FAQ: Cyprus International Trusts

Q: What is a Trust?

A:
A Trust could be characterized as the relationship created when the Settlor (the person creating the trust) transfers personal property (the trust property) to the Trustee to hold and/or manage such property to the benefit of the Beneficiaries of the trust in line with the terms of the trust deed (the instrument signed between the settlor and the trustee governing the terms of the trust). It is essential to emphasize that once a valid trust is established and administered in accordance with the terms of the trust deed by the trustees, any property transferred to the trustee by the settlor no longer constitutes part of the settlor’s estate. Consequently, such property cannot be utilized to settle, discharge, or fulfill the settlor’s debts or liabilities.

Q: Does Cyprus have a legal framework in place to regulate International Trusts?

A:
Yes. The Cyprus International Trusts Law 69(I)/1992, as amended (referred to as the “CIT Law”) has positioned Cyprus as one of the most attractive jurisdictions for establishing the so-called “Cyprus International Trust” (CIT), because of its robust legal framework and the numerous advantages it offers compared to other jurisdictions.

Q: Are there any specific conditions that must be satisfied for someone to create a Cyprus International Trust?

A:
Yes. For a trust to qualify as a Cyprus International Trust (CIT) and be governed by the favorable provisions of the CIT Law, the following conditions must be met in their entirety:

• The Settlor must not have been a Cyprus tax resident during the calendar year preceding the establishment of the trust; and
• None of the Beneficiaries may have been Cyprus tax residents during the calendar year preceding the establishment of the trust; and
• At least one of the trustees must be a tax resident of Cyprus.

Q: I am not a Cyprus tax resident, but I own property in Cyprus. Can I still establish a CIT and transfer the Cyprus property into the trust?

A:
Yes, provided that all other criteria for establishing a CIT (as mentioned above) are satisfied, specifically none of the beneficiaries of the trust should be Cyprus tax residents in the year preceding the creation of the trust and at least one trustee (legal or natural person) is a Cyprus tax resident. If you wish, the Cyprus property can be transferred into the trust and held by the trustee either directly or indirectly through a corporate structure, such as a Cyprus company.

Q: I am not a Cyprus tax resident. Can I become one after creating a CIT?

A:
Yes. The CIT Law allows the settlor and/or the beneficiaries to relocate to Cyprus and become tax residents of Cyprus after the creation of the CIT.
Such relocation will not affect the validity or status of the trust.

Q: How can I become a tax resident of Cyprus?

A:
There are two primary routes to obtain the Cyprus tax residency:

Route 1 – The 183-Day Rule: To qualify as a Cyprus tax resident under this rule, you must physically reside in Cyprus for at least 183 days within a calendar year. These days do not need to be consecutive.

Route 2 – The 60-Day Rule: To qualify under this rule, you must physically reside in Cyprus for at least 60 days during a calendar year and meet all of the following conditions:

• Not reside in any other single country for more than 183 days in the same year.

• Not be a tax resident of any other country.

• Own or rent a permanent residence in Cyprus.

• Engage in business activities, employment, or hold an office in Cyprus (with a legal or natural person resident in Cyprus) at any time during the tax year, provided that such activities are not terminated during that year.

Q: If I become a tax resident under the 183-Day Rule or the 60-Day Rule, will I be taxed as a Cyprus tax resident with Cyprus domicile?

A:
No. If you relocate your tax residency to Cyprus, you will automatically be classified as a Cyprus Non-Domiciled (“Cy Non-Dom”) individual for tax purposes. The Cy Non-Dom status can be maintained for a maximum of 17 years, and you will be eligible to enjoy several other benefits, including, but not limited to:

• Full exemption from the Special Defence Contribution (SDC) tax on investment income generated globally. This is one of the key benefits, as non-Doms do not pay the SDC tax on their global income from dividends, interest, or rental income.

• Full exemption from personal income tax on income earned from dividends and interest (except for a minimal GeSY – General Health System – contribution of 2.65%).

• Full Exemption from Cyprus taxation of profit from the sale of shares and other qualifying titles, if the underlying assets do not include immovable property located in Cyprus.

• Non-doms who earn over €55,000 annually from employment exercised in Cyprus (provided they were resident outside Cyprus before the commencement of their employment), can also enjoy a 50% exemption for those earnings, applicable for 17 years commencing from the year of employment.

