Areas of Practice
All you need to know about Trusts in Cyprus
At D. Hadjinestoros & Co LLC we have many years of experience in all areas of trust work, including the setting up of Trusts in Cyprus as well as setting up a Cyprus International Trust. We have extensive experience in drafting trust instruments and we provide beneficiaries and trustees with advice in relation to trusts.
We also deal with and litigate on behalf of trustees and beneficiaries in all types of disputes that may arise in relation to the trust. Examples of work we have undertaken include appointment, retirement and removal of trustees, variation of trusts, tracing assets, challenging the validity of trusts, allegations of breaches of trust, as well as advising on trustees’ rights and duties.
Cyprus International Trusts provide significant possibilities for international tax planning and estate planning. Such trusts are exempt from income tax, capital gains tax, estate duty and may hold shares in a Cyprus company without any liability to tax on dividends received.
We have vast experience in setting up Trusts and we have a number of services on offer relating to the setting up and administration of the Trust. Our team of Cyprus Lawyers at D. Hadjinestoros & Co LLC can offer the following services in relation to a trust in Cyprus:
You may contact us to set up a fully confidential meeting to discuss how we can help you.
Trusts in Cyprus are governed by the Trustee Law CAP 193 which governs in detail the rules on the appointment, duties and role of trustees as well as the powers of the court when dealing with trusts.
A trust in Cyprus is formed when a certain person called the “Settlor” transfers the legal title to property or assets to another person called the “Trustee” so that the Trustee holds the property for the benefit of another person or persons called the “Beneficiary” in accordance with the wishes of the Settlor. The trust can be created at a time where the Settlor is alive or on his death (for example through a testamentary disposition). In the latter scenario, inheritance laws are applicable.
To form a trust in Cyprus, the Settlor and the Trustee will sign a Trust Deed whereby all of the terms of the trust together with the duties and the powers of the Trustee are set. Furthermore the Trust Deed will contain the specific purposes of the Trusts indicating how and the extent by which the Trustee can use the property.
In order to protect the abuse of certain powers of the beneficiary, a certain person may be appointed named as the “Protector” who must be advised in the exercise of specific powers of the Trustee as these may be determined in the Trust Instrument.
Purposes of a Trust in Cyprus
The purposes of trusts in Cyprus vary. For example, they may be executed in order to protect property against creditors or overly spending spouses or children, for charitable purposes, commercial purposes or, in order to provide for future generations. Furthermore, trusts in Cyprus can be created over shares in order not to disclose the ultimate beneficial owner and keep such an arrangement confidential (of course this is subject to legal disclosure and AML requirements)
A wealthy owner of a company (“X”) which in turn owns buildings and assets in Cyprus, wishes on his death to share all of the assets in his company between his children and grandchildren and nothing to his wife. Under the laws of intestacy in Cyprus, on his death X could only transfer ¼ of his assets to his grandchildren whilst the ¾ would be distributed between his wife and children. Therefore, X can create a trust in Cyprus whereby either the shares in his company or the assets themselves are held by the Trustee for the benefit of the himself and on his death for his children and grandchildren. In this way, he can avoid the intestacy rules by transferring the legal title to the Trustee. In this scenario of a typical Trust in Cyprus, X is the Settlor and X, the Children and the Grandchildren are the Beneficiaries under the Trust.
It is important to note in the above example that even though a trust may be created on death of the settlor (for example by stating in his will that such a trust is created) this would not avoid the rules of intestacy in Cyprus and therefore it is better if the trust is created during the lifetime of the settlor.
Duties of the Trustee of a Trust in Cyprus
There are a number of duties imposed on the Trustee of a trust in Cyprus. For example, he must comply with the terms of the trust, a duty to act impartially and treat the beneficiaries equally, duty to act in good faith and to exercise reasonable care and skill, a duty to keep accounts and supply information as well as other fiduciary duties.
Powers of the Trustee of a trust in Cyprus
Under the Trusts Law, the Trustee also has certain powers such as the power of trustees for sale to sell by auction, to sell subject to depreciatory conditions, to give receipts, compound liabilities, raise money by sale charge or otherwise, devolve the powers of the trust, insure the property, employ agents or delegate the trusts in case of absence abroad. Furthermore, the Trustee may appoint new or additional trustees.
