So, then, what is a trust?

Financial Mirror (Cyprus) - - FRONT PAGE -

Trusts have been cre­ated for many rea­sons, in an ef­fort to re­duce tax li­a­bil­i­ties, to al­ter the de­vo­lu­tion of as­sets on death, to avoid the in­con­ve­nience and pub­lic­ity of pro­bate and to pro­tect as­sets from ac­tual or po­ten­tial cred­i­tors. The pop­u­lar “as­set pro­tec­tion trust” was launched by leg­is­la­tors wish­ing to at­tract in­vestors to their lo­cal mar­ket. In this con­text, the main ad­van­tages of an as­set-pro­tec­tion trust re­fer to the spe­cific plan­ning ad­van­tages which ac­crue in the con­text of the Cyprus domi­cile.

In the most sim­ple terms, trustees, who get no ben­e­fit from the trust, are re­quired to hold property of which they are the le­gal own­ers for the ben­e­fit of other per­sons, known as “the ben­e­fi­cia­ries” and for rea­sons of tax mit­i­ga­tion which can be achieved through the es­tab­lish­ment of a limited li­a­bil­ity com­pany in a low tax or zero tax ju­ris­dic­tion. But while a cor­po­rate struc­ture may achieve some of the tax plan­ning ob­jec­tives of the owner, it is not as “per­son­alised” or as “tai­lored” a so­lu­tion to the owner’s ob­jec­tives as a trust.

The In­ter­na­tional Trusts Law 69/92 en­acted in 1992 with the aim of pro­vid­ing in­cen­tives for the es­tab­lish­ment and ad­min­is­tra­tion of trusts in Cyprus by non-res­i­dents. The lat­ter has en­abled the cre­ation in Cyprus of “In­ter­na­tional Trusts”. The Ex­change Con­trol and In­come Tax laws ex­empt such trusts from in­come tax, cap­i­tal gains tax and es­tate duty tax, mak­ing In­ter­na­tional Trusts a very at­trac­tive tax plan­ning ve­hi­cle for the non-res­i­dent in­vestor.

Briefly, the es­sen­tial el­e­ments of an In­ter­na­tional Trust are that: the set­t­lor is not a per­ma­nent res­i­dent of Cyprus (a Cyprus com­pany owned by a non-res­i­dent will qual­ify as a set­t­lor); the ben­e­fi­ciary is like­wise not a per­ma­nent res­i­dent (char­i­ta­ble in­sti­tu­tions are an ex­cep­tion); the trust property does not in­clude any im­mov­able property in Cyprus; a min­i­mum of one trustee is res­i­dent in Cyprus.

Trusts are widely used for the pro­tec­tion of as­sets from the claims of ac­tual or po­ten­tial cred­i­tors. To a large ex­tent, the as­set-pro­tec­tion use of a Trust has de­vel­oped as a re­sponse to lit­i­ga­tion in the United States be­cause of the large awards of dam­ages handed down by ju­ries in civil law cases. In Cyprus, the In­ter­na­tional Trusts Law 69/92 makes spe­cific pro­vi­sion to as­set pro­tec­tion trusts. It pro­vides that notwith­stand­ing the pro­vi­sions of any bankruptcy or liq­ui­da­tion laws in Cyprus or in any other coun­try, and notwith­stand­ing the fact that the trust is vol­un­tary and with­out con­sid­er­a­tion, un­less it is proven to the Court that the trust was made with in­tent to de­fraud per­sons who, at the time when the pay­ment or trans­fer of as­sets was made to the trust, were cred­i­tors of the set­t­lor, the trust shall not be void or void­able. The law spec­i­fies that the bur­den of proof of such an in­tent on the part of the set­t­lor lies with the cred­i­tors seek­ing to an­nul the trans­fer made to a Cyprus In­ter­na­tional Trust. More­over, such an ac­tion must be in­sti­tuted by the cred­i­tors within two years from the date of trans­fer or dis­posal of the as­sets to the trust.

There are a num­ber of other rea­sons to cre­ate a trust, the most pop­u­lar of which are In­her­i­tance Laws, Tax Plan­ning, Dou­ble Taxation Treaties, Lim­i­ta­tion of Ben­e­fits Ar­ti­cles. Also, an in­ter­na­tional trust is ir­rev­o­ca­ble; the rules against per­pe­tu­ities does not ap­ply to in­ter­na­tional trusts which may last for a hun­dred years and in the case of char­i­ta­ble or pur­pose trusts may con­tinue in force in­def­i­nitely; ac­cu­mu­la­tion of in­come is valid for any pe­riod for the en­tire du­ra­tion of the trust and there is no lim­i­ta­tion on the kind of in­vest­ments in which the as­sets of an in­ter­na­tional trust may be put. Nor the govern­ment, nor the Cen­tral Bank of Cyprus may dis­close to any­body any in­for­ma­tion per­tain­ing to the iden­tity of the set­t­lor, the ben­e­fi­cia­ries, the trustees and their du­ties, or the ac­counts or as­sets of the trust. Only a court may or­der the dis­clo­sure of in­for­ma­tion or the pre­sen­ta­tion of documents per­tain­ing to the above in civil or crim­i­nal pro­ceed­ings, and to do so, dis­clo­sure must be deemed very im­por­tant to the out­come of the case.

The trust, whether used to pro­tect as­sets from claims, to de­ter­mine in­her­i­tance shares, or for a com­bi­na­tion of rea­sons, is an in­valu­able tool for flex­i­ble and ef­fec­tive es­tate and tax plan­ning.

Pro­vided that the cor­rect pro­fes­sional ad­vice is sought and ob­tained, trusts can max­i­mize the tax ben­e­fit of pru­dent in­vestors and or­gan­ise their busi­ness mat­ters in a way which best suits their par­tic­u­lar cir­cum­stances and needs. Once the ques­tion of choice of the place of res­i­dence of the trust for the pur­poses of taxation and the gov­ern­ing law are set­tled in a sat­is­fac­tory man­ner, tak­ing into ac­count the “re­lat­ed­ness” of the cho­sen domi­cile, then a Cyprus In­ter­na­tional Trust can prove a most ef­fi­cient means of or­gan­is­ing and pro­tect­ing the busi­ness and as­sets of set­t­lors world­wide.

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