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06 July 2017
Cyprus international trusts (CITs), also known as Cyprus offshore trusts, are regulated by the International Trusts Law (69(I)/1992), which complements the Trustees Law (193/1955).
CITs provide multiple benefits – such as anonymity, asset protection, flexibility and taxation incentives and benefits – which high net-worth individuals around the world can use within the framework of their tax planning and investment strategies.
A 'trust' is a fiduciary relationship, according to which the settlor (also known as the grantor) transfers property – which may be tangible or intangible – to the trustee, who holds it on trust for the benefit of the beneficiary or beneficiaries.
In order to establish a CIT, a trust deed must be drafted and signed by the settlor and the trustee, establishing the conditions under which the trustee will hold and manage the trust property.
The following conditions must also be met:
Further, in order to create a valid CIT, the following certainties must apply:
The following benefits relate to CITs:
CITs provide a significant number of tax advantages and can be used as part of an international tax planning strategy. General information on how trusts are taxed in Cyprus is listed below. However, in order to estimate the tax that may be imposed on a trust, its specifications, purpose and any other relevant circumstances that may concern it must be considered.
Income received from sources outside Cyprus is not taxable in Cyprus if the beneficiary is not a Cyprus tax resident, while income received from local sources is taxable in Cyprus. Income received from local or overseas sources is taxable in Cyprus, provided that the beneficiary is a Cyprus tax resident.
Dividends, interest or other income received by a trust from a Cyprus company are not taxable.
Payments to beneficiaries
Non-resident beneficiaries are not subject to tax on the payments that they receive from a Cyprus tax.
Capital gains that occur after the disposal of a CIT's assets are not subject to capital gains tax in Cyprus.
A CIT is not subject to estate duty in Cyprus.
There are a variety of trusts that can be set up in Cyprus. The choice of trust depends on the settlor's requirements and objectives.
A discretionary trust is the most commonly used trust in Cyprus due to the many advantages that it provides, including the following:
A discretionary trust allows trustees to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may also be given discretion in deciding when to pay members. Thus, none of the beneficiaries has a right to be paid by the trust fund, since the trustee may exercise his or her discretion and postpone any such payment or even decide not to pay a particular beneficiary at all. However, the settlors in a letter of wishes may set out their intentions regarding the administration of the trust.
A fixed trust gives the trustees no discretion when distributing assets to the beneficiaries. An example of this type of trust is one which requires the trustees to:
Fixed and discretionary trust
It is possible to establish a trust that combines elements of fixed and discretionary trusts. For example, the trustees may have discretion regarding the distribution of income for a specified period, but ultimately they must distribute the capital in fixed proportions.
Under a trading trust, the trustee is generally a limited liability company. The trust has trading functions and the company's employees manage its business. Third parties are unaware of the existence of the trust, as all documentation used is in the trustee company's name.
Under the International Trusts Law 1992, a purpose trust can be used to accumulate corporate earnings for general or specific corporate purposes instead of providing for a defined group of individuals.
A charitable trust is a type of purpose trust. A CIT will be deemed to be charitable if its main purpose is one of the following:
For further information on this topic please contact Angelos Paphitis at A G Paphitis & Co by telephone (+357 25 73 10 00) or by email (firstname.lastname@example.org). The A G Paphitis & Co website can be accessed at www.agplaw.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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