A Cyprus International Trust is one of the most attractive ways to protect your assets. The establishment of international trusts and its related legal frameworks allow individuals to plan for the transferring of accumulated wealth to other family members or Group companies with specific instructions.
This vehicle of wealth protection and transferring of assets has been used by families since the Roman and feudal centuries in history. The Aspen Trust Group explains how Cyprus has developed a reputation as a well-established financial center for setting up and managing a Cyprus International Trust that provides greater financial protection for international high-net-worth-individuals (HNWIs).
What is an International Trust?
A trust is a fiduciary arrangement or a settlement that plans for the succession of accumulated wealth to the next generation which concerns at least three parties: the settlor – the trustee, the beneficiary, and the protector.
- The settlor is the person, either natural or legal, who establishes the trust and is the owner of the property being divested into the trust.
- The trustee is the person, either natural or legal, who agrees to hold and manage the trust property under specified terms for the benefit of the beneficiary.
- The beneficiary, or beneficiaries if there are more than one, is the individual or company receiving the benefits of the trust property.
The protector is the individual(s) or company(ies)that are appointed by the settlor to protect the trust and oversee or appoint the trustee. It is optional to appoint a protector.
A trust deed is usually created which outlines which assets will be transferred, who is responsible for management, who are the beneficiaries, and the rules or conditions required of the trustee and beneficiaries.
The Evolution of Trusts
The concept of the Cyprus International Trust has been decades in the making. The trust concept has its origins in Roman civil law, wherein the notions of trustees and trustees’ obligations and duties are explored. Both fideicommissum and fiducia are two trust-like devices centered around property.
Fideicommissum developed so that a person, upon death, could pass on their property to another individual and, under obligation, to pass that property onward to the next named individual. Property in this manner could also be passed on as a part of a chain. Property in this case could also be passed on value, similar to a portfolio of shares.
Fiducia was executed under either fiducia cum creditore, where a property was transferred to a creditor in order to secure the performance of an obligation, or fiducia cum amico, where a property was transferred to a friend to be kept safe until the transferor returned. The transferee was required to take reasonable care of the property and to handle the accounting of any profits.
Through the thirteenth to sixteenth centuries, mainland Europe utilized this system to create secret trusts for illegitimate children and mistresses. The generational transfer of land and property using Roman law principles continued until Napoleonic Code halted the transfer of wealth and influence.
At the same time, English common law developed in response to feudal ownership doctrines with large favor being placed on being able to transfer assets to a long line of direct descendants or heirs. English Crusaders often left the care of estates to trusted individuals for safekeeping while away.
In 1985, the Hague Convention on the Law Applicable to Trusts and on their Recognition, more commonly known as the Hague Trust Convention, was developed by the Hague Conference on Private international Law. This multilateral treaty harmonizes the definition of a trust and sets rules for resolving conflict problems in applicable law cross-border.
Essentially, the Cyprus trust law is based on the English system. The English 1925 Trustees Act provided the basis for the 1955 Cyprus Trustee Law, Chapter 193, which mainly regulates Cyprus International Trusts. In 1992, the International Trusts Law was enacted to modernize the legal framework surrounding trusts and to develop Cyprus as a reputable financial center and trusts jurisdiction.
Types of Trusts Available in Cyprus
There are eight frameworks for recognized Cyprus International Trusts and working with a financial consulting agency can help you better decide on the appropriate structure for your trust.
A Private Trust is exclusively created by the settlor through a deed, written text, will, or in some cases orally.
Express Private Trusts
Express Private Trusts are also exclusively created by the settlor through a deed, written text, will, or in some cases orally.
A Constructive Trust is set up and imposed by law without dependency on the intentions of any one individual, such as when assets are being held on behalf of others and usually end up being Resulting or Constructive Trusts based on the implications of the settlor rather than the expressed intention.
A Discretionary Trust gives power to the trustees, under their discretion, to decide the shares and interests that go to each individual in a class of beneficiaries of the trust property.
Resulting Trusts are created out of the implied intention of the settlor based on inferred behavior rather than the expressed intention found in other Trusts.
Fixed Trusts specify the share or interests of the class of beneficiaries for the trust property.
Implied Trusts come from implied intention, and generating Resulting or Constructive Trusts.
While no legal definition is provided for the boundaries of charity, Charitable Trusts are usually for the advancement or relief in areas of poverty, education, religion, or community. They tend to be more public in nature of their purpose and enforced through the Attorney General.
Historical Highs for Cyprus Investment in 2021
The first quarter of 2021 saw a record high for investment funds into Cyprus. Collective Investments under asset management in the jurisdiction amounted to 9.8 billion Euros, representing a 14% increase from the previous quarter. The majority of these investments were welcomed by the Cyprus Investment Funds Association for being fully or partially active directly in Cyprus.
Learn more about Investment Funds and Trusts, as well as Post-Brexit Investment Funds solutions for individuals and businesses. A Cyprus International Trust is one way to ensure protections and financial optimization for Investment Funds.
Establishing a Cyprus International Trust
Cyprus is quickly becoming the preferred European Union jurisdiction of choice for trusts for HNWIs. Qualified non-tax resident individuals for a Cyprus International Trust are given the opportunity to establish trusts for even the most complex situations while enjoying many advantages not provided in other global jurisdictions.
Under Cypriot law, the definition of a trust is a legal relationship which is created when the settlor puts assets under the responsibility and care of a trustee for the benefit of the beneficiaries or for a specific purpose. A Cyprus International Trust is quite flexible under its definition and HNWIs with complicated family structures can use the trust to optimize their tax planning.
