Cyprus Trusts – Introduction
Cyprus has become a premier destination for creating trusts, thanks to its robust legal framework and generous tax incentives.
The concept of a trust, considered one of the most significant legal innovations in English jurisprudence, allows individuals and corporations to meet various objectives, such as asset protection, estate planning, and confidentiality.
In Cyprus, the legal system supports a wide range of trust types, including fixed trusts, discretionary trusts, and charitable trusts, each designed to serve different needs.
The Cyprus International Trust
One of the most notable trust structures in Cyprus is the “international trust.”
Following the 2012 amendments to the International Trusts Law 69(I)/92, Cyprus has become one of the most competitive jurisdictions for establishing international trusts, offering unique benefits compared to other locations.
This type of trust allows individuals to take advantage of the country’s favorable legal and tax environment while enjoying significant flexibility.
Key Conditions for Establishing a Cyprus International Trust
To create a Cyprus international trust, certain criteria must be met:
- The settlor, whether a legal or natural person, must not have been a resident of Cyprus during the calendar year preceding the trust’s creation.
- The beneficiaries must also not have been residents of Cyprus during the calendar year before the trust’s creation, except for charitable institutions.
- At least one trustee must be a resident of Cyprus throughout the trust’s lifetime.
The term “resident” refers to someone who resides in Cyprus for more than 183 days in a tax year or a company that is managed and controlled within Cyprus.
Advantages of Cyprus International Trusts
General
Setting up a Cyprus international trust provides numerous benefits, including:
Asset Protection
- Trusts in Cyprus act as a shield against various risks, such as creditor claims, government actions, and expropriation.
- They offer protection from potential claims by spouses or former spouses.
- Trusts can safeguard assets against future claims from torts or contracts arising from transactions initiated by the prior owner of the trust property.
Confidentiality and Reporting
- Trustees must maintain strict confidentiality regarding settlors and beneficiaries. Disclosure is only permitted by court order or specific legislation.
- While registering a Cyprus international trust is mandatory, the process does not require submitting the Trust Deed, nor is the beneficiaries’ identity open to the public.
- Cyprus international trusts are not subject to reporting requirements, providing further confidentiality.
Managing Family Wealth, Estate Planning, Inheritance Planning
These trusts offer an excellent solution for high-net-worth individuals seeking strategic asset planning, particularly for those with complex family arrangements.
Tax Benefits
- Income, gains, and profits from sources outside Cyprus are exempt from Cyprus taxes.
- Worldwide income is taxable in Cyprus only if the beneficiary is a tax resident in Cyprus.
- Non-tax resident beneficiaries are only taxed on income sourced within Cyprus.
- Dividends, interests, and royalties from Cyprus-based companies are exempt from taxation and withholding tax.
- Cyprus does not impose estate duty or inheritance tax, providing additional benefits for those using Cyprus international trusts.
Reservation of Powers
Settlors can reserve certain powers when establishing a Cyprus international trust.
These powers might include the ability to revoke or alter the trust, appoint or remove trustees or other key positions, or give specific instructions to the trustee.
Perpetuity
Cyprus international trusts can continue in perpetuity, as the rule against perpetuities has been excluded.
Cyprus Trusts – Conclusion
The 2012 amendments to the Cyprus International Trusts Law have positioned Cyprus as a leading jurisdiction for setting up international trusts.
The comprehensive legal framework provides unparalleled protection and flexibility, allowing settlors, trustees, and beneficiaries to structure their family or business arrangements to meet their unique needs and objectives.
With these advantages, Cyprus stands out as an attractive destination for creating trusts with significant tax benefits and legal security.
Final thoughts
If you have any queries about this article on Cyprus Trusts, or tax matters in Cyprus more generally, then please get in touch.
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