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October, 9 2018
September, 20 2018
Why register a trust in Cyprus? By: Aggelos Paphitis from AGP Law Firm
A number of undisputable advantages may be found with respect to the Cypriot trust registration. The simplicity of registration, the minimum requirements to its participants, clear legal system of Cyprus make a Cypriot trust an effective tax planning and property management instrument.
Considering registering a trust? Consider Cyprus!
Cyprus still keeps a high position as one of the most attractive jurisdictions for international tax planning in the world. Transparency of tax legislation, a low rate of the corporate tax, non-taxation of dividends, and double taxation treaties with the majority of economically developed countries – these all create a favourable climate to perform activities in or through the island of Cyprus.
One of the most prominent attractiveness in Cyprus is a possibility to form an international trust (“trust”) according to local trust legislation based on the English law thereby a principle of high-level privacy, confidentiality and common law protection can be guaranteed.
The Cypriot trust legislation consists of:
- The Trustees Law (Cap 193) which largely adopts the text of the English Trustee Act of 1925;
- Doctrines of equity and case law in England;
- The International Trusts Law, as amended in 2002.
What is a trust in Cyprus?
Though the law contains no definition of trust, a trust may be defined as a settlement whereby the settlor transfers the property to the trustee upon the terms set forth by the trust agreement or the trust settlement. The legal title to property is transferred to the trustee (becoming the legal owner) for the purpose of its management by the trustee for the benefit of the beneficiary(ies), however, all the rights to property are by the laws of equity held by the trustee for the benefit of the beneficiary(ies); please note that a settlor may also be a beneficiary. The trustee owes fiduciary duties to the beneficiaries and he/she is personally liable towards them.
To create a valid trust, the following requirements (certainties) must be complied with: there must be an express intention to establish a trust (usually evidenced by the trust agreement) (certainty of intention); the trust property transferred to the trust shall be easily identified and ascertained at the time of trust settlement (certainty of subject matter); beneficiaries must be ascertained or ascertainable (certainty of objects).
Requirements with respect to residency of trust participants:
- The settlor of a trust must not be a resident of Cyprus in the year preceding the year of settlement of a trust. However, no prohibitions for the settlor to be a resident of Cyprus after the commencement of the trust. Furthermore, the settlor creating a trust may be a beneficiary of such a trust as well.
- The beneficiary must not be a resident of Cyprus in the year preceding the year of the settlement of a trust (except for charitable purposes).
- There must be at least one trustee who is a resident of Cyprus at all times.
A Cyprus trust may be settled for the following purposes:
- Inheritance of property
- Protection of assets
- Commercial purposes, including common investments
- Tax optimization
- Charitable purposes
- Preservation of family property for its members (including those who are disabled, minor or not legally capable)
- Creation of mechanism of inducement the employees in the form of premium funds or pension schemes.
Advantages of trust formation in Cyprus
- A trust helps to protect assets from the possible claims and thus to protect the interests of ultimate beneficiaries as the assets of a trust are segregated from the settlor’s funds (including in case of bankruptcy or liquidation of settlor).
- The activity of trust in Cyprus is not limited by a specific term unless otherwise set out in the trust agreement.
- The trust property may include all kinds of assets and property anywhere in the world.
- The trust beneficiary or the settlor may become resident(s) of Cyprus.
- Any international trust settled in Cyprus may use tax benefits of current taxation system of the country.
- A trust in Cyprus is subject to the strict confidentiality. Any information or documentation of a trust may only be disclosed subject to an order of a court.
- No requirements with for registration and publication of constitutional documents and financial statements of the Trust. What is to be disclosed is the name of the Trust, the date of its settlement and the trustee’s name (they are disclosed to the supervisory authorities of Cyprus, such as the Cyprus Securities and Exchange Commission or to the Cyprus Bar Association or to the Cyprus Association of Certified Accountants). Such information will remain in the Trust Register for a term not exceeding 5 years after the termination of a trust and such trust register is not publicly available.
- A Cypriot trust may be redomiciled into another jurisdiction.
- No exchange control is set out.
- A trust is not subject to revocation by the creditors of settlor unless they prove that the trust was set up with the fraudulent purpose which shall be made within two years from the date of settlement of a trust.
Formalities which shall be complied with for the trust registration in Cyprus
- There is a necessity to pay a stamp duty of €427,50 (except establishment a trust by a will)
- It is required to provide the information about the trustees to the relevant competent authorities
- The trust must satisfy the basic requirements of the three “certainties” mentioned above, in other words, the settlor shall manifest an intention to settle a trust, the trust assets shall be specified with reasonable certainty and the beneficiaries under the trust shall be ascertainable
- A trust shall be set up based upon the confidential trust agreement between the settlor and the trustee
- All the requirements with respect to a residency of all the trust participants shall be satisfied
A number of undisputable advantages may be found with respect to the Cypriot trust registration. The simplicity of registration, the minimum requirements to its participants, clear legal system of Cyprus make a Cypriot trust an effective tax planning and property management instrument. The detailed information with respect to Cyprus trust structure, Cyprus trust taxation and other trust services in Cyprus may be provided upon request as the above-mentioned information serves exclusively as a general overview of legal requirements to the trust settlement and information of the benefits of registration of a trust in Cyprus. Qualified and experienced consultants of our firm will provide you with appropriate legal and financial advice and assist you in complying with the requirements set out by legislation and in determining the best way to plan your own tax scheme, manage the property and achieve your personal and business goals.
Author: Angelos G. Paphitis, Advocate | Managing Director at AGP Law Firm