Cyprus Private Trust Company (PTC)
Trust law principles require that settlors divest themselves of the trust property. A private trust company (PTC) is a company formed for the purpose of acting as trustee of a single trust or a group of related trusts.
PTCs offer a range of benefits to families with complex assets or family succession issues who are seeking to move away from direct ownership to a structure designed to offer coherency for the future but are reluctant to hand over control of their assets to professional trustees.
This may be an issue either because they wish to retain a degree of control over the management of their assets or because they regard the assets placed in trust, such as a family business, as being too complex or high risk for an independent trustee to manage.
A PTC allows family members to participate in the management of the company and therefore in the decisions that need to be taken by the PTC as trustee, including decisions relating to companies and other assets owned by the trustee, without compromising the validity of the trust structure or its residency for tax purposes.
PTCs offer a tailored solution for families and connected groups to manage their trusts. They can serve to unite a family’s business interests and strengthen oversight and governance, whilst at the same time achieving segregation between different assets and facilitating the devolution of control to future generations.
Licensed fiduciaries, like Sovereign, play a crucial role in overseeing PTCs and maintaining compliance with Cyprus laws.
Structuring a PTC
A PTC is typically set up as a private company, which is generally limited by guarantee, that provides trustee services only to a specific trust or a group of related trusts.
To be exempt from the requirement to be authorised and licensed to offer fiduciary services in Cyprus, the PTC must act only as a trustee for a pre-defined trust structure and not offer trustee services to third parties outside the designated family or group. It must also be administered by a licensed trust company in Cyprus.
The PTC can be owned directly by the settlor or family members but this can lead to complications, such as estate planning issues if the owner dies and probate is required, or unintended tax consequences in jurisdictions where the owners reside.
Generally, the PTC is owned indirectly through a purpose trust or a foundation. In this case the PTC itself is the trustee of family trusts and the sole shareholder of the PTC is the trustee of the purpose trust, ensuring continuity, smooth family governance and tax certainty.
How does a PTC work?
Typically, the board of the PTC will include family representatives to ensure family interests are protected, professional trustees or legal advisors to ensure compliance with legal and fiduciary responsibilities and, , if required, independent directors to provide expertise and impartial decision-making.
The composition of the board can be changed from time to time and, if desired, members of succeeding generations of the family can become involved in the management of the family trust’s affairs.
In this way, a PTC enables the family or settlor to exercise greater control over trust decisions through the board of directors of the PTC, providing assurance that trust assets are managed in line with family values and long-term objectives. Families can also appoint their preferred advisors and professionals, rather than being limited by the policies of a regulated trust company.
The trust assets are transferred to and remain in the ownership of a single company which the settlor, members of his family or his advisors can retain some control over by appointing the board of directors.
Like any other trustee the PTC will not be permitted to benefit from the trust assets personally and it will be bound by the provisions of the trust deed and other duties of a trustee; which include not being in a conflict of interests position, being impartial, not making secret profits, etc. For that reason it is advisable to have the PTC managed by a professional director to ensure that the PTC and the trust are administered correctly. This will help to protect the integrity of the trust and reduce the risk of it being challenged as a sham.
Administering a PTC
Although PTCs are exempt from full trust company regulation, they require proper administration and oversight, as well as professional advice. A Cyprus-licensed Administrative Services Provider, such as Sovereign can provide:
- Company secretarial services to ensure record-keeping, filing of returns, board-level support, communications with shareholders, access to company records and management of registered office address.
- Directorship services with professional directors sitting on the PTC’s board to ensure proper corporate governance and central management and control for tax residence and substance purposes.
- Compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.
Although the costs of establishing both a PTC and setting up a trust are generally higher than the cost of simply establishing a professionally managed trust, the ongoing costs may be lower. This is particularly the case where the trust assets are very substantial as independent trustees will often charge fees based on asset value.
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
