Trust Formation and Trustee Services in Cyprus

The Trust Concept – Key Features

A trust is a legal arrangement under which property or assets are transferred from one person (known as the ‘settlor’) to another person (known as the ‘trustee’) to hold the property for the benefit of a specified list or class of persons (known as the ‘beneficiaries’).

The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the trust fund, the beneficiaries. This legal separation means that trusts offer a reliable, secure, flexible and efficient framework for managing, protecting and passing on wealth across generations and ensuring continuity.

Generally, a written document (the ‘trust deed’) is prepared to evidence the creation of the trust, which sets out the terms and conditions upon which the trustee manages and holds the trust assets and outlines the beneficiary rights and eligibility criteria.

A variety of trusts can be set up in Cyprus. The choice will depend on the circumstances, requirements and objectives of the settlor:

01

Fixed trust – these trusts specify exactly who the beneficiaries are and the exact portion of the trust assets they are entitled to. The trustee has no discretion in distributing the assets; they must follow the terms and eligibility criteria set out in the trust deed.

02

Purpose trust – these are set up as trusts that do not have specific beneficiaries but are established to advance a specific non-charitable purpose. Notably, a charitable trust is a type of purpose trust dedicated exclusively to charitable objectives.

03

Discretionary trust – a discretionary trust allows trustees to have broad control over how trust assets are distributed to any or all of a particular class of persons defined in the trust deed. This means the trustees decide who benefits, how much they receive, and when they receive it. Beneficiaries in a discretionary trust don't have a fixed claim to the trust assets, which means they cannot be taxed on the trust fund and trust assets are not available to creditors or claimants. Trustees are allowed to vary the various interests under the trust, as and when circumstances change. However, a settlor can set out their intentions regarding the administration of the trust in a 'letter of wishes'.

Trusts can take effect during the settlor’s lifetime (‘inter vivos’) or upon death (‘testamentary’). But unlike a will, a trust also offers confidentiality. By transferring assets into a trust, they no longer form part of the settlor’s estate, which means there is no requirement to go through the public process of probate and any forced heirship rules do not apply.

In this way, trust creation allows you to take control of your legacy while you are still living and on your own terms by deciding who benefits, how and when – spouse or partner, children, vulnerable relatives, blended families, future generations or philanthropic causes – while the trustee has the flexibility to balance those goals against prevailing legal, fiscal, political and economic factors.

Trust Services in Cyprus

Trusts have many applications and advantages, including the protection and preserving of assets, tax and succession planning, business structuring, or just avoiding the expense and delays of obtaining probate under a will. They also provide a high degree of confidentiality.

The main legal framework governing trusts in Cyprus is a combination of English common law, the Trustees Law of Cyprus (Cap 193), 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).

This legal framework provides for the creation of two main types of trusts in Cyprus:

Cyprus International Trusts (CITs), which are suited for non-residents looking for international asset protection and which offer benefits including exemption from income tax, capital gains tax and inheritance tax.
Cyprus Local Trusts, where either the settlor or one of the beneficiaries are Cyprus residents.

Cyprus further enacted the Regulation of Fiduciaries, Administration Businesses & Company Directors Law in 2012, which requires all individuals or companies offering trustee, administration or related services to be authorised as ‘fit and proper’ and licensed by the Cyprus Securities & Exchange Commission (CySEC).

Sovereign Cyprus is licensed by CySEC as an Administrative Services Provider (ASP – Fiduciary Services) under Licence No. 142/196. We operate in full compliance with Cypriot and EU legislation, maintaining strong governance standards across all our fiduciary and corporate activities.

Regulations require trustees to know the identity of the settlor and ultimate beneficiaries of a trust. This information is kept completely confidential. Disclosure to third parties is only required in very particular circumstances and must be accompanied by a court order. There is no public register of trusts in Cyprus. The ownership of trust assets can remain entirely confidential in most circumstances.

Although some of the tax benefits that were associated with trusts have been eroded in recent years by anti-avoidance legislation, they still offer flexible and effective solutions for a wide range of wealth and succession planning requirements, as well as for family and business needs.

Trusts can offer significant benefits to high net worth individuals who are changing, or planning to change, their domicile, residence or citizenship; those with families resident abroad; those with diverse assets; those seeking asset protection; and those who wish to dispose of their estate on death freely and without a lengthy and expensive probate procedure.