Additionally, the Trustee is protected against liability through certain provisions stated in the law.
What property or assets can be put under a trust in Cyprus
The property or assets which can be subject to a trust in Cyprus can be of any kind including money, shares, movable property or goods, choses in action, real property as well as any other property which may be subject to ownership – provided that the Settlor is the owner (i.e. is the legal owner) of the property. Example of assets which may be subject to a Cyprus Trust are the following:
Shares, stock or debentures
Money in Bank Accounts
House or apartment
To set up a trust in Cyprus it is imperative that there exists a Settlor a Trustee and a Beneficiary although one person may fall into the category of the other (for example a Settlor can also be a Beneficiary or a Trustee). Furthermore, it is imperative that every trust in Cyprus fulfil the three certainties. These are, (1) the certainty of intention, (2) certainty of subject matter and (3) certainty of objects.
1) Express Trust
Express Trust is the trust which is created by a Trust instrument whereby the settlor uses clear word of intention to create it.
2) Implied Trusts
An implied trust is implied by law in cases that its non-recognition would create injustice. Such is the case for example in case one of the spouses owns the family home but it would be just to recognise that the other spouse should also own part of it. In such case the trust may be implied so that one of the spouses holds the house on trust on behalf of the other. The following are types of implied trust in Cyprus:
Resulting trusts arise due to an implied intention of the settlor or of the parties. For example if an elderly and infirm individual appoints another individual (for example his child) to his account in order for the child to help with in groceries and other necessities, the court, in case of death of the elderly will impose a resulting trust on the account i.e. that the appointed individual holds the money in the account on trust for all the inheritors of the elderly (for example other children)
This trust does not depend on the intention of the parties and will generally be used in cases someone commits fraud or in order to do justice. For example if a government official receives a bribe in breach of his duties, the court will recognise that he holds the bribe amount on trust.
3) Fixed Trust
A fixed trust is a trust where each of the beneficiaries has a fixed and proportionate interest in the trust property and this interest is specified by the settlor on the outset. An example is a unit trust whereby the beneficiary’s interest is determined by the units held in the trust.
4) Discretionary Trust
This is the type of trust where the Trustee has wide discretion on how to deal with the trust property and for this reason the Trustee may decide on how to share the property between the beneficiaries.
4) Charitable Trust
The charitable trust is a trust established for a charitable purpose. It is a form of express trust which must be for the benefit of the public or a section of the public and not a group of individuals. It must be for a charitable purpose and for the public benefit (such as the promotion of education or religion).
Trusts in Cyprus continue to exist for life in being plus 21 years.
Therefore if a trust deed is for the benefit of the 4 children of the settlor, its maximum duration is for the duration of the life of the child to die last plus 21 years.
Note however that in case the trust is a Cyprus International Trust, then this rule does not apply and the trust may continue indefinitely.
The Cyprus Law on International Trusts has been amended in 2012 making Cyprus one of the most competitive jurisdictions to set up such a Trust.
What is a Cyprus International Trust
For a Trust to qualify as a Cyprus International Trust, the following conditions must be satisfied:
The Settlor (can either be a legal or natural person) must not be a permanent resident of Cyprus during the year preceding the creation of the Trust.
At least one of the Trustees should be a permanent resident of Cyprus.
The Beneficiaries (either legal or natural persons) must not be residents of Cyprus during the year preceding the creation of the Trust.
There is a requirement of €430 to be paid as stamp duty as well as €30 for registration.
The Cyprus International Trust can be used for commercial or charitable purposes or to provide for one’s family. In its commercial form, a Cyprus International Trust can be used as an investment vehicle, to provide for employees’ pensions or other non-charitable purposes. In its family form, the Cyprus International Trust may be used to hold property for the benefit of others secretly, for minors and/or their successors. It can also be used to protect property against inheritors who may otherwise spend it or to protect property which has otherwise been apportioned to a married couple and their marriage has failed.
Uses of the Cyprus International Trust
There are many uses in setting up a Cyprus International Trust:
A Cyprus International Trust can appoint nominee shareholders to hold shares in a company on behalf of the trust. In such cases, dividends, interest or royalties received by a Cyprus International Trust are not subject to withholding tax.
