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International Trusts in Cyprus

July 31, 2014

Cyprus is a favourable jurisdiction for creating international trusts which are governed by the 1992 International Trusts Law which regulates the establishment and administration of International Trusts. The International Trust Law compliments the Trustee Law which is based on the English Trustee Act 1925.

A Cyprus International Trust offers confidentiality and privacy, estate planning and asset protection, tax planning and family wealth preservation.

How a Cyprus International Trust works:

A trust is established in relation to certain identified assets. The owner of these assets (the settlor) creates a trust by appointing a trustee to hold and manage the trust fund for the benefit of another person (the beneficiaries). The trustee manages the assets in accordance with the instructions of the settler, as expressed in writing in the trust deed.

When a trust qualifies as a Cyprus International Trust:

As per Section 2 of the International Trust Law a trust qualifies as an International Trust when the following are fulfilled:

  • The owner of the assets (the settlor) is not a permanent resident in the Republic of Cyprus
  • The beneficiary is not a permanent resident in the Republic of Cyprus
  • At least one of the trustees is a permanent resident in the Republic of Cyprus throughout the duration of the trust
  • The trust does not include any immovable property situated in Cyprus
  • The trust may own shares in a Cyprus Company which does not own immovable property in Cyprus

If a settlor wants to retain full control over the managements of the trust then this is possible by forming a Cyprus company, the shares of which belong entirely to the individual and who can also be the sole Director. The company would then act as the sole trustee of an International Trust to which the assets of the settlor were transferred.

Tax advantages:

Cyprus International Trusts have many tax advantages and are widely used as international tax planning instruments. According to the international trust legislation Cyprus International Trusts have the following characteristics:

  • Income and gains of international trusts that derive or are deemed to derive from sources outside the Republic of Cyprus are exempt from any taxes in the country.
  • Assets and property belonging to the trust is exempt from the payment estate duty.
  • Interest received on foreign capital in a Cyprus bank but derived from outside the country is not subject to any tax.
  • Trust money deposited in a Cyprus bank is not subject to withholding tax on the interest.
  • In some cases Cyprus International Trusts may benefit from the application of the provisions of double tax treaties.

Additional benefits:

There are many other benefits to using a Cyprus International Trust, some of which are listed below:

  • As Cyprus is an EU member exchange controls have been abolished therefore a Cyprus International Trust is not subject to exchange controls. Together with excellent telecommunications and international banking services Cyprus is a convenient location for the remittance and transfer of funds.
  • There is a high standard of legal and accounting professionals, many of whom have trained in the UK, and English is widely spoken ensuring expert advice and assured competency of trust management.
  • There are no formal registration or reporting requirements for trusts established in Cyprus.
  • Cyprus law is flexible and allows the removal of the trust from its jurisdiction and vice versa.

As can be seen, there are numerous benefits of a Cyprus International Trust which makes them invaluable in International Tax Planning. By using professional tax advice with regards to the organisation and structuring of investments then tax can be minimised.

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