Trust Services: Flexible Legal Structures for Estate and Asset Protection
October 05,2012
A valuable tool for international business structures and financial planning, the Cyprus trust has already become an instrument of choice for many transaction planners and wealth advisors. To boost the sector further, the country has just updated its trust law.
Trusts have been used in Cyprus for decades, and during this time Cyprus trusts have evolved considerably as the island has adopted its legislation for use in today’s international commercial environment. Especially through the set-up of so-called international trusts, governed by a law of 1992, Cyprus has established itself as a global centre of excellence and respected trust jurisdiction. In March 2012, the Cypriot parliament approved the modernisation of the law which is expected to better cater for today’s business and private estate and tax planning needs.
The strategic location of Cyprus, at the crossroads between three continents, makes it a natural hub for financial planning in the region. A major driver in Cyprus’ success has been its ability to offer sophisticated wealth and succession planning structures to wealthy individuals and corporate offerings that include areas as diverse as trust and corporate structures to manage collective investment schemes, investment and holding vehicles, or profit sharing pension schemes. International companies and individuals are being attracted to Cyprus to organise their tax planning requirements with the knowledge that the trust is governed by a sound trust law which can be enforced in a reputable jurisdiction. Clients from Russia, Europe and the CIS countries as well as the Middle East and Asia are increasingly choosing Cyprus as a financial planning centre for its tax advantages, discretion and high level of protection.
A New Framework for International Trusts
Cyprus’ trust law is based on English legislation, specifically on the English Trustee Act of 1925. In 1992, the island’s trust regime was bought into line with international practice with the introduction of the International Trusts Law, which is today the key instrument to attract trust activities to the island and has just been updated. The new version of the law includes, amongst others, the lifting of the prohibition of a Cyprus international trust holding and investing in immovable property in Cyprus, as well as the inclusion of efficient ‘firewall’ provisions and jurisdictional clauses, meaning that the validity of the trust cannot be affected in situations where legal provisions in other jurisdictions do not recognise the trust concept or where a foreign court tries to dissolve the trust. The bill also addresses the duration of the trust, introducing an unlimited period, and other confidentiality issues.
Cyprus offers a wide range of international trust structures that are flexible enough to accommodate the objectives of the most demanding client and include Discretionary Trusts, Fixed Trusts, Fixed and Discretionary Trusts, Trading Trusts and Purpose Trusts. A trust established in Cyprus can be transferred to another country’s jurisdiction and at the same time a trust established in another jurisdiction may be transferred to Cyprus, an issue that could be important in cases where a change in circumstances would make such a transfer advantageous for fiscal or other reasons. Cyprus International Trusts are not subject to exchange controls, while Cyprus International Trusts Law guarantees confidentiality, prohibiting the disclosure of any information regarding the trust except by court order, where it is proved that the disclosure of information is crucial to the outcome of particular civil or criminal proceedings.
Significant Tax Advantages
One of the most important aspects of Cypriot trusts is the fact that they enjoy important tax advantages and provide significant tax planning opportunities. These advantages include the following: all income of an international trust is not subject to tax in Cyprus; dividends, interest or other income received by a trust from a Cyprus international business company is also neither taxable nor subject to withholding tax provided that the beneficiaries are not tax resident in Cyprus; and there is no capital gains tax on the disposal of the assets of an international trust. In addition, expatriates who set up an international trust in Cyprus and retire in Cyprus are exempt from tax if all the property settled and the income earned is abroad, even when they are beneficiaries and an international trust created for estate duty planning purposes would not be subject to estate duty in Cyprus.
Confidentiality and Control
Apart from tax advantages, a Cypriot International Trust also offers various other benefits, including divesting of personal assets, pre-migration arrangements, investing in business overseas, investment holding company asset protection and the possibility to protect inheritance or to preserve anonymity under certain conditions. There are no registration or reporting requirements for trusts established in Cyprus, nor are the names of the trust or of the persons referred to in the trust deed disclosed.
One distinguishing element of a Cypriot trust is that in an international trust either the settlor, the trustee or any one or more of the beneficiaries can be a Cyprus Company. This facility can offer unique opportunities to investors. If for example the settlor wants to maintain full control over the management of the trust, he can form a Cyprus Company with him as sole shareholder and sole director. The company can then act as sole trustee of the trust.
Growing Trust Centre
Across the globe, individuals and corporations are demanding more innovative and flexible planning structures to meet the ever-increasing needs of transaction planners. While the changes to Cyprus’ trust law successfully addressed the shortcomings of the trust framework, the island’s strengths as a financial planning centre lie in its solid fundamentals: Cyprus offers a widely respected regulatory regime, a skilled multilingual talent pool, and is an EU member state with a politically stable, low-risk environment that offers a very attractive international business centre – all within easy access of Europe, the Middle East, Asia and Africa.
The island’s favourable legal system, together with its advantageous geographic position, makes Cyprus a particularly attractive trust location, catering for the protection of assets, estate or succession planning amongst others. In addition, the island offers an excellent physical and legal infrastructure which is bolstered by tried and tested professionals with a track record in structuring customised solutions and offering innovative approaches. Offering the right balance between innovative solutions, vigilant regulation and seasoned professionals, the updated law is expected to further strengthen the island’s robust reputation as an advantageous trust planning jurisdiction in a eurozone environment.