Used to divest personal assets. For example, if someone wishes to dispose of an asset, he can do so by transferring it to the Cyprus International Trust.
Used to avoid exchange controls. For example, if in the future exchange controls are placed for remittance of funds back to the home country, the Cyprus International Trust can be used to keep the funds as part of the Trust and outside the scope of the exchange control remittance regulations.
A Cyprus International Trust can be used for estate planning. For example, through the trust the settlor can arrange for someone who wouldn’t inherit otherwise (due to forced heirship rules), to inherit.
Benefits of the Cyprus International Trust
A. Difficult to Challenge
First of all, there is a two-year limitation period for challenging a Cyprus International Trust (or challenging the transfer of assets to the Cyprus International Trust) and the only reason it can be challenged is for defrauding creditors; the burden of proof being on the creditors to prove that the Cyprus International Trust (or the transfer of assets to the Trust) was made with the intent to defraud them.
Secondly, the laws of succession applicable in any country (including court orders or decisions or Governmental Authorities) will not affect the validity of a Cyprus International Trust or the transfer of property to the Trustee of a Cyprus International Trust.
B. Law Governing the Cyprus International Trust
If the law chosen to govern the Cyprus International Trust is Cyprus law, then as a matter of public policy the provisions in the Cyprus International Trust will be upheld regardless of conflicting provisions in the laws of Cyprus or laws of other jurisdictions. For this reason, any inheritance laws in any other jurisdiction will not be applied.
C. Flexibility of the Trust
The Settlor (provided this is expressed in the instrument) can reserve powers, which include the power to amend the trust, appoint or remove trustees, protectors or enforcers, or change the law governing the trust.
It should be noted that amendments require the approval of the court.
Under our law, the Trustees of a Cyprus International Trust have an obligation not to disclose information or documents unless ordered to do so by the court or are required by law (For example the Trustee must register the Beneficiaries for tax purposes). What is required however is for the trust to be registered at the Trusts Registry for as long as the trust is governed by Cyprus Law. This registry is not available to the public for inspection but can only be inspected by the Competent Authorities.
E. Tax Advantages
If the majority of the beneficiaries are Cyprus residents, then the trust will be taxed as a domestic trust. i.e. on all of its income worldwide.
If the majority of the beneficiaries are non-residents, then the trust will be taxed only on its Cyprus-income. Given that the Cyprus International Trust is a transparent tax entity, a beneficiary who is not tax-resident in Cyprus, will be taxed only on income derived in Cyprus (note that in case the beneficiary is a tax resident in Cyprus, he will be taxed on his worldwide income).
There are no inheritance related taxes in Cyprus.
The Trustees are responsible for paying the taxes of a Cyprus International Trust.
F. Other Advantages of the Cyprus International Trust
- Indefinite in duration.
- Avoidance of forced heirships.
- Can be used to protect assets against legal action.
This information does not constitute legal advice. For a free, confidential consultation with a specialist in this area you can contact us to arrange an appointment by phone or email.
How can a lawyer in Cyprus assist me in forming a Trust?
A Cyprus lawyer can help you with drafting the trust deed, deal with all stamp duties, register the trust with the Cyprus Bar Association and if immovable property is involved, transfer the title deeds to the Trust at the Land Registry
Does a Trust in Cyprus Need to be Registered?
Yes, the Trust must be registered with the professional body responsible for the Trustee (for example if the Trustee is a lawyer, then the Trust Deed must be registered with the Cyprus Bar Association). If immovable property is part of the Trust it must also be presented at the Land Registry.
What Property can be the subject matter of a Trust in Cyprus?
Any property can be the subject of a trust including money, shares, choses in action, goods or real estate.
How can a lawyer in Cyprus assist me with the administration of a Trust in Cyprus?
Your Cyprus lawyer may assist you in managing the Trust Property, administering the trust in accordance with the settlor’s wishes, provide ongoing advice to the beneficiaries, the trustees or act as a Trustee of the trust property.
Is a Cyprus International Trust different from any other Trust?
Although all basic principles applicable to a Trust also apply to a Cyprus International Trust, the Cyprus International Trust is a specific type of trust offering advantages (tax and otherwise) in cases the settlor is not a permanent resident of Cyprus and the beneficiaries are not residents of Cyprus during the year preceding the creation of a trust.