The Cyprus House of Representatives voted in favour of the Bill for the much anticipated reform of the Cyprus International Trusts Law (“the Law”) and the amendments were published in the Official Gazette of the 23rd of March 2012. The new Law is a step forward in rendering Cyprus a more competitive trust jurisdiction and it further upgrades Cyprus as an International Economic Centre.
Major amendments to the Law
Residency Status of Settlors, Beneficiaries and Trustees
Section 2 of the 1992 Law was amended. The new Law provides that the settlor should not be a Cyprus resident in the year preceding the year of the establishment of the trust.
Under the old law, it was not clear whether a settlor could reside in Cyprus after establishing a Cyprus International Trust and this uncertainty discouraged the settlors from relocating. The amendments effected, clarify when a person/s can reside in Cyprus and still be eligible as a settlor under an International Trust. The same applies to beneficiaries. The only exception is that of a charitable trust where the beneficiaries could be Cyprus residents at any given time.
Regarding the trustees, it should be noted that at least one of the trustees should be resident of Cyprus during the whole duration of the Trust.
Validity of International Trust
All matters relating to a Cyprus International Trust shall be determined in accordance with the applicable laws of the Republic of Cyprus. Anything relating to the validity, interpretation or effect of any trust or transfer shall be governed by the Laws of Cyprus. The same will apply to the fiduciary powers and duties of trustees.
Section 3 of the new Law provides that no International Trust would be considered void or voidable due to the fact that the legal provisions that are in force in any jurisdiction prohibit or do not recognize the substance of the Trust.
The Law clearly states that the inheritance laws of any other country will not be enforced in Cyprus by the Cyprus courts and this provision confirms that the heir ship provisions in succession laws of foreign countries will not apply to a Cyprus International Trust.
Powers of the Settlor
A new section 4A was added to the new Law, extending the powers of the settlor as follows:
(a) Revoke and modify the terms of the Trust;
(b) Instruct the transfer, distribution, payment or transfer of income or capital from the trust property or the issue of binding instructions and/or directions with regards to the above;
(c) Appoint or remove a Trustee, a Beneficiary or a Director of any of the companies that belong to the Trust or act as a director himself;
(d) Issue binding instructions to Trustees in relation to the exercise of any power;
(e) Choose the applicable law that will govern the Trust and change the governing law or the forum of administration of the Trust.
Duration of Trust
Under the 1992 law, an International Trust could be valid for up to 100 years from the date of its establishment, with the exception of charitable and purpose trusts which were permitted to exist in perpetuity. The new law abolishes all restrictions on the duration of trusts and there is now no limit in the period over which a trust may continue to be valid and enforceable.
Notwithstanding anything to the contrary contained in the terms and conditions of the trust, no concession, distribution, payment, holding or disposal of the income or capital of the trust to another trust is invalidated solely on the ground that the other trust continues to be valid and enforceable after the date on which the former trust must come to an end.
Power of Trustee to invest in movable & immovable property
Section 8 of the 1992 Law has been amended. The Trustee may now hold, maintain or invest in movable property in Cyprus and abroad, including investments in shares in companies registered in Cyprus and in immovable property located in Cyprus or abroad.
The new Law recognises the already existing powers of Trustees, some of the most important powers are:
1. To make capital distribution;
2. To employ;
3. To borrow;
4. To mortgage;
5. To guarantee;
6. To invest/lend money;
7. To make payments for/on behalf of beneficiaries;
8. To advance money to another trust.
Tax advantages of International Trusts
International Trusts are ideal for asset protection, inheritance and tax planning. The benefits arising from the use of such trusts distinguish Cyprus as one of the most advantageous trust jurisdictions.
According to section 12 of the new Law, if the beneficiary of such Trust is a resident of Cyprus then the income or profits of such trust which arise in and out of Cyprus will be taxed in Cyprus.
Additionally, in case the beneficiary is not a resident of Cyprus, then the income or profits of such trust that arise within Cyprus are taxed according to the tax laws of Cyprus. In effect any income or profits of such trust that arise outside Cyprus are not taxed in Cyprus.It should be noted that the definition of a “resident of Cyprus” has the same meaning as defined in the Cyprus Income Tax Law.
Confidentiality
Confidentiality and secrecy are still preserved under the new Law and the Trustee, the Protector or any Governmental body is not entitled to disclose information or documents relating to:
a) The settlor;
b) The beneficiaries;
c) The trustees;
d) The property of the Trust,
unless the above are ordered by the Courts of Cyprus.