Cyprus has one of the most attractive legislation systems for international tax planning. A low corporate tax rate, exemption from taxes on dividend income, tax transparency, and double taxation treaties with an array of industrialized countries – all these factors create favorable conditions to carry out activities on the island, especially using the structure of the Trust in Cyprus.
One of the biggest attractiveness in this country is the opportunity to set up a trust in accordance with local legislation. This popular instrument for estate planning focuses on the preservation and management of the value of assets for centuries offering a simple, agile, and flexible structure.
What is Trust in Cyprus?
A trust is a legal arrangement according to which the owner (the ‘settlor’) transfers assets to another person (the ‘trustee’) to administer the property for the benefit of the beneficiaries. It guarantees the highest level of assets protection, the greatest possible financial privacy access to the most profitable investments, and avoiding the highest amount of taxes allowed by the law. Trusts can hold different kinds of assets. Cash, securities, property, jewelry, cars, life insurance policies are examples. These assets administrated by a trustee to keep them for the benefit of the beneficiaries and they will not go through probate until the condition determined by the settlor met.
The figure of the trust actively used by parents who are seeking to save money caring about the future of their children holding the assets intact or even growing them for a continuous period of time. It is worth mentioning that a trust is a valuable instrument for parents of children with disabilities, as it guarantees that their children’s requirements are met for the rest of their lives.
Many investors have used this legal figure in Cyprus because of the great potential for tax optimization and asset protection, e.g. the fact that all trust income will be non-taxable. And what is more, they enjoy a Mediterranean climate, a safe and friendly environment of the island with easy access to Europe, Africa, and Asia.
How to set up a Cyprus trust?
In order to set up a Cyprus trust, the asset owner creates an agreement, which is a legal document that designates the settlor, the trustee, and the beneficiaries, and lays out the conditions under which the trust property will be managed and distributed. Also, the settlor must be completely capable and mentally healthy pursuant to a certain jurisdiction. The settlor must satisfy 3 certainties: the certainty of intention (intention to form the trust must be properly determined), of the subject matter (trust assets must be defined), and of beneficiaries (persons who derive advantage from assets must be determined).
Requirements for establishing:
Pursuant to the legislation, the foreigner must satisfy the set of requirements:
- The trust founder must not reside on a continuous basis within the Republic of Cyprus.
- Not lesser than one trustee must be a permanent resident of the Republic of Cyprus.
- The persons who derive advantage from assets must not have a permanent residence in the Republic of Cyprus (an exception is a charitable trust).
- The trust assets must not contain any immovable property in Cyprus.
The advantages of establishing:
The Cypriot economy has been on a way of steady growth and shows no signs of stopping any time soon. The country has one of the few CBI programs (Citizenship By Investment) which attracts many investors and enhances commercial opportunities. The local law, based on English “common law” arranges the country with the EU laws and regulations, whose purpose is to allow cross-border capital contributions and lower withholding taxes. There is no difference whether for the protection of assets or the preservation of family wealth, a Cyprus trust is a reliable and easy instrument to store and develop assets in a financially successful way if performed in a sound manner.
Both international corporations and individuals seeking to make contributions in the country through a trust given a set of clear benefits:
- A trust’s assets differ from the settlor’s funds and thus have a high level of protection against pretensions.
- A Cyprus trust can be established by foreigners.
- The existence of a Cyprus International Trust is indeterminate.
- The beneficiary can be a citizen of a foreign country.
- No specific demands for registration.
- The trust assets held and administered in complete secrecy.
- The trusts are difficult to revoke since the applicant must prove to the court that the trust set up for dishonest purposes. Moreover, this application must be submitted within 2 years following the asset transfer in order to be prosecuted.
- The settlors authorized to review or amend the provisions of trust and appoint or remove any trustee.
- Income generated outside of Cyprus, on trust capital income is non-taxable.
- The settlor can operate as trustee and administer the trust through a Cyprus international trading company.
- Forced heirship or marital property rules cannot affect the trust.
Trusts types
There are various types of trusts, but the most commonly used are the next ones:
- Express Private Trust
This is the most common form of trust. A settler set the property in trust by will, in writing, by deed of trust, or in some cases in an oral proclamation.
- Discretionary Trust
A trust has been made for the benefit of one or several beneficiaries, but the trustee is given full discretion as to decide when and what funds are given to the beneficiaries. Thus, the beneficiaries do not automatically get these assets, it depends on the trustee who determines when to distribute them.
- Fixed and Discretionary Trust
The settlor is the one who defines the conditions and advantages that the beneficiaries receive the funds. Therefore, the trustee cannot change the beneficiaries or the rewards they are approved to receive in this amount. The trustees must eventually distribute the principal in prescribed proportions.
- Charitable Trust
This is a way to make the assets be useful for the settlor, his/her beneficiaries, and a charity — simultaneously. Such trust could provide many financial benefits for philanthropically minded persons with nonessential assets, such as stocks or real property.
Ideas you can implement when establishing
- Collective Investments
There is an excellent opportunity to convert friends into partners. In this way, the trust will serve as the basement for such collaboration and the sharing of the joint venture’s financial results.
- Ownership of property that cannot in one’s own name
It is an attractive option when the parents want to transfer assets to their minor children or incapable persons since the settlor chooses a trustee who may hold and administrate them for their benefit.
- Means of Management
An international commercial company appointed to act as its administrator (trustee) to manage funds on behalf of its customers.
- Protection Against Claims
Trusts cannot fall under any litigation decisions or divorce applications, safeguarding the interests of the beneficiary. Moreover, only the Cypriot laws of Cyprus shall govern trusts, established in Cyprus.
- Creation of Employee Incentive Programs
If a trust established by a business person who wants to share certain benefits with his/her employees, he or she can do so through a trust. Using a trust with employers as beneficiaries, a business person can create incentive and retirement programs.
- Tax Optimization
By transferring the money into a Cyprus trust, a settler will instantly decrease his/her income or wealth taxes.
- Charitable Purposes
This instrument used for charitable purposes e.g. supporting initiatives, religious, artistic, or educational activities, etc.
If you have a large amount of capital and are interesting in how to manage and develop it in the future, how to avoid the highest amount of taxes on those assets, and just keep them protected, setting up trust in Cyprus would be an excellent option for you. The lawyers of Eternity Law International can offer you its legal, technical, and business expertise and consulting support. Contact us!