Setting up a Trust in Cyprus: All you Need to Know

By: Daniela Iatridou  | ADVOCATE – LEGAL CONSULTANT  @ A. Karitzis & Associates LLC

Requirements for Setting Up a Cyprus International Trust

What is a Trust?

The legal concept of a Trust is generated from the principles of Equity and Common Law, as derived from the English jurisprudence and adopted under our legal system. It is extremely difficult to give a precise definition of what a Trust is, due to its flexible nature and the variety of trusts that can exist. Attempting to describe it in simple words, a Trust is a relationship that is created by executing a Trust Deed, via which a person called the “trustee” is appointed by the person setting up the Trust, namely the “settlor” to hold, manage, distribute and protect his assets, in accordance with his wishes, for the benefit of the persons listed under the Trust Deed as “the beneficiaries”.

Subject to the purpose of the creation of a Trust or the powers vested to the Trustee, the main types of Trusts are as follows:

• Fixed Trust: A Trust under which the share or interest of the beneficiaries in the trust property is fixed and specified by the settlor at the time when the Trust was set up. To that end, the trustee does not have any discretion as to the management or distribution of the assets.
• Discretionary Trust: A Trust under which the entitlement to the trust property is vested at the discretion of the trustee, based on the criteria and provisions included in the Trust Deed.
• Charitable Trust: As the name implies, a Charitable Trust is created for a charitable purpose, as defined and specified in the Trust Deed.

Trust can be created during the lifetime of the settlor, and can survive his death, or upon the death of the settlor, in accordance with the provisions of his Will.

What are the key roles under a Trust?

As already indicated, a Trustee is the person who is appointed to hold the trust property for the benefit of the beneficiaries. Anyone can be appointed as a Trustee, a physical person, or a legal entity. A Trust can also provide for the appointment of more than one trustee. Furthermore, due to the wide range of powers and duties vested upon a Trustee as well as the requirement that the Trustee of a Cyprus International Trust needs to reside permanently in Cyprus, as indicated below, a professional (i.e. a lawyer) can be appointed to act as a Trustee. 

As the name implies, a Beneficiary is the person who benefits under the Trust. Beneficiaries can be named individuals, classes of identified people, a charity or a purpose, organizations, or legal entities, as well as the settlor himself.

The wide range of powers vested to the Trustee might also create the need for the settlor to appoint a Protector. The Protector is a person, other than the Trustee, who is vested with specific powers to advise and/or control any decisions taken by the Trustee for specific matters identified under the Trust Deed.

What is the legal framework governing Trusts in Cyprus

The Cyprus legal regime covers domestic Trusts, which are governed by the provisions of the Trustee Law (Cap. 193) (“the Trustees Law”) as well as Cyprus International Trusts (“CIT”), which are governed by the provisions of the International Trusts Law (No. 69(I)/92) (“the International Trusts Law”). Under the provisions of the Court’s of Justice Law (No. 14/60), the principles of Equity and Common Law are adopted by the Cyprus legal system, provided that they do not conflict with any domestic Law provisions.

What are the requirements for setting up a Cyprus International Trust (“CIT”)?

Under the provisions of the International Trusts Law, for a Trust created in Cyprus to qualify as a CIT, the following conditions must be satisfied:

• The settlor must not be a permanent resident of Cyprus during the year preceding the creation of the Trust.
• At least one of the Trustees should be a permanent resident in Cyprus.
• The beneficiaries must not be residents of Cyprus during the year preceding the creation of the Trust.

The term “Resident of Cyprus”, referred to in the above-mentioned criteria, has the same meaning and definition given under the provisions of the Income Tax Law and means an individual who is a tax resident of Cyprus, including anyone who resides in Cyprus for more than 183 days in a calendar year.

What are the formalities of setting up a Trust?

