Member Article

Although Cyprus usually tends to be associated with company formation (in an international tax planning context), Cyprus has an efficient trust legislation in force. The latest legal reform of trusts has enhanced the appeal of Cyprus International Trust (CIT) to both professionals and high net-worth individuals.

Legislation and Legal Requirements

CITs used to be governed by the International Trusts Law of 1992. In a recent move aiming to modernize this legislation, the Cypriot Parliament enacted the International Trusts (Amending) Law of 2012, L.20(I)/2012 in March 2012. This new law has become effective as of 23 March 2012.

Prior to the enactment of the 2012 Law, there were three requirements to be met in order to establish a CIT:

1. Neither the settlor nor the beneficiaries were allowed to be permanent residents of Cyprus.
2. At least one of the trustees had to be a permanent resident of Cyprus.
3. The trust property was not to include any immovable property situated in Cyprus.
The new law resulted in two major amendments to the aforementioned criteria:
1. It provides that the settlor and the beneficiaries may not be Cyprus tax residents in the year preceding the year of creation of the trust.
2. It allows a CIT to hold immovable property in Cyprus, effectively eliminating the third limitation listed above.

Other Changes
One of the reasons for enacting the new legislation was to clarify certain ambiguities that existed under the old law. The law of 2012 clearly identifies the role and duties of a protector, enables a settlor to reserve powers to himself and/or retain a beneficial interest in the trust fund (including acting as a protector to the trust) and enhances the investment powers of the trustees.

Prior to the enactment of the new law, a CIT could exist for a maximum period of 100 years from the date on which it came into existence. Under the new law, this restriction was alleviated and, as such, a CIT can exist perpetually.

Lastly, it is worth noting that the beneficial tax regime was not only preserved but also enhanced. It is clearly stated that, for beneficiaries who are not tax residents in Cyprus, only the income and the profits of a CIT derived or deemed to derive from sources within Cyprus are subject to all taxes that are applicable in Cyprus. Dividends or interests received from non-Cypriot sources are, in most cases, not taxable.

Practical Considerations
It is perhaps impressive how practical and straightforward it is to both set up and administer an international trust in Cyprus, allowing the local practitioner to institute the CIT literally within a day.

Once the trust deed is executed, the only formality that needs to be completed is to have it stamped by the Commissioner of Stamp Duties and, upon doing so, pay a one-off fee of EUR 427. No copy is kept by the Commissioner and there is no need for either public filings or other administrative requirements such as auditing.

Conclusion
CITs had been overshadowed by Cyprus companies for many years. However, the recent legislative amendments will bring them to the forefront of international fiduciary structuring and constitute them as appealing tools in both tax and succession planning.