The Cyprus International Trust is perhaps the most powerful and most flexible corporate vehicle Cyprus has to offer. It affords maximum protection to the assets of the trust, whilst at the same time it can be suited to the most complex situations. This facility can offer unique opportunities to the investor looking for EU protection, such as full anonymity, and effective tax or estate planning. The main legal framework governing trusts in Cyprus is a combination of English Law and the Cyprus International Trusts Law as amended in 2012.
One of the many benefits of the Cyprus International Trust to non-Cypriots is that the creator (settlor) of the trust and the beneficiaries of the trust do not have to be Cyprus tax residents during the year preceding the creation of the trust, nor does the property of the trust have to be immovable property in Cyprus. In other words, at the time of creation, neither the settlor nor the beneficiary needs to be a Cyprus tax resident, but may still have the option to become so at a later date.
The Cyprus International Trust gives the trustees the same investment powers as those of an absolute owner, allowing them to invest in a broader range of investments in the best interests of the beneficiaries. This brings the trustee's investment powers into line with those of a trustee in England and Wales, and other trust jurisdictions which have followed the English Trustee Act 2000. The amending law extends the trustees' ability to invest in Cyprus by including a new section specifically empowering trustees to invest in movable and immovable property both in Cyprus and overseas, including shares in companies incorporated in Cyprus. The abolition of the prohibition on investment in Cyprus, in effect removes an obstacle to inward investment, should the settlor wish to invest in Cyprus
A further feature of the Cyprus International Trust worth mentioning is that "a trust shall not fail to qualify as an International Trust by reason only that either the settlor or the trustee or any one or more of the beneficiaries is a company." What this means is that the settlor can maintain full control over the management of the trust by forming a company, the shares of which may belong solely to him, plus act as the sole director for the company, which could subsequently act as the sole trustee of the trust, thereby offering the investor full security and peace of mind.
Over and above the protection mentioned above the Cyprus International Trust allows the settlor of a trust to reserve powers to himself or herself, whilst at the same time there is nothing impeding the settlor from retaining a beneficial interest in trust property, or to act as the protector or enforcer of the trust and affecting its validity. The powers which may be reserved are wide and extensive, and include the power to revoke, vary or amend the terms of the trust, to apply any income or capital of the trust property, to act as a director or officer of any corporation wholly or partly owned by the trust, to give binding directions to the trustee in connection with the trust property and to appoint or remove any trustee, enforcer, protector or beneficiary. The settlor may even impose a general stipulation that the trustees’ powers are exercisable only with the consent of the settlor or any other person specified in the terms of the trust. The settlor may also reserve the power to change the governing law of the trust. These provisions give settlors great flexibility to adapt to changes in circumstances or objectives, whilst at the same time giving unfettered power to protect their investment.
The Cyprus International Trust not only affords unique protection but also significant confidentiality. In accordance with the Cyprus International Trust Law, there is an express prohibition on any of the trustees or any other persons, including government officials and officers of the central bank from disclosing any information regarding the trust, and only where there is a court order will the interested person, be obliged to allow the disclosure of information, provided that such disclosure is of paramount importance to the outcome of any particular civil or criminal proceeding. The right to information also extends to the beneficiary who retains the right to apply to the trustee for information relating to the proceeds and payments made by the trustee.
If desired, the income derived from the assets of the trust may be accumulated for the trust's life. This may be of particular interest to those who have sources of income or assets which they do not need immediately and may therefore be put away safely until a future date, say retirement. Until they are needed these assets may accumulate tax-free income.
The Cyprus International Trust also provides important tax incentives. The income and gains of an international trust which are earned or deemed to be earned from sources within and outside the Republic are subject to every form of taxation imposed in the Republic in the case where the beneficiary is resident in the Republic. Where the beneficiary is not a resident of the Republic, only the income and profits of an international trust which are earned or deemed to be earned from sources within the Republic are subject to every form of taxation imposed in the Republic; otherwise, such income is exempt from taxation in Cyprus. If a Cyprus International Trust is established as part of an estate planning structure, it will enjoy further tax estate duty benefits.
The Cyprus International Trust can also be used as a vehicle for estate planning, whereby the settlor may wish to care for minors, mentally handicapped persons or other individuals that are either unable or cannot be trusted to care for themselves. The Cyprus International Trust can be used to care for these individuals even after the settlor’s death. The Cyprus International Trust can also be used as an inheritance vehicle for persons who under their local legislation, would otherwise be excluded from the inheritance.
The Cyprus International Trust can also be used as a vehicle for asset protection. The assets held by the trust are afforded protection from creditors, provided that at the date of transferring the property to the trust, this was not done with the intention to defraud the creditors. The creditors can only file an action in the Cyprus courts and would bear the burden of proof that the assets were transferred to the Trust with the intention to defraud them, and they would need to bring this action at the latest within 2 years from the date of transfer or disposal of the assets to the trust.
Setting up the trust is very straightforward and cost effective, having no particular registration or reporting formalities required by law. The trust document will need to be drafted to contain the three certainties required by law and the powers afforded to the settlor.
Yaniv Habari is the founder of Y. Habari & Co. LLC, a boutique corporate and commercial law firm based in Cyprus.
Published by Globes [online], Israel business news - www.globes-online.com - on January 22, 2015
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