The main legal framework governing trusts in Cyprus is a combination of English Law (the Principles of Equity and Statute Law) and the Trustees Law of Cyprus (Cap. 193), enacted in 1955 and, which is modelled on the English Trustee Act of 1925 and the International Trusts Law of Cyprus (Law 69(I) of 1992 as amended by Law 20(I)/2012).
Trusts, as such, are not taxable in Cyprus but the beneficiaries are taxable through the trustees.
There are 2 main types of Trusts, Cyprus Trusts and Cyprus International Trusts (CIT).
Cyprus Trusts are divided into the following main categories:
Private trusts – expressly created by deed, in writing, by will and, with some exceptions orally, by the settlor with an absolute clear intention.
Charitable trusts – set up for certain public purposes, i.e. for the relief of poverty, the advancement of education or religion or any other purpose that is beneficial to the community.
Fixed trusts – the share or interest of the beneficiaries in the trust is specified by the settlor.
Discretionary trust – the trustees may, at their discretion determine what share or interest of the trust property should go to each member of a class of beneficiaries.
It should be noted that dividends and/or other income received from an underlying Cyprus company will not be regarded as Cyprus source income for Income Tax purposes.
The International Trusts Law of Cyprus, which governs the Cyprus International Trusts (CIT), builds on the well-established English principles of equity and trusts 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 complex situations and demands and enjoy many advantages that cannot be found concentrated in other trusts jurisdictions.
The Law defines an International Trust as being a trust in respect of which:
the Settlor is not a tax resident in Cyprus during the calendar year which precedes the year of creation of the trust;
at least one of the Trustees is a tax resident in Cyprus during the trust period; and
none of the Beneficiaries are tax residents in Cyprus during the calendar year which precedes the year of creation of the trust.
CITs can be created either to hold property for minors or successive generations of a family; to protect property against spendthrift people; to provide secretly for others; to provide for a couple on their marriage whilst ensuring that the property so provided is ‘tied up’ in the event of that marriage failing; to establish a fund for the benefit of family members according to future needs as and when they arise; as an investment vehicle (typically via unit trusts); to provide pensions for employees and dependents; to provide an incentive to the workforce, e.g. via employee trusts of various kinds; to make provision for abstract purposes which are not charitable; to enable charitable objects to be carried out; as part of commercial arrangements, e.g. to protect commercial lenders.
According to the applicable law:
Where the beneficiary is resident in Cyprus, the income and profits of a CIT which are earned or deemed to be earned from sources within and outside of Cyprus, are subject to every form of taxation imposed in Cyprus.
Where the beneficiary is not a resident of Cyprus, the income and profits of a CIT which are earned or deemed to be earned from sources within Cyprus, are subject to every form or taxation imposed in Cyprus.