The Cyprus International Trust as a tool to protect assets and achieve favorable tax objectives

By Maria Rousia, Associate Lawyer at Dionysiou & Partners LLC

What is a Trust?

A Trust is a fiduciary arrangement in which one party, known as the Settlor, gives to another party, known as the Trustee, the right to hold certain property or assets, the “Trust Property”, in the name of the Trustee but on behalf of and for the benefit of other person(s) -whether physical or legal person(s), the Beneficiaries for a purpose subject to the terms and conditions specified in the trust document which governs the trust, the Trust Deed.

The Trust law creates a exceptional ownership whereby the Trustee holds the legal title as he/she appears to be the only registered owner but the right of use and benefit of the Trust Property belongs to the Beneficiaries who hold the equitable and beneficial title which is very close to the title of ownership and the enjoyment of ownership. The Trust Property is separated from the Settlor’s personally-owned assets. All actions required for the purposes of the Trust are performed by the Trustee who acts not in a personal capacity but as a Trustee.

The Trust Property may include any type of Property such as cash, stock, shares, artworks, real estate or other investments and assets, regardless where they are situated (within and outside Cyprus) provided that the Trustee holds the legal title.

Legal Regime

Cyprus International Trusts (hereinafter the “CITs”) have been established since 1992 with the International Trust Law (Law 69(I)/1992) (hereinafter the “CIT Law”). The Cypriot trust legislation consists also of the Trustees Law (Cap 193) which is mainly based on the English Trustee Act of 1925 and the doctrines of equity and case law in England. It is crucial to state that the CIT Law was amended in 2012 and 2013 significantly enhancing the asset protection features of CITs.

Advantages of CITs

Asset Protection: Through the CIT, the Settlor estranges certain assets from its remaining assets achieving their protection against potential creditors’ claims. Also, in case of bankruptcy or liquidation of the Settlor, the CIT will not be considered as void or voidable. Of course, the Trust must not have been set up with the intent to defraud creditors. In such a case the creditors have the right to file a claim against the Settlor within two years from the date of transfer of the CIT Property. It should be noted that the burden of proof of the Settlor’s intention to defraud creditors is put on the creditors.

Tax Benefits: Any CIT settled in Cyprus may use tax benefits of current taxation system of the country. The Trust Property is not subject to any form of Cyprus taxation provided that the Beneficiaries are not Cyprus tax residents (income tax), and the immovable property in the Trust is not situated in Cyprus (capital gains tax).

Duration: Since there are no life duration limitations by the Law, a CIT may last for an indefinite period. Of course, the duration of the Trust may be determined by the Trust Deed.

Avoidance of rules of forced heritage: Once the Trust Property is transferred to the name of the Trustee, the Settlor is alienated from this . Hence, the forced heirship rules do not affect the Trust Property. Moreover, the Cyprus law or the law of any other foreign country regarding the inheritance or succession do not affect in any way the transfer or the validity of the CIT.

Withdrawal: A CIT is deemed to be revocable by the Settlor unless otherwise specified in the Trust Deed.

Confidentiality: A CIT is subject to a strict confidentiality. It should be noted that although there is a Trust Register in Cyprus, the only information that is disclosed is the name of the Trust, the date of its settlement and the Trustee’s name. The personal information of the Settlor and the Beneficiaries are not recorded in any Register. The Trustees are bound by confidentiality and are prohibited from disclosing any other information or document in relation to the Trust, unless required by the law or ordered by a Cyprus court.

Reservation of powers by the Settlor: The Settlor has the right to reserve several powers after the transfer of the Trust Property.

What we offer?

Our office provides high level guidance with regard to the registration of a CIT. It also provides Trustee services, it drafts the Trust Deeds and provides assistance on ongoing matters as regards the Trust Law in general.

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