor is required to manifest an intention to create a Trust. The Trust Property must be specified with reasonable certainty and the Beneficiaries of the Trust are required to be ascertainable. The last requirement listed above is waived where the Trust is established for a specific Purpose.

5.    Creation, duration and revocation of a Trust:

Capacity to create a CIT:

Pursuant to the Law, a Settlor is considered to have the ability to dispose of assets to a Trust if at the time of such transfer she/he is of full age and of sound mind under the law of the country of his/her residence.

A CIT may continue in perpetuity.

A Cyprus International Trust is deemed to be irrevocable by the Settlor in the absence of any express contrary provision in the Trust Deed establishing the Trust.

   Trust Deed provisions

The Trust Deed establishing the CIT normally includes, among others, the following provisions:

  • Duration of the Trust, if so desired;
  • Transfer of the property from the Settlor to the Trustee;
  • Statement as to who the Beneficiaries are;
  • Powers and duties of the Trustee, the Settlor, the Protector and Trust Enforcement Supervisor, as applicable;
  • Income accumulation period;
  • Statement of the property transferred to the Trust as Trust Property;
  • Ability for further property to be accepted by the Trustee as part of the Trust Property;
  • Manner and consents required for the amendment of the Trust Deed in order to avoid court intervention;
  • Law governing the Trust Deed.
7.    Types of CITs

The Law enables the creation of Charitable Trusts by outlining a list of charitable purposes for which a trust can be created, as follows:

  • Prevent or alleviate poverty;
  • Promote education and/or religion;
  • Promote health or salvation of life;
  • Promote the development of citizens and of the community;
  • Promote art, culture, heritage or science;
  • Promote amateur sports;
  • Promote human rights;
  • Dispute settlement or reconciliation or promote religious or national harmony or equality and individuality;
  • Promote the protection or development of the environment;
  • Relief needs arising from young or advanced age, ill health, disability, economic hardship or other disadvantage; promote the welfare and protection of animals;
  • And for any other reason for the benefit of the general public or which is consistent with the above.
The above is in line with the England and Wales Charities Act 2006.
Moreover, the Law recognises CITs established for a particular purpose, the so-called ‘Purpose Trusts’, which are enforceable by the Settlor or his personal representative or the Trust Enforcement Supervisor.

8.    Governing Law of CITs

CITs are governed by the law chosen by the Settlor to govern the Trust Deed. In case no applicable law has been chosen, the Trust is governed by the law to which the Trust is more closely related to. The Law offers specific guidelines pursuant to which the courts are enabled to identify the law which the Trust is akin to.

Where Cyprus law is chosen to govern the CITs, there is jurisdictional protection by providing that an international trust, which contains a choice of law clause in favour of Cyprus law, is fully protected from unfounded foreign judicial claims as a matter of public policy and order.

9.    Cyprus courts: Exclusive Jurisdiction and Enforceability

Subject to the provisions of the Trust Deed, there is limited/no scope for involvement of the Cyprus courts in the administration of a CIT. Nevertheless, it is possible for the Trustee to apply to court for directions on how he/se will act in regards to a particular Trust-related matter. Additionally, upon an application by the Trustee, Protector, Trust Enforcement Supervisor or other person having locus standi, the court may issue any relevant order.

One of the more prominent amendments to the CIT Law has been the enactment of the exclusive jurisdiction provision. Accordingly, any matters related to the validity, interpretation, amendments, revocation and administration of a Cyprus International Trust are determined in accordance to the law in force in Cyprus without reference to the law of any other jurisdiction.

Moreover, the Cyprus legislation or foreign legislation regarding succession to inheritance does not affect, according to the Law, the transfer or disposal or invalidity of the CIT in any way. As a result, the terms of the CIT prevail over any legal provisions as to the inheritance of property in case of death of the Settlor.

Pursuant to the recent overhaul of CIT Law, CITs are sheltered when governed by Cyprus law, in that the validity of the CIT is not affected, the eligibility of any Settlor, Trustee, Trust Enforcement Supervisor or Protector, or Beneficiary cannot be disputed and none of the above persons have any liability or obligation or may be deprived of any right, claim or interest by virtue of: (a) any provisions of any law in any jurisdiction which does not recognise the notion of Trusts or (b) that the trust or the disposal of property either (i) cancels any rights, claims or interests deriving from foreign legal provisions due to personal relations with the Settlor or Beneficiary or due to rights in an estate or (ii) the trust or the disposal of property is contrary to any law, judgment or order of any other jurisdiction.

Foreign Trusts are enforceable in Cyprus, unless Cyprus courts declare they contravene public policy.

10.     Benefits of the CITs

In brief, the most important advantages of CITs can be summarised as follows:

  • Avoidance of forced heirship rules: Succession laws do not affect the validity of the transfer made to the CIT, as the transfer takes place during the life time of the Settlor;
  • Asset protection: The assets settled into the CIT are sheltered against potential claims. Subsequent bankruptcy or liquidation of the Settlor or Creditor’s action against the Settlor –irrespective of whether the trust was set up without consideration or to the benefit of the Settlor or his/her wife or children, unless it can be proven that the CIT was set up with intention of the Settlor to defraud his creditors. There is a 2-year time limit from the date of transfer of trust property in the CIT to file such an action with the Cyprus Courts;
  • Wide Investment capabilities: The Trustee is able to invest trust funds in any kind of investment. The income is accumulated for the whole perpetuity period with no forced distributions;
  • Confidentiality: A CIT affords a high threshold of protection of the matters governed by the Trust Deed, including the identity of the Beneficiary/ies. In the absence of a court order, the Trustee, the Protector or any other person cannot disclose to any person any documents or information, related to the Trustees or to the Beneficiaries referring to the exercise of the powers of the Trustees or related to the CIT. Moreover, where Cyprus law is chosen it is exclusively applicable over the CIT and any matters for the validity, interpretation or result of any trust the validity of any transfer or disposition of property in a trust, the administration of the CIT in Cyprus or abroad are decided by exclusive reference and application of the Cyprus law;
  • Exclusive jurisdiction of the Cyprus courts: A foreign judgement dealing with any issues of a CIT is not enforceable in Cyprus;
  • Significant tax benefits: CITs are treated as tax transparent, hence not subject to any form of Cyprus tax provided the Beneficiary(ies) are not Cyprus residents, and the Trust does not own/dispose immovable property situated in Cyprus. Where the Beneficiaries are Cyprus tax residents, any income earned or deemed to be earned from sources within Cyprus, is subject to the income tax in Cyprus. In case of non-Cyprus tax resident beneficiaries, only Cyprus-sourced income is subject to taxation in Cyprus. It is important to note that where the Beneficiaries of the CIT will be subject to Cyprus tax, it is the Trustee’s duty pursuant to the Law, to ensure that any taxes are paid.
11.     Conclusion

The simplicity of establishing a CIT, combined with the certainty of its operation by Cyprus law, renders the CIT one of the most sought-out wealth management tools. Through the latest amendments to the CIT Law, Cyprus has achieved transparency and alignment with all EU and local anti-money laundering laws and regulations, while maintaining a legal system that offers asset protection to the highest degree.

Our team of highly experienced professionals can advise you on establishing a Cyprus International Trust, tailored to your specific business and personal circumstances. Please contact Mrs. Stella C. Koukounis at s.koukounis@sklawcyprus.com or Mr. Charles Savva on c.savva@savvacyprus.com to discuss how we can be of assistance to you.