An International Trust, is an effective legal tool for asset protection, tax planning and wealth management, providing the added benefits of confidentiality and security.
International trusts in Cyprus
Defining international trusts & why you should set one up
Simply put, a trust is a financial planning solution in which property or assets are passed on from one person—the settlor—to another—the trustee—with the latter being in charge of managing said property or assets for the benefit of a select group of people—the beneficiaries.
Trusts are generally set up via a written agreement known as a trust deed, although in some cases a verbal agreement can be reached between the various parties involved.
As part of any trust agreement, it is primordial that the trustee or the person assigned to manage the property or assets is one hundred percent independent and has total control over the items in their care. A trust stops working if the settlor is actively involved, retains control over the property or assets that conform the trust, and seeks to influence or direct the trustee's decision-making responsibilities.
Furthermore, it is important to set up your trust in a jurisdiction with robust, reliable, and transparent laws governing this type of arrangement, a legal framework that establishes very specific and stern obligations for trustees and prevents them from profiting from their management of the property and assets in question, unless it is clearly stipulated in the trust deed.
International Trusts. Why you should consider setting one up
There are plenty of excellent reasons why you should consider setting up an international trust. Here we highlight the main ones:
Plan out your estate and tax matters:
Setting up a trust can help you keep your affairs in order for when you retire and eventually leave this world without having to write a will, an alternative solution that is usually more costly and burdensome. A trust also serves as an organizational tool as you can plan exactly how to distribute your wealth to your spouse, children, or other beneficiaries instead of handing over everything upon your death. Similarly, trusts can potentially save you money by leapfrogging over potential inheritances taxes.
Protect your privacy:
Drafting and effectuating a will is a largely public affair. By setting up a trust, you can retain some privacy and confidentiality and avoid the world from learning all about the assets and property under your name.
Safeguard your assets:
Since under a trust you're handing over all of your assets to a trustee, it is very difficult for the government, law enforcement, or an angry spouse to stake a claim on your wealth. Likewise, a trust can help protect your family wealth by maintaining it in its entirety without having to split it among your heirs and diluting its value. Hence, when it comes to mitigating risk and protecting your assets, trusts are second to none.
Prolong your family's business:
A trust can be used to safeguard the family business you've worked so hard to build. Without a trust, upon handing over your life's work to the next generation, they might choose to sell off the business. At the same time, in this scenario, a trust can be used to distribute profits to members of the family, some of whom might not be business savvy or interested in pursuing your line of work.
Enjoy greater flexibility:
A discretionary trust is quick on its feet and adapts to changing circumstances. In this case, the settlor solely defines the different types of beneficiaries, and it's up to the trustee to distribute the wealth based on their own reasoning.
Help the vulnerable:
In many cases, families have individuals who cannot fend for themselves, either because they are old, sick, disabled, or too young. A trust can help keep them afloat by proffering them assets based on their needs and conditions.
Bypass forced heirship:
Certain jurisdictions force the deceased to hand over a portion of their wealth to their children or other relatives. If you have other plans in mind when you finally go, then a trust will help you guarantee that your wealth is distributed according to your dying wishes.
What to consider when setting up an International Trust
Once you decide to set up an International Trust, there are certain things you must consider before moving ahead with this life-defining decision.
First, you need to pinpoint the assets you want to be governed by the trust and their estimated value.
Second, you have to handpick your trustee or the person who will be taking over your wealth and managing it on your behalf. You must choose someone who is responsible, who will follow through with your wishes, and who has some financial knowledge, at least enough to carry out this task in an efficient and timely manner.
Third, it's time to decide who will benefit from the trust. In other words, determine your beneficiaries. At this stage, you also have to figure out how you want the assets in the trust to be distributed among the chosen ones.
Finally, start thinking about your trust's main objectives and what you hope to achieve from setting one up. Don't fret over finetuning the trust's terms and dealing with all its minute details as this is something you can hash out later on with your solicitor of choice.
Properties as subject matter of a trust
Trusts can govern or manage all types of property imaginable. This includes real estate, money, bank accounts, stocks, bonds, brokerage accounts, business interests in specific companies, life insurance, annuities, cars, yachts, airplanes, jewellery, antiques, precious stones, art, interests in oil and gas, timeshares, livestock, trademarks, copyrights, and plenty more.
Cyprus International Trust and its many benefits
As in the case of other existing international trusts in the market, Cyprus' version has its own set of unique advantages or benefits.
