The Cyprus International Trust
In a world where protecting one’s assets is increasingly prudent, Cyprus offers a good instrument for people who are looking for a reliable way to protect their assets and plan their inheritance: the Cyprus international trust (CIT).
The Cyprus International Trust is a flexible trust structure that has been modernized to face today’s challenges.
A trust is a very useful tool to transfer legal ownership of assets in order to achieve a wide variety of goals. It can be used to plan an individual’s inheritance, to protect assets, to manage investments or for efficient tax planning. A trust is created by a deed or will where an individual (the settlor) places his assets in the care of the trustee for the benefit of others. With the transfer of the assets the legal ownership is also transferred from the settlor to the trustee. This is the basic idea of a trust, but the options you have differ greatly between trust regimes in the world.
Cyprus has a long history with the trusts. The country has amended its trust law in 2012 in order to modernise it and make it more attractive compared to other trust regimes. Important aspects of the CIT are that it has no restrictions on its duration and that it’s possible for the settlor to take the role of beneficiary and/or protector. The law also offers the possibility of moving the trust to another jurisdiction if an individual wishes to do so. This can come in handy when changes in Cypriot law make it less attractive to continue holding the trust in Cyprus. The law does not limit investments or assets to those located in Cyprus.
The establishment requirements of a Cyprus International Trust are very minimal. In a CIT the settlor and beneficiary (ies) cannot have been residents of Cyprus in the year preceding the establishment of the trust and at least one of the trustees must be a Cypriot national. Outside these requirements the normal requirements of the proper establishment of a trust exist, the trust deed must contain these elements: the intention of the settlor must be clear in the deed, the assets to be brought in the trust must be readily identifiable and it must be clear who the beneficiaries are.
Cyprus offers a high level of confidentiality while still complying with international standards for the prevention of money laundering. The trust does not need to be registered in a public registry and the trustees are bound strict confidentiality provisions. Information regarding the trust is not open to individuals. Only courts and competent authorities in Cyprus have access to information regarding the trust. In 2013 the Cypriot government adopted new legislation requiring trusts to be registered in a trust register. The service provider must file the name of the trust and the trustee(s), when it was created and if relevant, the date of change of the law governing the trust and the date of termination. The competent authorities in Cyprus are the Cyprus Securities and Exchange Commission, the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus. The service provider will hold the rest of the relevant information, such as information regarding the identity of the settlor, beneficiaries, protector and activities of the trust in its own office.
As we have seen, a trust is a way to transfer legal ownership from the settlor to the trustee. One of the benefits of doing this is that it moves the assets of the settlor out of reach of creditors or others who have a claim on the settlor. This can occur when the settlor goes into bankruptcy, is involved in a messy divorce or litigation. Since the legal ownership of the assets has been transferred to the trustee, these assets are now out of reach of creditors. This makes the trust a good instrument to protect assets. Trust regimes normally have provisions in place that guard against abuse of a trust by using a trust to defraud creditors. This would be the case where, for instance, an individual knows that his company will go bankrupt and in order to keep his assets out of reach of creditors, transfers his assets to a trust. When this happens, creditors can go to court in order to dissolve the trust and get access to the assets that are held in the trust. Some trust regimes limit the time period creditors can go to court in order to get the trust dissolved. The CIT regime offers the most reasonable time limit for creditors to take action. Creditors must bring a claim before a Cypriot court within two years of the start of the trust. This time limit is the shortest in the world. Cypriot courts will only break the trust open when the creditor has provided proof that the trust was intended to defraud them. Defrauding creditors is the only claim against a trust that the Cypriot courts will recognize, they will not order the trust to be dissolved for other reasons such as claims resulting from a divorce or issues with the inheritance. Coupled with the relative short time limit, the CIT offers strong protection for an individual’s assets.
Cyprus has a very advantageous tax regime for Cyprus International Trust’s. Income derived from assets held in the trust from sources outside of Cyprus are except from taxation. If properly structured the trust and its beneficiaries can take advantage of low taxation or even exemption from certain taxes like dividend, inheritance or estate tax.
The way a typical trust is constructed requires the settlor to appoint someone to manage and hold their assets. This can be problematic for people who want to maintain a high level of control of their assets. The law in Cyprus holds trustees to high standards of managing and maintaining the trust, but some individuals will still want to be able to maintain a certain level of control over the assets in the trust. The CIT offers a number of ways for settlor to maintain some level of control. They can elect to establish a Cypriot company of which they are the sole shareholder and appoint the company as the trustee of the trust, that way they would have complete control over the trust. Another option that was introduced by the amendment of the trust law in 2012 is to appoint a protector. The role of the protector is to oversee the trustees. A protector can have a range of powers such as the right to appoint and/or cancel the appointment of a trustee or a veto right over the decisions by the trustee concerning the trust.
Cyprus International Trust – Conclusion
With the amendment of the trust law of 2012 Cyprus has created a flexible trust regime that offers individuals a lot of options in structuring their trust. The CIT is a modern trust structure that offers confidentiality while still complying with international money-laundering standards. A CIT offers strong asset protection and individuals can also take advantage of the favourable tax regime in Cyprus. Individuals wanting to retain a high level of control have multiple options to arrange this in a Cyprus International Trust.
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. Understand the downsides and benefits, or read more on our Cyprus Company Formation