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Cyprus International Trusts – a snapshot of the Cyprus solution to the trust vehicle: purpose, flexibility, regulation, enforceability

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An ideal tool for managing the wealth of individuals and families taking into consideration important matters such as tax optimization, asset protection and estate planning.

A Cyprus International Trust (CIT) has been traditionally used for various purposes such as:

• management of funds on behalf of others via a trustee

• organisation of collective investment and management of profit sharing and pension schemes

• tax optimization

• asset protection

• holding of property in the name of the trustee

• protection against spendthrifts and safeguarding of family capital for the next generation

• promotion of causes and charities

A CIT is a private arrangement between the relevant parties, with no requirements to disclose the trust deed or the names of the settlor or beneficiaries in any public domain and therefore retains a high level of confidentiality.

The concept of a “trust” is well-known, long-established and invariably enforced by the courts of Cyprus. Creation of a trust involves transfer of legal ownership of relevant assets to the trustee, who will hold, manage, dispose of and distribute the assets or realised proceeds to the beneficiaries, in accordance with the terms of the instrument creating the trust. The extent of the powers or discretion vested to the trustee and the extent of powers retained by the settlor or conferred upon a protector will be determined by the settlor during set-up.

A trust will qualify as a CIT if at least one of the trustees is a permanent resident of the Republic and the settlor and beneficiaries were not Cyprus tax residents in the year preceding the year of inception of the trust. There is generally great flexibility in setting up a CIT, such as the extent of discretion/power conferred on the trustee, ability to add assets, change beneficiaries, appoint a protector, change applicable law, validity in perpetuity etc. The flexibility, stability and history of the Cyprus legal framework coupled with low cost, professional experience, and regulation of the trustee’s role, whose services may only be provided by persons authorised for the purpose in accordance with the law, combine to comfort the settlor in entrusting the Cyprus trust-system.

A CIT benefits from the advantageous tax framework of Cyprus pursuant to which the trust itself will not be subject to tax as it is not afforded a separate legal personality, any income derived from sources outside the Republic will be exempt from Cypriot tax, whereas income realised by the trust will be considered as income of the beneficiaries who may be taxable in Cyprus on income derived from sources within the Republic, although tax assessment will be issued in the name of the trustee as a representative of the beneficiary.

Professional advice should be sought in all cases, to ensure a long-term solution in the preservation and growth of wealth, whilst balancing trustees’ discretion and control, having taken account of the settlor’s wishes but also the increasingly complex international regulatory framework which aims towards transparency and disclosure.