Generally, there are no strict formalities required for the creation of an express Trust, provided that the three certainties are satisfied:

• Certainty of intention: the settlor must manifest an intention to create a Trust.
  • Certainty of subject matter: the trust property must be identifiable and specific.  
  • Certainty of objects: the beneficiaries must be identifiable and ascertainable at the time of setting up and for the duration of the trust.

What are the benefits of setting up a Trust?

Depending on the purpose that the settlor wants the Trust to serve, there are various benefits that can be enjoyed, such as follows:

• Estate planning – avoidance of the application of succession law for the distribution of the estate of the settlor. Under Cyprus Law, certain restrictions apply with regard to the way that assets can be disposed of through a Will. Specifically, the “forced heirship” regime protects close relatives of the testator who cannot be excluded from the distribution of his estate. Provided that the Trust is set up inter vivo (i.e. during the settlor’s lifetime), the settlor can include provisions in the Trust Deed for the distribution of his estate upon his death, as he wishes. Succession law and the forced heirship regime do not apply to any assets placed under the Trust.
• Asset protection – the Trust can be used to protect assets from risks of any claims that could arise in tort or contract, provided that the Trust was not set up with any intention to defraud any creditors.
• Wealth management and investments: A trust can be used as a vehicle for pooling income and assets that could be used for investment purposes.
• Tax optimization, depending on the tax status of the beneficiaries and the nature/ location of the Trust assets.  Generally, worldwide income, profit and gains are taxable in Cyprus only where the beneficiary is a Cyprus Tax resident. Beneficiaries who are non-residents of Cyprus are taxed only on Cyprus-sourced income in accordance with the Cyprus income tax laws.
• Confidentiality – there are no reporting requirements, other than the registration of the Trust to the Cyprus Bar Registry or CySec Registry, which are not accessible to the public.

Which assets can be included under the Trust?

Any assets, movable or immovable, can be included under the Trust. Furthermore, assets located outside of the Republic of Cyprus can also be included under a Cyprus Trust, provided that the Cyprus Trust can be recognized in that jurisdiction (consultation with a professional practicing in the jurisdiction in question is required in such case).

What is the duration of a Trust? Can it be revoked or amended?

A Cyprus Trust can exist for life in being plus 21 years (i.e the maximum duration of the Trust is until the life of the last beneficiary plus 21 years). The Cyprus International Trust can exist to infinite. As the Trust Deed is a flexible instrument that can be drafted based on the tailored needs of the settlor. To that end, the settlor may reserve powers for the revocation or the amendment of the Trust.

What is the procedure for setting up a Trust?

Procedurally, a Trust Deed needs to be executed including all the provisions related, inter alia, to the exercise of the trustee’s powers and duties concerning the management and/or distribution of the trust assets. The Trust Deed can be accompanied by the Letter of Wishes in which the settlor can include all his wishes and instructions with regards to the distribution of the Trust assets. Once the Trust Deed is executed, the Trust must be registered at the specified registers for trusts maintained by the Cyprus Bar Association or The Cyprus Securities and Exchange Commission. Furthermore, all the relevant procedures to the relevant Departments must be followed so that the legal title of all trust assets must be transferred under the Trust.

Who can be a Trustee and what are the powers and duties involved?

A person who is appointed as a Trustee has fiduciary duties to act in the best interest of the Trust and of the beneficiaries. Such fiduciary duties include, inter alia, the duty to act in good faith, to exercise reasonable care and skill, and the duty to act impartially. Furthermore, based on the Trustee Law, Trustees have various duties and discretionary powers related to the day-to-day management, preservation, and investment of the Trust assets as well as to the distribution of any income or capital derived from the management and/or investment of the Trust assets to the beneficiaries, following the provisions included in the Trust Deed. Lastly, depending on the nature of the Trust assets and the management required under the Trust, Trustees are vested with various record-keeping duties, as they must maintain accounts, file tax returns, pay any relevant taxes and/or expenses and comply with all the relevant legal obligations.