Areas of Practice
Trusts in Cyprus – D. Hadjinestoros & Co LLC
At D. Hadjinestoros & Co LLC we have many years of experience in all areas of trust work, including conventional as well as Cyprus International Trusts. 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.
Overview of Trusts in Cyprus and the Cyprus International Trust
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 Trust
The trust in Cyprus is an instrument where the person who creates the trust (the “Settlor”) appoints another person or persons (the “Trustees”) to hold property of the Settlor (the “Trust Property”) for the benefit of others (the “Beneficiaries”). Under such a deed, the Trustee becomes the legal owner of the Trust Property whereas the Beneficiaries become its equitable owners.
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. Here we are dealing only with Trusts created during the life of the Settlor.
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.
It is relatively easy to set up a Cyprus International Trust and we can draft the Cyprus International Trust on your behalf in accordance with your instructions. Setting it up only requires a few days. A stamp duty is payable at the rate of €430 when setting up the Cyprus International Trust as well as €30 for the registration of the trust.
Our setting up fees vary in accordance with the complexity of the trust. The same applies in relation to our annual administration fees.
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. At D. Hadjinestoros & Co LLC we offer the following services:
- We draft and set up the trust.
- We administer the Trust in accordance with the settlor’s wishes and can act as Trustees of the Trust property.
- We provide ongoing advice to the clients as well as the beneficiaries.
Give us call in order to arrange a meeting with one of the partners in order to discuss how we can help you.