Cyprus Local Trusts
Local trusts in Cyprus are governed by the Trustees Law of Cyprus (Cap 193), enacted in 1955 and based on the English Trustee Act of 1925, supported by the principles of equity and English case law.
As a trust is not a legal entity, its residence is regarded as the place of residence of the trustees. For a Local Trust, the Trustees Law gives a Court the power to appoint a new trustee where a trustee remains out of Cyprus for more than one year.
A Local Trust is also required to have either a settlor or a beneficiary who is a Cyprus resident. By contrast, for a Cyprus International Trust (CIT) both the settlor and beneficiaries must be non-residents in the calendar year before a CIT is created, but at least one trustee must be a Cyprus resident.
Uses of Local Trusts
Cyprus Local Trusts offer a robust and flexible legal tool for managing and protecting assets within the Cyprus legal system and are used for a variety of purposes:
What assets can be settled under a Cyprus Local Trust?
Property that can be settled into a Cyprus Local Trust consist of any type of asset (movable or immovable) located anywhere in the world, including Cyprus, including cash, shares, real estate and any property of value, such as jewellery, cars, yachts, aircraft or works of art.
How long does a Local Trust endure?
The duration of Cyprus Local Trusts is based on old English equity principles, such that no trust, except for charitable trusts, can continue in perpetuity. Trusts endure for either the period of the life or lives-in- being, plus 21 years, or, where there is no life in being, for 21 years. The accumulation period of a trust can be extended to include the entire perpetuity period.
How are your assets protected?
The Trustees Law has built-in mechanisms to safeguard your interests. The trustees are the legal owners of the trust assets, but they do so solely and strictly for the benefit of the designated beneficiaries, and are bound by strict fiduciary duties, such as acting in good faith, managing the property prudently and always prioritising the beneficiaries’ interests.
In addition, trustees and related professionals are subject to confidentiality obligations. Information is not disclosed to third parties, except in limited circumstances, such as by Court order, for tax reporting, anti-money laundering compliance, or lawful requests from regulatory authorities.
Finally, trusts can appoint a Protector. This is a trusted individual empowered to oversee certain actions of the trustee, offer guidance, and, in many cases, to approve or veto key decisions. Protectors may also have the power to remove or replace trustees, providing an extra layer of supervision, accountability and control.
Reporting requirements
A Cyprus resident trustee of a trust governed by Cyprus law is obliged to notify the relevant competent authority (Cyprus Securities & Exchange Commission (CySEC), the Cyprus Bar Association or the Cyprus Association of Certified Accountants, as applicable) of the creation of such trust with the following information:
Stamp Duty
Creating a trust in Cyprus involves only minimal stamp duty, depending on whether the trust deed specifies a value. If no value is stated, the stamp duty is fixed at €34.17. Where value is stated, the stamp duty is calculated on the declared value of the trust property. Stamp duty should be paid within 30 days from the date of the deed. If not, although the trust remains valid, the deed must be stamped (including paying any penalties or interest) before it can be used or enforced in court. In practice, most private family trusts (both local and international) are set up without a declared value, so the €34.17 fixed duty generally applies.
Taxation of Cyprus Local Trusts
Local Trusts are treated as transparent vehicles for income tax purposes, so taxation primarily follows the residency of the beneficiaries, depending on the flow of income and trust structure, as follows:
- Non-Cyprus tax resident beneficiaries are not subject to Cyprus tax on the trust income, unless the Trust has Cyprus sourced income, such as rental income from properties situated in Cyprus.
- Cyprus-resident but non-domiciled beneficiaries are subject to tax in Cyprus depending on the nature of the income of the trust but are exempt from any tax on dividends or interest.
- Cyprus-resident and domiciled beneficiaries are subject to Special Defence Contribution (SDC) on trust income such as dividends, interest or rent.
- Cyprus capital gains tax applies only to gains generated directly or indirectly on the disposal of Cyprus-situated immovable property.
However, the trustees are required to:
- Make returns to the Cyprus Tax Department.
- Pay any tax due on the trust income.
- Supply details of trust beneficiaries and accounts.
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
