The Cyprus International Trust (CIT) can be employed in commercial and business transactions but also as a vehicle for charitable and other purposes. Examples of usage include CIT’s being used as vehicles for:
- The management of funds: Investment Trust Funds, Credit Institutions, Banks etc. may, through the use of a CIT and a Cyprus International Business Company that acts as a Trustee, manage funds on behalf of their clients.
- Holding property which cannot personally be held: A minor or otherwise legally incompetent, may not be able to hold property on his own name but a trustee can often hold and manage it on their behalf until their maturity or some future event, in order for them to take control or otherwise as the settlor may decide.
- Holding shares in non-Cyprus legal entity: A CIT may fully own a Cyprus International Business Company which in turn may own all the shares of a non-Cyprus legal entity. The settlor or trustee or otherwise a designated by them person, maintains control over the trust assets as a manager of the Cyprus International Business Company and the beneficiaries of the CIT will receive any distribution of income to be made.
- Establishment of a joint venture or collective investment: A CIT can be used as a vehicle by several persons to make joint investment. The trust can provide the basis of their co-operation and can regulate their relationships and sharing of the financial results of their joint venture.
- Protection against high taxation: Minimizing and better managing tax exposure of individuals income or wealth by transferring their property to a CIT, thus utilizing (under a proper tax structure) of the beneficial extensive double taxation network of Cyprus and the non-taxability of any income of the trust in Cyprus has been the traditional utility for CIT.
- Asset protection: Through a CIT, assets are protect against possible expropriation laws, future claims from the government and creditors, law suits or international blocking or freezing regulations in his/her home country.
- Promoting causes and charities: A CIT is a tax effective method for funds to be extended for a charity, or for the promotion of a religious or artistic cause or establishing a foundation to support a worthy project.
- Investing in business overseas: A CIT may be established so that individuals may invest in business overseas but ensuring that the profits and dividends are not remitted to the country of their residence.
- Protection against spendthrift beneficiaries: The CIT is also used as vehicle of protecting family fortunes for future generations by safeguarding capital and avoid it being frittered away by spendthrift beneficiaries.
- Managing profit sharing & pension schemes: Through the use of a CIT, companies can provide pension schemes benefit plans and profit-sharing arrangements declaring their employees as one class of beneficiaries. The CIT provides a most effective method of grouping and sharing benefits and it has also the additional advantage of being able to cover any specific circumstance.
What are the main features of a CIT
The Cyprus International Trusts Law builds on the well-established English principles of equity and has created one of the most attractive trusts legal frameworks in the world. It is intended to offer to qualified persons, the opportunity to create a trust that will suit the most situations and demands and enjoy many advantages that cannot be found concentrated in other trusts jurisdictions.
CIT is (i) any trust whereby the settlor of the trust is not a Cyprus tax resident during the year preceding the year in which the trust was settled, and (ii) the beneficiaries are not Cyprus residents but may relocate to Cyprus after a year following the trust settlement and (iii) at least one of the trustees must be a local resident throughout the duration of the CIT. The trust property can include all kinds of assets situated anywhere in the world and it can also comprise of real estate property located in Cyprus.
The main advantage of a CITs is the separation of the legal ownership from the beneficial ownership of the trust property. Trustees are recognised as the legal owners of the assets and the beneficiaries are protected by a body of legal rules, which require trustees to adhere to strict duties as to how to manage or distribute the trust property. That is why an international trust is such an irreplaceable tool for asset protection. Assets transferred to a trust are no longer part of the property owned by the settlor and cannot be claimed by creditors and litigators.
Another advantage of CIT is that it can be an exceptional tax planning tool and if correctly structured it will produce substantial savings in income tax, capital gains tax, inheritance tax, and stamp duty. Because the beneficiary of the international trust is not a legal owner of it, the income and capital gains are taxed in accordance with the rules of the residence of the legal owners – the trustees.
It is also noteworthy, that the CIT Law allows for the re-domiciling of a trust from its Cyprus jurisdiction, thereby providing for the necessary flexibility in cases where, a change of circumstances may mean, such transfers would be advantageous for fiscal or other reasons.
Given the legal framework of Cypriot law regarding international trusts, this jurisdiction has made establishing a Cyprus International Trust more practical, effective, and accessible for any context. In all, Cyprus is an ideal international trust location for its cost-effective benefits, ease of set-up and management, and connectivity to international law and other major financial centres.
The content of this article cannot be considered as a legal advice. For any further information or advice on the particular matter, we strongly recommend that you contact us to be guided accordingly.