• Pensions received in respect of past employment abroad are taxed in Cyprus at a flat rate of 5% for amounts exceeding €3,420 per year.

• No inheritance tax.

• No wealth tax.

• No gift taxation.

• In case these individuals are beneficiaries to a Cyprus International Trust, only the income and gains of the trust derived, or deemed to be derived, within Cyprus are subject to taxation in Cyprus, noting that dividends or interest received from Cyprus sources (e.g. a Cyprus company) are not taxable or subject to withholding tax. Also, capital gains that occur after the disposal of assets of a Cyprus International Trust are not subject to capital gains tax in Cyprus.

Q: What other advantages Cyprus International Trusts offer?

A:
Cyprus International Trusts provide a wide range of advantages, particularly for high-net-worth individuals (HNWIs), such as:

Asset Protection

Assets held within a CIT are protected from claims in the event of the settlor’s subsequent bankruptcy, liquidation, or legal actions by creditors. This protection applies even if the trust was established for the benefit of the settlor, their spouse, children, or any other beneficiary, unless it can be proven in court that the trust was created with the intent to defraud creditors at the time of transferring assets into the trust. Such legal actions must be filed within two years of the asset transfer, and the burden of proof lies entirely with the creditors.

Taxation

The CIT law provides that, in the event the beneficiary is a Cyprus resident, the income and gains of a trust derived, or deemed to be derived, from outside and within Cyprus are subject to taxation imposed in the Republic. In the cases of a non-Cyprus resident beneficiary, only the income and gains of a trust derived, or deemed to be derived, within Cyprus are subject to taxation in Cyprus, noting that dividends or interest received from Cyprus sources (e.g. a Cyprus company) are not taxable or subject to withholding tax. Capital gains that occur after the disposal of assets of a CIT are not subject to capital gains tax in Cyprus. HNWIs can benefit from the Cy Non-Dom regime mentioned in the previous question.

Preservation of Wealth

A CIT facilitates the long-term management and preservation of family wealth by ensuring a gradual distribution of income and capital to children and grandchildren by the trustees, without burdening them with the responsibility of managing the family wealth directly.

Confidentiality

Subject to the provisions of the trust deed and unless a court orders the disclosure of information in specific circumstances, the trustee, protector, enforcer, or any other person cannot disclose documents or information (including electronically stored data) related to the trust, its trustees, or beneficiaries. This includes details about the exercise of trustees’ powers or the trust’s accounts. A court may order disclosure only if it deems such information crucial to the outcome of a pending civil or criminal proceeding.

Ability to Re-domicile

A CIT can be re-domiciled to another jurisdiction in a cost-effective manner, allowing for the continuation of the trust without the need for dissolution. The re-domiciliation process depends on the laws of the destination jurisdiction.

Q: I am a Beneficiary of a CIT. Am I entitled to get information about the trust from the trustee?

A:
As a Beneficiary, you may request the trustee to disclose the accounts of the Cyprus International Trust (CIT) or any documents or information related to the trust’s financial activities, including receipts and payments made by the trustees. However, the decision to disclose such information lies solely at the discretion of the trustee. The trustee will only provide the requested information if they believe it is necessary and in the best interests of the trust.

Q: Is a CIT subject to stamp duty?

A:
Yes. A CIT is subject to a stamp duty of €430, provided the trust is stamped within 30 days from the date of its creation.

Q: Is there a Trust Register in Cyprus? Is it publicly accessible?

A:
Under Cyprus law, there is a Trust Register maintained by the Cyprus Securities and Exchange Commission (CySEC), the competent authority in this regard. The law imposes an obligation to register the CIT, including details of its beneficial owners and classes of beneficiaries.

The Trust Register is not publicly accessible. However, it can be accessed by competent authorities, including CySEC itself for overseeing compliance with legal and regulatory requirements, the Cyprus Tax Department, for tax-related investigations and compliance, Cyprus Police or Financial Intelligence Units, for investigations related to money laundering, terrorism financing, or other criminal activities, and in certain circumstances by obliged entities (such as banks and financial institutions) as part of their due diligence obligations under anti-money laundering laws and regulations.

For more information, please contact Anna Kouloundi at anna@kouloundilaw.com