The legal framework governing trusts in Cyprus is based on The Trustees Law, Cap. 193, (“The Trustees Law”), which is largely based on the English Trustee Act of 1925 and on The International Trusts Law, No. 69(I)/92, (“The International Trusts Law”), enacted in July 1992 and amended with the International Trusts (Amending) Law, No. 20(I)/2012.
Cyprus has ratified with the law No. 4(III) / 2017 the Hague Convention on the law applicable to trusts and on their recognition, or “The Hague Convention on Trusts” which is a convention related to conflict of laws issues and sets out rules as to the recognition of trusts of one jurisdiction to another.
Common Law and the Principles of Equity, are also applicable, being one of the sources of the Cyprus legal system so long as they do not come in conflict with local statutes
A trust generally may be defined as an institution whereby an owner (Settlor) of delegates it in the custody of a person (Trustee) for management for the benefit of a third party (Beneficiary). This is a general definition based on equity principles reflecting this type of arrangement given that the Law does not contain a definition as to what constitutes a “trust”.
To constitute a valid trust in general, the following elements or certainties must be established:
(i) The Certainty of Intention: this refers to the intention of the settlor who is to transfer the property to create a trust. This may be expressed either orally or in writing. Such intention is usually expressed in writing through a trust creating instrument;
(ii) The Certainty of Subject Matter: there must be certainty as to both an identifiable property being subject of the trust as well as the portion of the property or ensuing rights that the beneficiaries will receive. Generalities or vagueness to the description of the subject matter of the trust may lead to the invalidity of the trust; and
(iii) The Certainty of Objects: this certainty refers to the fact that the trustee should know who the beneficiaries are and they should be identifiable. The beneficiaries cannot be a large or vaguely identified group that the settlor would not be in a position to identify who the beneficiaries are.
This type of trust is expressly created by the settlor and also can be created by deed, in writing, by will and, with some exceptions, orally. The intention of the settlor must be clear. The three certainties listed should be present else the trust is rendered void. The beneficiaries have enforcement powers in respect of the trust.
There is no legal definition of what constitutes a charity. Usually, a trust that is set up for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community is considered to be a charitable trust. In particular they are set up for certain public purposes. They are enforced by the Attorney General acting on behalf of the state. It is possible to set up an international charitable trust in Cyprus under the International Trusts Law.
These are trusts where the share or interest of the beneficiaries in the trust property is specified by the settlor; and
These are trusts where the trustees may, at their discretion determine what share or interest of the trust property should go to each member of a class of beneficiaries.
Cyprus International Trust (CIT)
The Cyprus International Trust has modified provisions to enhance amongst other the asset protection functions of trust and allow the Settlor or a protector of the trust to reserve powers controlling the trustee’s exercise of functions and duties. For a trust to qualify as a Cyprus International Trust, the Settlor and the Beneficiaries must not be resident in Cyprus at least for a year preceding the creation of the trust and at least one of the trustees must be domiciled in Cyprus during the life of the trust.
In order to establish a valid Cyprus International Trust, settlor should not be a resident of Cyprus in the year preceding the year of the creation of the international trust. The beneficiary, other than the exception of a charity, must be a resident of Cyprus in the year preceding the year of the creation of the international trust. The appointed Trustee, or at least one of many appointed Trustees, must be a resident of Cyprus at all times.
The International Trust is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors unless and to the extent that the creditors can show that the trust was made with the intent to defraud them. The burden of proof of such intent lies with the creditors and an action against the trustees to avoid the trust, on grounds of fraud, must be brought within two years from the date when the relevant transfer or disposition of assets is made to the trust
Unique Elements of the CIT
- Protects various corporeal and incorporeal assets from claims also protects interests of beneficiaries as the assets of a CIT are separate from the settlor’s funds.
- A settlor can manage the property within the CIT according to wishes issued in perpetuity.
- CIT is regulated pursuant to the terms of the trust agreement/deed and is not subject to limitations at Law.
- The CIT retains an open policy with regard to asset inclusion, without prejudice against the geographical location or form of the asset.
- If the beneficiary of the CIT is not a resident of Cyprus, the income and profits derived from the CIT from outside of Cyprus are not subjected to any taxation in Cyprus.
- CITs are subject to strict confidentiality. Any information or documentation pertaining to a trust may be disclosed only by order of the court. All trusts must be registered, although the relevant trust deed need not be submitted. In case of inspection, disclosures of settlors and beneficiaries will be seen only by the competent authorities. Further, Cyprus trusts have no reporting requirements.
- Following the 2012 amendment of the International Trusts Law, Cyprus international trusts can be established for the duration of a lifetime plus 21 years. Where no natural person is involved in the agreement, trusts can exist for 21 years.
- A CIT is not subject to contest by creditors unless it is proven at court level that the trust is a sham or is intended on defrauding the creditors of the settlor. However a time limitation exists in the amount of 2 years following the creation of the CIT
Registering a trust in Cyprus has many advantages. The simplicity of the registration procedure, the limited requirements for participants, the strong protective framework and confidential nature of the arrangement along with the clear legal framework make the Cyprus international trust regime an effective tax planning and asset management instrument, popular amongst high-net-worth individuals who have complicated family structures and aim to protect their assets and optimise their tax planning.