The Benefits of a Cyprus International Trust

An overview:

A Cyprus International Trust (CIT) provides for a high level of confidentiality and a very high degree of asset protection, in that the assets settled into a CIT are sheltered against potential claims, as they are segregated from the settlor’s funds. Assets are also shielded against subsequent bankruptcy or liquidation of the settlor, or creditors’ action against the settlor or the beneficiaries, irrespective of whether the trust was set up without consideration or to the benefit of the settlor or his/her family, unless it can be proven that the CIT was set up with the intention of the settlor to defraud his creditors. The hardening period within which a claim can be brought against the trustee by a creditor is 2 years from the date of transfer of the trust property in the CIT.
Another important aspect of CITs is the fact that Cyprus courts have exclusive jurisdiction over matters to be decided in respect of a CIT Trust Deed, where Cyprus Law is the governing law of the Trust Deed and as such a foreign judgement dealing with any issues of a CIT is not enforceable in Cyprus and this enhances the strong asset protection qualities of a CIT. Conversely, Cyprus provides a ‘firewall’ legislation, in that section 12C of the Amending Law (as defined below) provides that where a trust instrument is expressed to be governed by Cyprus Law, then the provisions of the Law apply thereto notwithstanding any other conflicts of law rules that are effective in Cyprus and the said section goes on to say that paragraph (1) above is a fundamental rule, the observance of which is a matter of Cypriot public order.

Additionally, the tax benefits of a CIT are substantial and HNWIs around the globe use a CIT within their corporate or private wealth structure in order to optimize their tax planning, since all income, gains and profits from non-Cyprus sources are exempted, among other, from income tax, capital gains or withholding tax on dividends, interest or royalties and no estate duty or inheritance tax is due in Cyprus.

In conclusion, a CIT provides the highest level of asset protection, privacy, flexibility, perpetual existence and many tax benefits and is unaffected by matrimonial property or succession laws or forced heirship claims.

Technicalities:

In 2012 and specifically in March 2012, the International Trusts Law of 1992, L.69(I)/1992 (the “Old Law”) has been extensively amended through the enactment of the International Trusts (Amending) Law of 2012, L.20(I)/2012 (the “Amending Law”), modernizing and updating the existing legal framework in order to reaffirm the position of Cyprus as a significant trust jurisdiction. On September 2013, the House of Representatives enacted the International Trusts (Amending) Law of 2013, L.98(I)/2013 (the “2013 Amending Law” and together with the Old Law and the Amending Law, the “Law”).

  1. The Law provides that in order for a trust to be considered a CIT and thus come under the ambit of the Law, it is necessary that the settlor and beneficiaries are not residents of Cyprus in the year preceding the creation of the trust and that at least one of the trustees is a resident of Cyprus, without making it prohibitory for such settlor and beneficiaries to subsequently take up residence in Cyprus. The term resident of Cyprus is determined in accordance with the Income Tax Laws of the Republic of Cyprus.
  2. Section 3 of the Law provides that no trust shall be void unless, and to the extent that it is proven in Court by a creditor, that, at the time of the transfer of assets to the trust, this transfer was conducted with the intent to defraud. The burden of proof consequently lies
    with the creditor and no such action may be brought against the trustee after 2 years from the date of the transfer of the property under the trust.
  3. Section 5 of the Law provides that there is no limit on the period for which a trust may continue to be valid and enforceable, and that no rule against perpetuities or remoteness of vesting or any analogous rule will apply. Conversely, section 4 of the Law provides that if no provision is expressly included in the trust instrument, pertaining to a CIT, to the effect that the CIT is revocable, it is considered irrevocable. According to section 6, income may accumulate for any period with the period of the trust.
  4. Section 9 of the Law allows for the change of the governing law of the relevant trust to and from the law of the Republic of Cyprus, if such change is authorised by the terms of the trust itself, which provides flexibility for the clients to change the governing law to and from Cyprus law, depending on which jurisdiction is most advantageous for the client’s circumstances at any given time.
  5. The trustee, protector, enforcer or any other person are prohibited from disclosing any information about the trust, except where required under anti-money laundering legislation, which the aforesaid persons have an obligation to be in compliance with, or where a court order to this effect is issued by a competent Court.
  6. The instrument creating a CIT is subject to a flat stamp duty of €430.

For further information, please contact Soulla Dionysiou at Dionysiou & Partners LLC at sdionysiou@dplawcyprus.com / +357 22 272360.

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