By Mrs. Valerija Holub
Setting up an International Cyprus Trust (ICT) can be a valuable and profitable means of wealth management that allows for particularly beneficial tax planning of your wealth and assets, ensures that they are protected for the future as well as distributed accordingly with your wishes. However, many are still hesitant to set up a trust due to common misconceptions about their nature and the procedure of trust creation. Therefore, this short article aims to explain what trusts are, how an International Cyprus Trust can be set up, and what are the benefits of doing so.
What are Trusts?
A trust is a fiduciary relationship between a settlor and a trustee, in which a settlor creates the trust and gifts assets to a trustee. The trustee is under a fiduciary responsibility to hold and manage the assets in accordance with the wishes of the settlor and with the interests of the beneficiaries, a third party who receives the income of the trust, in mind.
In practice, the settlor can transfer property or assets to an individual or a company to manage them in the most profitable manner for the benefitors. The trustees have freedom in managing the assets as long as they do not breach the agreement between themselves and the settlor, avoid conflict of interests in managing the trust, and avoid breaching their duties.
Setting up a Trust
In order to set up an ICT two criteria must be met:
· both the settlor and the beneficiaries cannot be a resident of Cyprus in the calendar year preceding the creation of the trust (however, can move to Cyprus after the trust is set up),
· at least one of the trustees, throughout the lifetime of the trust must be a Cyprus citizen.
If these criteria are met, the trust can be set up. In order to do so, a trust needs to be registered with a relevant regulating authority such as the Cyprus Bar Association. While registering a trust information such as the name of the trust, date of establishment, and identity of the parties concerned needs to be disclosed. However, it is worth mentioning that this information will not be made available to the public, but remain with the authorities.
Benefits of an ICT
Apart from a rather uncomplicated and straightforward procedure accompanying the setting up of an ICT, there are numerous benefits that come from an ICT creation.
Firstly, the law allows for full foreign ownership of the trust and any incomes from non-Cyprus sources are exempt from Cyprus tax. They are only to be taxable if a beneficiary is a Cyprus-tax resident or when income is of Cyprus source. Therefore, allowing for particularly beneficial tax planning.
Secondly, creating a ICT is a great way to ensure asset protection as a CIT won’t be void in case of a settlor's bankruptcy or liquidation.
Thirdly, as the trustees manage and distribute wealth, the beneficiaries do not have to be burdened with such tasks themselves. This is particularly useful in cases concerning generational wealth where income can be gradually and reasonably distributed to children, grandchildren, or other relatives of the settlor by the trustees. Moreover, setting up a CIT allows the settlor to avoid the forced heirship rules present in Cyprus and lets the settlor freely decide how their wealth will be distributed to their heirs.
Fourthly, the Cypriot Law gives the settlor robust powers to manage the trust. The settlor can revoke or amend the terms of the trust at any time, issue binding directions to the trustees regarding the trust management, freely appoint and remove trustees, protectors and beneficiaries, change the law governing the trust, and add new assets.
Finally, there are no limitations on ICT duration per the Cyprus law, unless specifically stated in the rules governing the trust.
Overall, setting up a Cyprus trust offers a robust and advantageous means of wealth management that combines effective tax planning, asset protection, and flexible distribution of assets. Despite common misconceptions and hesitations, the process of establishing an ICT is straightforward, provided the criteria are met. The benefits are substantial, ranging from tax exemptions on foreign income and secure asset protection, to the ability to manage and distribute wealth efficiently across generations. Additionally, the flexibility afforded by Cypriot law allows the settlor to maintain significant control over the trust's management and terms, ensuring that their wishes are meticulously followed. By understanding the nature and advantages of ICTs, individuals can make informed decisions to safeguard and manage their wealth effectively for the future.
How we can help:
Advise on all International Cyprus Trust Matters.
Advise on Estate Administration
Provide Trustee Services
Handling the setting up of ICT.
This article is written for information purposes only and it does not constitute legal advice. For further information, legal advice, company incorporation and assistance please contact us at zena@zsm.law or call us at +357 25-252282.
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