Cyprus is an attractive jurisdiction for the creation of trusts. It offers a combination of a strong legal system, trust design flexibility, privacy, and tax advantages.
The most advantageous from the point of view of tax planning and business structuring is the Cyprus International Trust.
The creation of a trust in Cyprus is governed by the International Trusts Law 1992. According to this law, a trust is a legal arrangement under which one party (the settlor) gives assets to another party (the trustee) to be managed for the benefit of a third party (the beneficiary).
It is Cypriot legislation, based on English law, that allows non-residents to register trusts of any complexity for purposes such as protection of assets from creditors, succession planning, inheritance, tax planning, business management, and investments.
Cyprus International Trusts enjoy important tax advantages and provide significant tax planning opportunities:
- lack of formalities for registering a trust;
- Cypriot international trusts are not subject to exchange controls;
- an international trust is irrevocable unless a special right of revocation is reserved in it;
- clear separation of legal ownership from beneficial ownership;
- trusts are exempt from taxation in Cyprus: no income tax, dividends, interest, royalties, inheritance tax, capital gains tax, etc. are paid;
- high level of confidentiality -no registration or reporting is required, and information about the establishment of a trust is disclosed only by court order;
- the possibility of complete anonymity of company ownership through the creation of a discretionary trust for share ownership;
- the trust cannot be invalid or voidable, and no claims can be made against the assets that were transferred to the international trust;
- used for safe storage of funds abroad;
- a trust allows you to own property that cannot be owned in your name.
TYPES OF TRUSTS
The following types of trusts can be registered in Cyprus:
- fixed trust - when the share in the trust property is determined by the founder;
- discretionary trust - where the trustees have discretion to determine what share or share of the trust property should go to each member of the class of beneficiaries;
- fixed and discretionary trust - a combination of two types of trusts, in which the trustees have discretion to distribute income, but are obliged to distribute capital in fixed proportions, or vice versa - distribution of income in fixed proportions, but distribution of capital at their discretion;
- trading trust - where the trustee is a company (LLC) that has the power to conduct business, and the trust performs trading functions and has employees to manage its business. In this case, all documentation used is issued in the name of the trust company.
- target trust - used to accumulate corporate income for general corporate purposes.
CONDITIONS FOR THE CREATION OF AN INTERNATIONAL TRUST
There are no formalities, registration, or reporting requirements required to create a trust in Cyprus. The law confirms the validity of a trust created by any person who has reached the age of majority and is of sound mind, but there are a several requirements must be met:
- The trust must have the intention to create trust, so the trust must be specified with reasonable certainty and the beneficiaries identified.
- Founder – a Cypriot non-resident (of age and legal capacity) acts. Cannot be a Cyprus tax resident in the year before the creation of the trust.
- Trustees (trustees) – appointed and accountable to the founder, engaged in the management of trust property. There must be at least one trustee permanently located in Cyprus; the most common method is to create a trust company in Cyprus.
- Beneficiaries – must not be permanent residents of Cyprus (except if it is a charitable organization). They can use their share of the trust property.
- Trust property – property of any type can be transferred to trust management. It is possible to invest through a trust in any movable or immovable property in Cyprus.
The taxation of Cyprus trusts depends on a many of factors, including the residence of the settlor and beneficiaries, and the source of income of the trust.
In case the settlor is a resident of Cyprus, the trust is subject to taxation in Cyprus in accordance with the general tax rules.
If the founder is a non-resident of Cyprus, the trust may be exempt from taxation in Cyprus. That is, the trust will not be subject to tax on profits derived from sources outside Cyprus and capital gains tax on the sale of assets located outside Cyprus.
Beneficiaries of a trust who are non-residents of Cyprus may also be exempt from taxation in Cyprus on income received from the trust (interest, dividends, capital gains, and other types of income).
TERM AND COST OF TRUST REGISTRATION
The average time for creating a trust in Cyprus is 30-40 days. This period includes the time required to prepare the trust agreement, appoint a trustee, transfer assets into the trust, and register the trust with the Cyprus Securities and Exchange Commission (CySec). The final deadlines depend on the complexity of the trust structure and are negotiated individually.
The cost of creating a Cyprus trust also depends on the structure of the trust (holding or trading) and the time spent on agreeing, drawing up, and registering the Deed. Thus, the final cost is agreed upon before work begins.
If you are considering setting up a trust in Cyprus, we recommend that you seek the assistance of qualified lawyers. Our lawyers have many years of experience working with Cyprus trusts and will help you create a trust that suits your individual needs and the requirements of Cyprus law.
For more information on setting up a trust in Cyprus, please contact us.
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