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Cyprus International Trust (CIT)
The International Trusts Law 69/92 was enacted in 1992 with the aim of providing incentives for the establishment and administration of trusts in Cyprus by non-residents. Briefly, the essential elements of an International Trust are that:
- The settlor is not a permanent resident of Cyprus
- The beneficiary is likewise not a permanent resident (charitable institutions are an exception to this rule)
- The trust property does not include any immovable property in Cyprus
- A minimum of one trustee is resident in Cyprus.
Benefits of a CIT
Most settlors are interested in asset protection and the International Trusts Law makes specific provision to this effect. It provides that an International Trust shall not be void or voidable in the event of the settlor’s bankruptcy or liquidation or in any action or proceedings against the settlor or at the suit of his creditors notwithstanding any provision of the law of Cyprus or of any other country.
An International Trust may be set aside by the settlor’s creditors to the extent that it is proven to the satisfaction of the Cyprus Court that the International Trust was made by the settlor with the intent to defraud the creditors. The onus of proof of this intent shall be on the creditors, and they must initiate such action within two years from the date of transfer or disposal of the assets to the trust.
In brief, a Cyprus international trust has ten advantages - the provisions for its validity in s.3 (1), for protection against insolvency of the settlor in s.3 (2) and (3), for its irrevocability, for a 100 year duration, for a purpose trust, for implied investment powers, for changing the proper law, for variation, for confidentiality and for tax exemption. However s.5 provides for a trust to terminate at the end of the perpetuity period.
Other common uses of a CIT include:
Estate Planning
Through the use of a CIT, an individual can ensure that minors, mentally handicapped persons or persons that cannot be trusted with the management of the individual’s estate are well provided for, even after the individual’s death.
A CIT can be used to arrange for a person to inherit, where due to the legislation of the individual’s country, would otherwise be excluded from inheritance.
An individual who wishes to divest himself of personal assets for various reasons can achieve that by transferring them to a Cyprus International Trust.
Anonymity
An individual who wishes to keep the ownership of a company anonymous and confidential, can do this by setting up a Discretionary CIT to own the shares in the company.
Maintaining Funds Overseas
An individual who has or may have 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 his wishes.
An individual with assets outside his country of 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.
Favourable Legal System
The favourable legal system relating to Trusts together with the advantageous geographic position of the island make Cyprus a particularly attractive location for the establishment and operation of Trusts.
No Exchange Control
As from 1 May 2004, Cyprus is a full member of the European Union and the Eurozone. Exchange Controls have been abolished from that date. Deposits of CIT with Cyprus Banks, either onshore or offshore, or with any bank around the world, are also not subject to exchange control. The absence of exchange control restrictions and the availability of excellent telecommunications and international banking services, make Cyprus a convenient base for the remittance and transfer of funds.
Management Services
The presence of a number of reputable international fund management companies on the island and the high standing of the legal and accounting professions ensure the availability of expert advice as well as the competent management services required for the proper operation of a Trust.
Confidentiality
There are no formal registration or reporting requirements for Trusts established in Cyprus.
Flexibility
Cyprus law is flexible in that it allows the removal of a Trust from its jurisdiction and vice versa. This could be important in cases where a change in circumstances may render such a transfer advantageous for various reasons.
Tax Advantages
CITs enjoy very important tax advantages, providing significant tax planning possibilities to interested parties. The following advantages are indicative of the possible tax minimisation options:
- All income, whether trading or otherwise of an International Trust, is not taxable in Cyprus.
- Dividends, interest or other income received by an International Trust from a Cyprus Company are neither taxable nor subject to withholding tax.
- Capital gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus.
- An International Trust created for estate duty planning purposes would not be subject to estate duty in Cyprus.
The only charge payable to the Cypriot Inland Revenue in respect of an international trust is a one-off stamp duty of EUR 427.15 payable when the trust is created.
Establishment
Provided due diligence is in place, a trust can be established rather quickly in Cyprus: once the trust deed is finalized, it is only a matter of a 1-2 days to prepare and stamp the necessary documents by the Commissioner of stamp duty at Inland Revenue.
