Cyprus International Trusts – A Key Instrument for Protecting your Wealth

A Cyprus International Trust is one of the most attractive vehicles for asset and wealth protection.

This vehicle is based on the well-established English principles of equity and trusts and has successfully created one of the most attractive trusts legal frameworks globally.

The establishment of international trusts and their related legal frameworks allow individuals to plan for the transferring of accumulated wealth to other family members or Group companies with specific instructions.

Keep reading to find out more about how Cyprus has developed a reputation as a well-established financial centre for setting up and managing a Cyprus International Trust that provides greater financial protection for international high-net-worth individuals (HNWIs).

What is a Trust?

A trust is a fiduciary arrangement or a settlement that provides for the succession of accumulated wealth to the next generation.

There are three key players to this arrangement:

The Settlor – the person (whether natural or legal), who establishes i.e., settles the Trust and is the owner of the assets being contributed into the Trust. Once contributed, the assets become the Trust Property.
The Trustee – the person (whether natural or legal), who accepts to hold and manage the Trust Property under certain terms for the benefit of the Beneficiary/ies.
The Beneficiary (ies) – the person or persons (whether natural or legal) who are to receive the benefits of the Trust Property.

On occasions, a fourth player known as the Protector comes into play. This is a person (whether natural or legal) who is appointed by the Settlor to protect the Trust and oversee the Trustee in its exercise of Trustee duties. There is no obligation to appoint a Protector, however, it is a common figure in this fiduciary arrangement.

A Deed of Trust is created and entered into by the Settlor and the Trustee which outlines which assets will be transferred/contributed to the Trust, who is responsible for the Trust’s management, who are the beneficiaries, and the rules or conditions required of the trustee and beneficiaries.

Origins of the Trust Concept and Legal Framework

The word “Trust”, in Spanish “Fideicomiso”, comes from the Latin term “Fideicommissum”, from the union of the words “Fide” which means trust or faith; and, “Commissum” which means the commission, together this translates as “a trust commitment.”

Therefore, the Trust Concept has its origins in Roman civil law, wherein the notions of Trustees and Trustees’ obligations and duties are explored.

“Fideicommissum” was 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.

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 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.

How to establish a Cyprus International Trust?

Cyprus being an ex-English colony and thus has developed a Common law legal system, quickly managed to become the preferred European Union jurisdiction of choice for trusts for HNWIs.

The following conditions must be met to have a Cyprus international trust:

The settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND
The beneficiaries, either physical or legal persons, except a charitable institution, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the trust; AND
At least one of the trustees is, throughout the lifetime of the trust, a resident of Cyprus.

The term “resident of Cyprus” has the meaning given to it by the Cyprus Income Tax Law i.e., “a physical person is considered tax resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year.”

A company is considered a tax resident of Cyprus if its management and control are exercised in/from Cyprus.

Benefits of a Cyprus International Trust:

The Cyprus International Trust is governed and construed exclusively by the laws of the Republic of Cyprus and therefore there is no application of foreign laws;
It is a powerful asset protection tool;
Trusts may exist in perpetuity (forever);
The Settlor may reserve powers to himself;
Unrestrained investment powers to the trustees to increase trust assets;
Confidentiality (Registers of Trusts maintained by regulatory authorities include information ONLY on the name of the trust, the name and address of the trustee, date of establishment, date of termination, and any change of trust governing law; Such Registers of Trusts are not available for public inspection unless a “legitimate interest” is proved.);
Settlors of a CIT can relocate to Cyprus after the establishment of the trust and reap off the benefits of the Cyprus Non-Domicile Scheme;
Overcoming “forced heirship” rules applied in certain jurisdictions;
Credible jurisdiction;
Legal system based on English common law and equity
Stable tax regime;
Preservation of wealth;
Segregation of assets; and

How we can help:

As one of the leading law firms in Cyprus, we offer unique, tailored Trust services ensuring that the desired degree of personal attention is provided to each client. We undertake with the outmost confidentiality the creation and administration of Trusts, and offer, inter alia, professional trustee or protector services.

Our team consists of qualified, experienced, and highly skilled professionals well-versed in Cyprus International Trusts set-up, management and administration, and Succession, Estate Planning, and Wills.

Furthermore, through our ancillary legal services such as Corporate, Tax, Fiduciary, and Immigration, and our long-standing network of trusted international professional associates, we can provide holistic, comprehensive, and well-rounded advice from a multi-jurisdictional perspective.

Our Trusts Services include: