The nature of a Trust
A trust is established by an individual "the Settler" and is a means whereby property"the Trust Property" is held by one or more persons "the Trustees" for the benefit of another or others "the Beneficiaries" or for specified purposes. The Settler can be a Trustee and the Settler and the Trustees or any of them can be Beneficiaries.
In law the Trustees are the owners of the Trust Property, although they may not deal with it as absolute owners but rather in accordance with the provisions of the law relating to Trusts and the rights of the Beneficiaries as set out in the Trust document. In other words, the Trustees are under a binding obligation to deal with the Trust Property in accordance with the law and the directions set out in the Trust document.
The trust Property can include all kinds of assets situated anywhere
in the world.
Offshore trusts and the tax aspect
Offshore trusts are governed by the International Trusts Law of Cyprus.
Offshore Trusts are not taxed in Cyprus. In fact, Cyprus Offshore Trusts enjoy important tax advantages, providing significant tax planning possibilities to interested parties. Although taxation considerations relating to Trusts are fairly complicated, the following advantages are indicative of the possible options for tax minimization.
All income whether trading or otherwise of an Offshore Trust, (i.e. a Trust whose property is located and income is derived from outside Cyprus) is not taxable in Cyprus.
Dividends, interest or other income received by a Trust from a Cyprus IBC company are also neither taxable nor subject to withholding tax. Gains on the disposal of the assets of an Offshore Trust are not subject to capital gains tax in Cyprus.
An alien who creates an Offshore Trust in Cyprus and retires in Cyprus
is still exempt from tax if all the property settled and the income
earned is abroad, even if he is a beneficiary.
An Offshore Trust created for estate duty planning purposes would not
be subject to estate duty in Cyprus.
Trusts are usually used by wealthy individuals for the purpose of protecting their estate from inheritance or capital gain taxes in their home country. They can also be used by expatriates settling into a trust before repatriating assets acquired while working abroad, to protect such assets from the tax net of their home country.
Offshore trusts and other aspects
There are many situations other than saving in taxes where
Cyprus Trusts can prove advantageous. These include the following.
- An individual, through the use of a Cyprus Trust, can ensure that
minors, mentally handicapped persons or persons that cannot be trusted
with the management of the individual estate are well provided for,
even after the individual's death.
- An individual, through the use of a Cyprus Trust, can arrange to be
inherited by persons, who due to the legislation of the individual's
country, would otherwise be excluded from the inheritance.
- An individual who wishes to divest himself of personal assets for
fiscal or other reasons can achieve that by transferring them to a Cypriot
Offshore Trust.
- An individual, who wishes to keep the ownership of a company anonymous
and confidential, can do this by setting up a Discretionary Cyprus Trust
to own the shares in the company.
- An individual who has or may have income arising overseas which he
does not wish to remit to his country of residence, can arrange for
such income to be directed to the Trustees of a Cyprus Settlement to
be held on a Discretionary Trust in accordance with his wishes.
- An individual with assets outside his country of residence, which country may in future extend its exchange control restrictions to include remittance of overseas funds, may wish to retain the flexibility of overseas funds by transferring them to a Discretionary Trust.
Other advantages
In addition to the tax and other aspects set out above there are other favorable factors for creating a trust in Cyprus.
The favorable legal system relating to Trusts together with the advantageous geographic position of the island make Cyprus a particularly attractive Trust location.
Cyprus International Trusts are not subject to exchange control. Bank deposits with Cyprus banks, either onshore or offshore, or with any bank around the world, is also not subject to exchange control. The absence of exchange control restrictions and the availability of excellent telecommunications and international banking services, make Cyprus a convenient base for the remittance and transfer of funds.
The presence of a number of reputable international fund management companies on the island and the high standing of the legal and accounting professions ensure the availability of expert advice as well as the competent management services required for the proper operation of a Trust.
There is no registration or reporting neither requirement for Trusts established in Cyprus nor is the names of the Trust or of the persons referred to in the Trust Deed disclosed. The only authority to be informed of the creation of an Offshore Trust is the Central Bank and only in cases where the Offshore Trust owns shares in a Cyprus International Business Company.
Cyprus law is flexible in that it allows the removal of a Trust from its jurisdiction and vice versa. This could be important in cases where a change in circumstances may render such a transfer advantageous for fiscal or other reasons.