The Cyprus International Trusts Law of 1992 (Law No. 69(I)/1992) remained basically unaltered since its enforcement back in 1992. Realising that trusts have the potential of being used as the channel for foreign investments in or through Cyprus, legislature examined the concerns and attempted to improve the already existing legal framework in such a way so that to achieve the boosting of such investments.
The Cyprus House of Representatives voted in favour of the Bill for the much anticipated reform of the Cyprus International Trusts Law of 1992, amendments introduced by Law No. 20(I)/2012, which have indeed introduced some novel provisions, described in detail below, designated to make Cyprus a more attractive centre for the establishment of International Trusts. The last amendment to the Law was introduced by Law No. 190(I)/2013.
Main provisions of the Cyprus International Trusts Law of 1992 (Law No. 69(I)/1992), as amended (the “Law”)
i. The Settlor, whether a natural or legal person, is not a resident of Cyprus in the calendar year which immediately precedes the year in which the trust was created;
ii. At least one of the Trustees, during the whole duration of the trust, is a permanent resident of Cyprus;
iii. No Beneficiary, whether a natural or legal person, other than a charitable institution, is a resident of Cyprus in the calendar year which immediately precedes the year in which the trust was created.
Section 3 of the Law allows a Cyprus trust to be used as an asset protection vehicle.
Section 3(1A) provides, inter alia, that no international trust would be considered void or voidable due to the fact that the legal provisions that are in force in any jurisdiction prohibit or do not recognize the trust. The inheritance laws of any other country will not be enforced by the Cyprus courts confirming accordingly that the inheritance provisions in succession laws of foreign countries will not apply to risk or upset the validity or enforceability of a Cyprus international trust.
Section 3(2) provides that a Cyprus international trust is not void or voidable and no claim may be made in respect of assets which have been transferred to an international trust in the case of the Settlor becoming bankrupt or insolvent. This provision will not apply if the court is satisfied that the trust was set up specifically for the purpose of defrauding the creditors of the Settlor at the time of setting up the trust. The law will also not apply where there were claims on the assets prior to the creation of the trust. The burden of proof of such an intention of the Settlor lies with his creditors.
Further, Section 3(3) provides that any claim under Section 3(2) must be filed within a 2-year period from the date of transfer of the property to the trust. After the lapse of the 2-year period, no action can be brought against the Trustees.
According to Section 4A of the Law, the Settlor may retain power and control over the trust, by also appointing himself as either the Protector or the Enforcer of the trust.
The Settlor may, inter alia, revoke or modify the terms of the international trust as well as instruct on the transfer, distribution, payment or transfer of income or capital from the trust property or the issue of binding instructions and/or directions with regards to the above.
The Settlor may as well appoint or remove a Trustee, a Beneficiary or a director of any of the companies that belong to the trust or he can act as a director himself and may also issue binding instructions to Trustees in relation to the exercise of any power.
Where any power is reserved by or granted to the Settlor or in his capacity as the Protector or Enforcer of the trust as per Section 4A, no intention to defraud may be imputed to him.
Under the old 1992 Law, an international trust could be valid for up to 100 years from the date of its establishment, with the exception of charitable and purpose trusts which were permitted to exist in perpetuity. Law No. 20(I)/2012 abolished all restrictions on the duration of trusts and consequently there shall be no limitation regarding the life of an international trust.
A Trustee may at any time invest the whole or any part of the trust fund. According to Section 8 of the Law, a Trustee may now hold, maintain or invest in movable property in Cyprus and abroad, including investments in shares in companies registered in Cyprus and in immovable property located in Cyprus or abroad.
According to Section 9 of the Law, the Settlor can choose the law that will govern the trust and can alter such applicable law or the forum of administration of the trust at a later stage, subject to certain conditions.
Section 10 of the Law provides that the courts have the power to approve a variation of the terms of a trust. Without prejudice to the powers of the court, an international trust may be varied in any way provided by its terms.
International Trusts are ideal for asset protection, inheritance and tax planning. The benefits arising from the use of such trusts distinguish Cyprus as one of the most advantageous trust jurisdictions.
According to Section 12 of the Law, the tax imposition (if any) depends on the tax status of the Beneficiary; i.e. if the Beneficiary of such trust is a resident of Cyprus then the income or profits of such trust, which arise in and out of Cyprus, will be taxed according to the laws prevailing in Cyprus. If the Beneficiary is not a tax resident of Cyprus, then the income or profits of such trust that arise within Cyprus are taxed according to the tax laws of Cyprus. The definition of a Cyprus tax resident has the meaning attributed to the term under the Cyprus Income Tax Laws.
The instrument creating an international trust is subject to a stamp duty of €430.
Confidentiality and secrecy are preserved under the Law and according to Section 11, the Trustee, the Protector or any Governmental body is not entitled to disclose any information relating to:
As per Article 25A of the Law Regulating Companies Providing Administrative Services and Related Matters of 2012 (Law 196(I)/2012), as amended by Law 190(I)/2013, the Competent Authorities (CYSEC, CYBAR and ICPAC) are obliged to establish and maintain a Registry of Trusts. A Cyprus resident Trustee of a trust governed by Cyprus Law is obliged to notify the relevant competent authorities within 15 days from the creation of such Trust with the below information:
It should be noted that service providers establishing trusts are obliged to keep documentary evidence of the identity of the Settlor, the Trustee(s), the beneficiaries and others associated with the trust as well as information on the activities of the trust and keep this information available for inspection by the relevant competent authority on such request.
Additionally, Section 61C of the amended Law on the Prevention and Suppression of Money Laundering and Terrorist Financing 188(I)/2007 provides that the Trustee is bound to disclose beneficial interest information in the event that the management of the trust is carried out in Cyprus and irrespective of whether the trust generates tax consequences in the Republic or not.
For further information and/or assistance in establishing an international trust, please contact us at info@pirilides.com.
