Meaning of trust

Where a person has property or rights which he holds or is bound to exercise for or on behalf of another or others, or for the accomplishment of some particular purpose or particular purposes, he is said to hold the property or rights in trust for that other or those others, or for that purpose or those purposes, and he is called a trustee.

The essence of a trust is the separation of legal and beneficial ownership of assets. As a result, trusts are effective for estate and tax planning purposes. Trusts are flexible arrangements that are used for a variety of private and corporate purposes. They also offer confidentiality, as neither public registration nor disclosure is required in the country of domicile of the trust.

The person or persons for which the property is held is called the beneficiary.

The person that creates the trust is called the settlor. In Cyprus the settlor may be a trustee of the trust and one of the beneficiaries. In other jurisdictions this may not apply.

Trusts whose purpose is immoral or illegal or contrary to public policy one not enforceable by law.

Reasons for using Trusts

Trusts may be used for a variety of reasons amongst which is the securing of personal investments as a complement to overall estate and financial planning. You can contact us for advice of how trusts may be used in relation to financial planning.

The Cyprus International Trust

In Cyprus , apart from the common law principles two pieces of legislation apply with relation to trusts: the Trustee Law, which is more or less the same with the England and Wales Trustee Act 1925, and the 1992 Law, which provides for the regulation of International Trusts.

Since the enactment of the 1992 Act , Cyprus has proved to be a favorable jurisdiction for creating International Trusts.

A trust qualifies as a Cyprus International Trust if all of the following requirements are met.

1. The settlor is not a permanent resident in Cyprus .
2. At least one of the trustees is a permanent resident in Cyprus .
3. No beneficiaries (with the exception of a charity foundation) is a permanent resident of Cyprus .
4. The property under the trust does not include immovable property in Cyprus .

If allowed by the terms of the trust deed the law applicable to the international trust may change either from or to the Cyprus jurisdiction provided certain requirements are met.

Advantages relating to Cyprus International Trusts

• Exemption from income tax, capital gains tax or any other tax in Cyprus (provided that the property is located and income is derived outside Cyprus ).
• No reporting requirements in Cyprus - Confidentiality and non disclosure.

Confidentiality is of the up most importance in setting up a trust and a Cyprus International Trust is advantageous in this respect as no information or documents will be disclosed by the Cyprus government or the Central Bank of Cyprus with respect to:

Settlor

Beneficiaries

Trustees

Accounts or property of the trust

Only through a court order there may be a disclosure of information or documents.

• It is possible for a settlor in Cyprus to establish a Discretionary Trust based on Cap 193, which states that the powers of trustees can be expanded by the settlor in the trust deed.

A Discretionary Trust grants the trustees discretion to pay the income or capital held under a trust to any or all of a particular class of persons defined in the trust deed. The trustee may also be given discretion in deciding when to pay any money to any of the members of the class, therefore, none of the beneficiaries has any right to be paid any money out of the trust fund, since the trustee may exercise his discretion and postpone any such payment or even decide not to pay a particular beneficiary at all. This gives in its turn a number of advantages:

1. The beneficiaries cannot be taxed on the trust fund, because they have no legal right in the trust fund until the trustees exercise their discretion in their favor.
2. Similarly, the beneficiaries cannot be subject to local exchange control regulations regarding compulsory repatriation of assets until the trustees exercise their discretion.
3. Since the beneficiary only has contingent interest, the trust assets are not available to his creditors, should he go bankrupt.
4. It is a flexible instrument, allowing trustees to vary the various interests under the trust, as and when circumstances change, without the need to have recourse to the procedures of variation of trusts (i.e. getting the agreement of all the beneficiaries or asking the court to vary the terms of the trust).

At the same time there are ways to safeguard wishes of the settlor.

• Asset protection: The legislation is designed to limit the power of creditors to set aside transfers of assets into a trust. The Law makes it difficult to invalidate the trust even in the event of a settlor's bankruptcy unless there was a clear fraudulent intention behind the creation of the trust.
  
• An International Trust may form a Cyprus company and obtain the benefits available to them.
  
• A favorable legal system relating to International Trusts together with Cyprus key geographical location.
  
• Dividends, interest, or royalties received by an international trust from a Cyprus company are not taxable and not subject to withholding tax.
  
• No inheritance tax in Cyprus .
  
• No exchange control restrictions.
  
• Gains on the disposal of assets of an International Trust are exempt from capital gains tax in Cyprus .
  
• No estate duty on the assets.
  
• A foreigner creating a Cyprus International Trust when he retires to Cyprus will pay no taxes provided that the property is settled and the income earned is abroad, irrespective if he is even a beneficiary.
  
• The same person can be the settlor, the trustee (through Cyprus company he can be the sole director and the only beneficial owner of the company) and also a beneficiary i.e. an individual could have directly absolute control and ownership of the trust fund.
  
• A Cyprus company acting as a trustee to a particular trust does not under certain circumstances have to incur the 10% corporate tax.
  
• An International financial Services Company such as a Bank may set up a Cyprus company for the purpose of offering trustee services to third parties and thus derive the tax benefits from incorporating in Cyprus.
  
• Individuals migrating to a high tax country may obtain fiscal advantages in their new country by placing funds in a Cyprus International Trust.
  
• Investing in overseas business and diverting the profits and dividends received to a discretionary trust so as to ensure that the profits and dividends received are not remitted to the country of residence.
  
• A trust can be used in one country to own an underlying investment holding company in another. This type of tax planning device has many advantages in providing the maximum possible protection for both settlor and beneficiaries alike.
  
• In some circumstances an individual, through the use of a trust, can arrange for it to be inherited by persons, who due to the legislation of the individual's country, would otherwise be excluded from the inheritance.
  
• Individuals can protect their assets against possible, future claims of governments, or law suits provided always that through the creation of the trust no laws are broken and no intention to defraud creditors exists.

Golden Trust House & Trusts

We offer trust services either by acting as trustees or by assisting our clients with the preparation, setting up and administration of the trust.

Our trusts and trustee services cover a wide variety of corporate and private trust services. We establish different types of trusts according to the client' s personal circumstances.

Please feel free to contact us for any advice on how trusts may be used in your financial planning or the financial planning of your corporation.