CYPRUS TRUSTS

A. Legal Framework

Trusts formed in Cyprus are governed by the Trustees Law, Cap. 193, which is based on the English law of trusts. The English common-law and equity rules are also applicable. The law relating to the regulation of international trusts, Law 69(I)/92 has updated the Cyprus trust law, bringing it in line with international developments on trust law.

This relatively recent piece of legislation is of particular importance to international business companies and to international business partnerships amongst others, who may wish to take advantage of the benefits made possible by the new trust regime. By definition, a Cypriot and/or a permanent resident of Cyprus cannot set up an international trust, as defined in the Act.

International investors or non-permanent residents in the Republic who wish to set up a trust in Cyprus, enjoy from substantial tax benefits and flexibility in the management of their assets.

B. Conditions for the set-up of an International Trust

The settlor must not be a permanent resident of Cyprus (nb: the settlor may be a partnership or a company, which complies with the provisions of A8(ke) and 28A of the Income tax law, i.e. offshore companies - the same applies for the trustees mentioned in paragraph 2 below);

At least one of the trustees must be a permanent resident of Cyprus, for the whole duration of the trust's life;

No beneficiary, with the sole exception of a charitable institution, may be a permanent resident of Cyprus;

The property of the trust must not include any immovable property situated in Cyprus.

C. Advantages of Cyprus Trusts

By way of illustration...

By way of illustration one can consider a company that is both the trustee and the beneficiary of the trust, and where the settlor is the sole owner of the company's shares as well as its sole director. Property held by such a company as trustee would be exempt from estate duty and would be safe from law suits against the settlor, bankruptcy, expropriation, or settlors business risks. Similarly proceeds from the Trusts activities would be tax exempt.

No Exchange Control

Cyprus offshore trusts are not subject to exchange control. Bank deposits with Cyprus banks, either onshore or offshore, are also not subject to exchange control. The absence of exchange control restrictions and the availability of excellent communication and international banking services, make Cyprus a convenient base for the remittance and transfer of funds.

Management Services

The existence in Cyprus of a number of reputable international fund management companies 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 operation of a trust.

Confidentiality

There are no registration or reporting requirements for trusts established in Cyprus, nor are 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 of Cyprus and only in cases where bank accounts are opened in Cyprus, however no names are disclosed.

Removal from the Jurisdiction

Cyprus Law allows for the removal of a trust from its jurisdiction, hereby providing for the necessary flexibility in cases where a change of circumstances may mean such transfers would be advantageous for fiscal or other reasons.

D. Types of Cyprus Trusts

Discretionary Trust

Under this trust, the trustees have a general discretion over the amount of benefits and the manner by which the beneficiaries might enjoy such benefits. The beneficiaries may be defined according to name or reference to a class (ie. the settlor's children) or simply left to the full discretion of the trustees. Usually, the settlor indicates to the trustees his wishes for the disposal of the trust property by means of a Letter of Wishes.

Should the settlor wish to give a more positive quidance than relying on a Letter of Wishes, it is possible to include a third party in the trust deed known as the "protector" or "nominator". The protector's role is to prevent the trustees from exercising their discretion in certain circumstances. The trustees will usually exercise their discretion with the prior consent of the protector or nominator.

Fixed Trust

Under a fixed trust, the trustees have no discretion in distributing the trust assets to the beneficiaries. For example, under such a trust the trustees are directed to distribute the income to a designated individual for a fixed period of time and thereafter distribute the capital of the trust to a specific beneficiary or beneficiaries.

Fixed and Discretionary Trust

This type of trust gives discretion to the trustees over the distribution of income for a period of time. However, they may be required to distribute the income to a specified individual or individuals in fixed amounts, while maintaining discretion over the distribution of the capital amongst a class of beneficiaries.

Protective Trust

This trust is appropriate when a beneficiary is given a life interest which may become discretionary on certain defined events, such as the bankruptcy of the beneficiary.

Declaration of Trust

This is a variation of the discretionary trust in which the settlor is not named in the trust deed and the trustees declare that they hold the assets which were transferred to them on trust. In such a case, the trustees accept a Letter of Wishes.

Trading Trust

Under this trust, the trustee is usually a limited liability company which has powers to carry on business, and the trust has trading functions and employees to manage its business. Since all documentation used is in the name of the trust company, third parties are not aware of the existence of the trust.