What are some of these, you ask?
- Protect your assets: With a Cyprus trust, it will be nearly impossible for a government, bank, or disgruntled spouse to claim a chunk of your wealth anytime in the future.
- Benefit from a favorable tax regime: Cyprus is known throughout the financial world for its highly favorable tax regime. Any dividends, royalties or interest derived from your trust will not be taxed nor be subjected to estate or inheritance levies. Beneficiaries who are not tax residents of Cyprus will only be taxed on their income if it was generated on the island.
- Make it tough to void: Trusts are tough instruments to crack, and it takes a long, arduous battle for a claimant to prove before the law that the trust was created for nefarious or sneaky reasons. Plus, there's a time limitation of two years from the moment of transfer for these claims to even be considered by the courts.
- Set it up for the long term: Cyprus trusts can live on for a lifetime plus 21 years. In the case there is no natural person involved in the setting up of the trust, then its shelf life is a full 21 years.
- Safeguard your privacy: The Cyprus trust cares deeply for its settlors' privacy and confidentiality as a whole. Trust deeds do not need to be submitted, only a court can order the disclosure of trust details and only to the eyes of the competent authorities.
- Maintain some control: When it comes to the Cyprus International Trust, settlors, if delineated in the trust deed, can retain a certain amount of power over the instrument. Hence, settlors can potentially change how the trust is administered and by whom.
The tax advantages of Cyprus' international trust
As mentioned throughout this page, one of the main advantages of setting up your international trust in Cyprus is the island's highly favourable and business-friendly tax regime.
The first thing to consider is that any income or profits derived from the trust, regardless of their jurisdiction of origin, will be governed by Cyprus' tax regime if the beneficiary is a Cypriot resident. If the beneficiary holds a different residency, then they will only have to pay taxes on any income or profit generated on the island.
Besides this, Cyprus' international trust regime will benefit from the following tax breaks and exemptions:
- No taxation on dividends, interest or royalties received by the trust from a Cypriot company.
- No withholding tax.
- No capital gains tax on the sale or disposal of assets belonging to an international trust in Cyprus.
- No estate duty if the trust was set up for estate planning.
- Do keep in mind, however, that local international trusts will have to pay VAT and stamp duty on their activities on the island and will be taxed on gains sourced in Cyprus.
Trustees & protection in the Cyprus international trust
Under Cyprus law, the Cyprus Securities and Exchange Commission (CySEC), the Cyprus Bar Association, and the Institute of Certified Public Accountants of Cyprus (ICPAC), the three main regulatory bodies in charge of trusts, must upkeep a register of trusts on the island. Hence, trustees have an obligation to register their trusts with the relevant supervisory body.
As a regulated activity, setting up and managing a trust can only be carried out by a licensed legal person who has been approved by the Cyprus Stock Exchange or fiduciaries who are members of either the Cyprus Bar Association or ICPAC.
To properly register a trust on the island, the individual in charge must submit the following details to the relevant regulatory or supervisory body:
- The trust's name.
- The trustees' first names, last names, and addresses.
- The date the trust was set up.
- The date the trust's proper law was modified.
- The date the trust was terminated, whenever that happens to be.
These details can only be reviewed by the regulatory bodies and are not made available to the public at large. More importantly, the content of the trust deed or any information pertaining to the settlor or beneficiaries does not need to be submitted.
Our Cyprus international trust package
The Meridian Trust team will help you get the ball rolling when it comes to your international trust and make the entire process as quick yet relaxing as possible.
Our range of services includes:
- Offering Advice on Your Trust: Are you still wondering what best suits your needs? Our team of experts will guide you through your array of options and help you lay out the plan for a trust that will work to the best of your interests.
- Drafting Your Trust Deed: Our team will draft your trust deed from start to finish, always taking into account your voice, opinion, needs, and overall objectives. Let us do the heavy lifting of writing, while you provide us with some guidance and your overarching vision for the trust.
- Registering Your Trust Deed: We'll take on your application, filing the trust deed and registering your structure with the relevant regulatory or supervisory bodies.
- Providing Trust Administration Services: Anything else beyond what has already been mentioned, we'll also take off your hands. This includes tax planning, accounting, overseeing sales and distribution of assets, and managing your estate on a daily basis, among a host of others.
Let's talk! Fill in the form below and schedule your 30 minute free consultation with one of our corporate lawyers, to discuss any questions about setting up an international trust in Cyprus.