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Trusts in Cyprus - The Cyprus International Trusts Regime

The Cyprus International Trusts regime enables Cyprus non-tax residents to create a Cyprus Trust and enjoy the highest degree of asset protection and create estate planning internationally along with numerous tax benefits and high level of confidentiality.

The definition of a Cyprus International Trust (CIT) has become more flexible:
  • allows the settlor / beneficiary to become a Cyprus resident as long as neither the settlor nor the beneficiary take up residence during the calendar year preceding the year the trust was set-up the previous restriction on investment in immovable property in Cyprus has been lifted. It is now possible for the trust property to include real estate in Cyprus at least one of the trustees, during the whole duration of the trust, is a permanent resident of Cyprus.
  • A trust can still qualify as a CIT for the purposes of the law even if the settlor, trustee or the beneficiaries are Cypriot companies or partnerships. In fact this provides unique opportunities for a wide range of investors.

A trust is established by an individual (the Settlor) 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 Settlor can be a Trustee and the Settlor and the Trustees or any of them can be Beneficiaries. A Protector who can be the Settlor may be appointed to oversee the work of the Trustee.
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 documents. 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 latest amendments to the International Trust Law adopted in March 2012 have enhanced the efficiency and competitiveness of CITs as an asset management and investment tool.

International trusts are governed by the local trust law and are not taxed in Cyprus. If the beneficiary is not a Cyprus resident, only the income earned and the profit made from sources in Cyprus are subject to Cyprus tax laws.

CITs enjoy important tax advantages providing significant tax planning opportunities to interested parties. The following tax privileges are indicative of the possible options for tax minimization:
  • all income, whether trading or otherwise, of a CIT (ie 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 company are also neither taxable nor subject to withholding tax provided that the beneficiaries are not tax residents in Cyprus. Even though a trust with shares in a Cypriot company may not be a CIT, the exemption relies on the fact that Cypriot tax is imposed only on Cyprus residents. As the beneficiaries are not residents of Cyprus, no tax is imposed on the distributions made to the trust
  • gains on the disposal of the assets of a CIT are not subject to capital gains tax in Cyprus
  • an alien who creates  a CIT 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
  • a CIT created for estate duty planning purposes would not be subject to estate duty in Cyprus
Local trusts ie trusts under which either the settlor or any beneficiary is a Cypriot resident, will still be treated as transparent vehicles for income tax purposes. In the case of Cypriot offshore trusts, provided that no local profit is included, no Cypriot tax will be levied on their income, capital or distribution. 

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