Cyprus Financial Services, Taxation and Trusts

Tax aspects
Cypriot international trusts enjoy important tax advantages, providing significant tax planning opportunities to interested parties. The following advantages are indicative of the possible options for tax minimization: All income, whether trading or otherwise, of an international trust (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 international business company are also neither taxable nor subject to withholding tax provided that the beneficiaries are not tax resident in Cyprus. Even though a trust with shares in a Cypriot company may not be an international trust, 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 an international trust are not subject to capital gains tax in Cyprus An alien who creates an international trust 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 I a beneficiary An international trust created for estate duty planning purposes would not be subject to estate duty in Cyprus.

The nature of a Trust
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. 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 direction set out in the trust document. The trust property can include all kinds of assets situated anywhere in the world. Trusts are usually used by wealthy individuals for the purpose of protecting their estate from inheritance or capital gains taxes in their home country. They can also be used by expatriates settling into a trust before repatriating assets acquired while working abroad, to protect such assets from the tax of their home country.

Other aspects
There are many situations other than saving in taxes where Cypriot trusts can prove advantageous. These include the following: an individual, through the use of a Cypriot trust, can ensure that minors, mentally impaired persons or persons unable to deal with the management of the individual’s estate are well provided for, even after the individual’s death an individual, through the use of a Cypriot trust, can arrange to be inherited by persons, who due to the legislation of the individual’s country, would otherwise be excluded from the inheritance an individual who wishes to divest himself of personal assets for fiscal or other reasons can achieve that by transferring them to a Cypriot international trust an individual who wishes to keep the ownership of a company anonymous and confidential, can do this by setting up a discretionary Cypriot trust to own the shares in the company an individual who has or may have income arising overseas, which they do not wish to remit to their country of residence, can arrange for such income to be directed to the trustees of a Cyprus based settlement and be held in a discretionary trust in accordance with their wishes an individual with assets outside their country of residence – which country may in future extend its exchange control restrictions to include remittance of overseas funds – may wish to retain the flexibility of overseas funds by transferring them to a discretionary trust.

Other advantages
In addition to the tax and other aspects set out above there are other favourable factors for creating a trust in Cyprus The favourable legal system relating to trusts together with the advantageous geographic position of the island make Cyprus a particularly attractive trust location. Cypriot international trusts are not subject to exchange control. Bank deposits with Cypriot banks, either local or international, or with any bank around the world, are also not subject to exchange control. The absence of exchange controls and the availability of excellent telecommunications and international banking services, make Cyprus a convenient base for the remittance and transfer of funds The presence of a number of reputable international fund management companies on the island and the high standing of the legal and accounting professions ensure the availability of expert advice as well as the competent management services required for the proper operation of a trust. There are no, registration or reporting requirements for trusts established in Cyprus nor are the names of the trust or of the persons referred to in the Trust Deed disclosed. Cypriot law is flexible in that it allows the removal of a trust from its jurisdiction and vice versa. This could be important in cases where a change in circumstances may render such a transfer advantageous for fiscal or other reasons.