CYPRUS INTERNATIONAL TRUSTS

INTERNATIONAL TRUSTS LAW OF THE REPUBLIC OF CYPRUS

ASSET PROTECTION & TAX PLANNING

The International Trusts Law 69 (I) of 1992 is not a self-contained statute, but rather a law which builds on the existing statutory base, which reflects English Law and practice.  The said law provides flexible methodology, with generous practical, fiscal and tax related benefits.

As defined, a trust is a legal mechanism under which “Trustees” - appointed professionals, hold property for the benefit of others - “Equitable” owners known as the “Beneficiaries”, effectively creating a flexible method of dealing with the “Settlor's” - creator's of the Trust, financial affairs while he/she is alive and even later on, in respect to his/her heirs.   

The Law defines an international trust as being a trust in respect of which:

• The settlor is not a permanent resident of Cyprus;
• No beneficiary (other than a charity) is a permanent resident of Cyprus;
• The trust property does not include any real property (immovables) situated in Cyprus; and
• At all times, there is at least one trustee resident in Cyprus.

A trust will still qualify as an international trust, even if the settlor or the local trustee or a beneficiary (or any combination of those) is a Cypriot international business company or partnership.

An international trust may remain in force for up to 100 years, notwithstanding any statutory provision of Cyprus or any other country to the contrary.  The rule against perpetuities does not apply to purpose and charitable trusts, which may continue to be in force without limitations.  The income of an international trust can be accumulated for the entire duration of the trust.

International trusts are exempt from the duty of registration under the provisions of any law.  There is, however, stamp duty payable on the creation of the trust paid once at the time of incorporation of the trust.

Section 12 of the International Trusts Law provides that the income and the profits of an international trust derived or deemed to be derived from a source outside Cyprus are completely exempt from income tax or any other tax imposed in Cyprus, such as capital gains or special contribution.  The property of the trust is not subject to estate duty.  Therefore, trust income, such as royalties, interest, or dividends received from an international business company, is exempt from income tax in the hands of the trustees and the beneficiaries of an international trust also are exempt from payment of income tax in respect of any monies they receive from the trustees.

An international trust is allowed to participate in local business and investments in accordance with the laws and regulations in force for the time being which govern foreign investments in Cyprus.  In such a case, all income arising out of local sources will be subject to tax at the normal rates, e.g. 10% if a Limited Liability Company.

The combined effect of these provisions is to render the Cypriot international trust immune, or at least to a large extent immune, from forced heirship and “claw back” rules, especially in those cases where the settlor is domiciled in a civil law jurisdiction e.g. France, Germany etc, which have forced heirship rules applicable on death. 

Therefore, by creating an international trust as described above, tax liabilities are greatly and legally reduced, publicity and inconvenience of probate is avoided, assets are safeguarded from potential creditors and a solid environment is provided for the Settlor and the Beneficiaries.  

Furthermore, the said law prevents trustees, government officials, and officers of the Central Bank of Cyprus from disclosing any information to third parties, unless specifically ordered by a Cypriot court.  A Cypriot court should issue an order for disclosure only if the disclosure of information in question, is of paramount importance to the outcome of the case.  The Law does not impose any criminal sanctions for improper disclosure, but it does impose a duty on the trustees to take positive action to protect the confidentiality of trust information, in a way similar to general trust principles.

Further information, specific guidance and advice can be provided upon request and instructions in writing.