What is a Trust?
A trust is a settlement or legal agreement affecting at least three parties:
- The Settlor:(or Grantor, Trustor, Trust Maker); the person (natural or legal) who creates the trust; he/she is the owner of the property to be divested into a trust.
- The Trustee: legal or natural person, who agrees to hold the trust property in his/her/its name for the benefit of the Beneficiary, under the terms of the trust. Responsible for managing the property.
- The Beneficiary/Beneficiaries: individuals or companies or any other entities receiving the benefits of the trust property. In a Discretionary Trust, instead of specifying specific persons or entities as beneficiaries, classes of beneficiaries are defined, for example “all current and future children of Mrs X”, or “charity organisations providing education for refugees and their children in the UK”.
- The Protector: individuals or companies that are typically appointed by the settlor to protect the trust assets. Appointing a protector is optional. The protector has the right to control the trustee but does not have the right to intervene in the trustees obligations and undertakings. The protector has the right to dismiss a trustee. If a protector intervenes a trustee’s duties or has been granted the right to do so in the Trust Deed, a trust may be recognized as a “sham trust” or “illusionary trust” and thus being considered or even declared void.
Cyprus Discretionary Trusts
There are various forms of trusts existing, based on certain details; for a list of trust types, please see the end of this article.
Cyprus discretionary trusts are trusts with now specific individual beneficiaries defined and the selection of beneficiaries as well as their benefit left to the discretion of the trustee.
An advantage of a Cyprus Discretionary Trust is that none of the members of the class of possible beneficiaries has a right for claims against the trust.
It is important that a settlor chooses a person of trust as the trust’s trustee. Furthermore, a trustee should have asset management and business qualities and experience, because the trustee will be the person who will manage the assets of a trust, as per the provisions of the trust deed and a possible letter of wishes and under the supervision of a possible protector.
Cyprus Trust Registry
The law imposes the obligation on resident trustees to register all Cyprus International Trusts with one of the three Competent Authorities i.e. the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC) or with the Cyprus Bar Association. The Trust registries maintained by the supervising authorities shall contain the following information about the Trusts:
- Name of the trust
- Date of creation of the trust
- Date of termination of the trust
- Name and address of the trustee
- Date of any change in the law governing the trust to or from Cyprus Law.
- Income, gains and profits from non-Cyprus sources are exempt from taxes in Cyprus.
- The worldwide income, gains and profits are taxable in Cyprus only if the beneficiary is tax resident in Cyprus.
- Beneficiaries who are non-tax residents of Cyprus are taxed only on Cyprus sourced income in accordance the Income tax law of Cyprus.
- Dividends, interests or royalties received by a Cyprus International Trust from a Cyprus company are not taxable and not subject to any withholding tax.
- No estate duty/inheritance tax.
Types of Cyprus International Trusts
- Private Trusts
- Express Private Trusts
- Resulting Trusts
- Constructive Trusts
- Implied Trusts
- Charitable Trusts
- Fixed Trusts
- Discretionary Trusts