There are six main advantages of a Cyprus International Trust.
Establishing a trust in Cyprus safeguards assets against risks, such as future private claims.
Hard to render void
The claimant must prove to the court that the Cyprus International trust was established with the intention of duping the settlor’s creditors on the transfer or payment of the assets. There is a two-year limit after the transfer that the claim must be made, making it difficult to declare the trust void.
Unlimited duration period
Cyprus International trusts have no limits on their duration.
Any documentation or information regarding a Cyprus International Trust may only be disclosed by order of the court. It is required of all trusts to be registered, but the trust deeds may not be submitted. Any court-ordered disclosures will only be viewed by competent authorities.
No reporting requirements
In Cyprus there are no reporting requirements relating to the activities of the Trust.
Modification of terms of the trust
Settlors retain the power to revoke or modify the terms of the trust. They can appoint a trustee or protector for the management of the trust property through Letter of Wishes. Settlors remain the enforcer of a trust.
Although a Cyprus International Trust is available for non-tax residents, beneficiaries or settlors, these may choose to become residents of Cyprus so as to fully enjoy the island’s many financial incentives making Cyprus a top location for effective tax optimization and asset management.
How to Utilize a Cyprus International Trust
Although Cyprus international Trusts are commonly used for family affairs, Cyprus companies may also utilize them to address a broad range of classes of beneficiaries.
Some of the main mechanisms for trusts include:
- Retain property assets for minors or future generations
- Safeguard against misuse and improper handling when concerned about the interests of the beneficiaries
- Discreetly care for others, including employee pensions or dependents
- Allow for property use under certain circumstances, such as the fulfillment of a marriage
- Set-up funds for emergency and future use with specific criteria
- Avenues for investment
- Workforce incentives
- Achieve charitable aims
- Protect commercial and private arrangements
Legal Aspects under Common Law
With regards to the law, the following criteria must be met to establish a Cyprus International Trust:
- Assets may be in Cyprus or anywhere globally
- One trustee must be a Cyprus resident for the entire duration of the trust
- Certainty of Intention: Evidence of intention by the settlor, usually through the Trust Deed
- Certainty of Subject Matter: Property assets must be easily identifiable
- Certainty of Objects: Beneficiaries’ identities must be ascertainable at the time of establishment
The settlor must be:
- of age and sound mind
- not a resident of Cyprus, but may become one after the establishment of the trust (the same applies for beneficiaries)
In regards to Cyprus law, the trustee must register a Cyprus International Trust with either: the Cyprus Securities and Exchange Commission, the Cyprus Bar Association, or the Institute of Certified Public Accountants of Cyprus.
The name of the trust, dates of creation and termination, name and residential address of the trustee, and dates of changes in regards to any changes to the Cyprus International Trusts Laws must be provided to the overseeing authority.
Information to the identity of the settlor or beneficiaries is not disclosed to the Registry nor is information made public.
Why Choose Cyprus for an International Trust?
When choosing a place to establish an International Trust, there are several factors to keep in mind. Not all jurisdictions have kept up with modern trust legislation, especially in regards to protection and benefits of assets. High-tax regimes are another concern for many looking to optimize their financial plan for future generations. Cyprus does not impose any income or estate taxes on a Cyprus International Trust.
Some jurisdictions also pose risks due to political or legal uncertainties that could affect the legal protections surrounding the creation of a trust. For instance, the Bahamas and the Cook Islands do not apply the legal protections established from the Hague Convention. Denmark, Luxembourg, Switzerland, Austria, and Aruba do not use the common law legal system as a framework for trusts legislation.
The Cook Islands, the Cayman Islands, and Gibraltar have less protections for trusts regarding international legal disputes, which could pose complications for maintaining a trust throughout multiple generations. Although the Cook Islands has a short statute of limitation on several types of legal claims; most often, by the time legal claims are processed in a foreign jurisdiction, the statute of limitation will have expired for the Cook Island Trust. International legal disputes pose the risk of dissolving or undoing a trust across multiple generations. Jurisdictions such as Cyprus grant more protections to trusts and can ensure that the trust holds its validity as it transfers to different beneficiaries down the line
Moreover, Cyprus has no maximum perpetuity period, whereas the Cayman Islands (150 years), Malta (125 years), New Zealand (99 years), and Singapore (100 years) do limit the trust’s time limit.
Belize, the Cayman Islands, and the Cook Islands work closely with many U.S. individuals and with the U.S. Internal Revenue Code, ensuring tax compliance and reporting is easier for U.S. individuals.
Cyprus has no exchange control regulations while at the same time being a cost-effective jurisdiction easily accessible and free of language barriers. Cyprus is also one of the few jurisdictions where record keeping is not required.
Finally, in comparison, a Cyprus International Trust is covered by asset protection legislation as well as includes provisions to a beneficiaries’ right to information and the right to remove a trustee.
In all, Cyprus is an ideal international trust location for its cost-effective benefits, ease of set-up and management, and connectivity to international law and other major financial centers.
Set Up a Cyprus International Trust the Right Way
Given the legal framework of Cypriot law regarding international trusts, this jurisdiction has made establishing a Cyprus International Trust more practical, effective, and accessible for any context. The law and financial territory of Cyprus also provide more clarity, stability, and consistency for creating a sustainable international trust for future generations.
The Aspen Trust Group is a leader among professional service providers in Cyprus. Our experts can assist with the establishment and management of a Cyprus International Trust and help you ensure protection for your financial legacy.
Contact our team for tailor-made solutions regarding setting up a Cyprus International Trust. We can help you get started on your financial journey.