7th Annual Trust and Foundation Guide - Cyprus Q&A

1. What are the key advantages of your jurisdiction in terms of privacy & asset protection for a Chinese HNWI or Family (etc.) looking to succeed their assets to the next generation?

By virtue of the 1992 International Trusts Law 69(I)/92 ("Law"), the concept of an international trust was introduced within the Cyprus legal regime. Consequently, Cyprus rightfully proclaimed its status as a reputable international trust center. Subsequent amendments of the Law followed, ensuring further modernization of the legal framework pertaining to Cyprus International Trusts ("CITs").

Privacy and confidentiality in relation to a CIT is of paramount significance and thereby, fully safeguarded. Specifically, Article 11 of the Law provides inter alia, that information or documents regarding a CIT may only be disclosed by Court Order, assuming that such disclosure is deemed important to the outcome of the case. The obligation for non- disclosure burdens the parties participating in the setup of a CIT and confidentiality, is secured on the basis of the applicable legislation and the instrument creating the CIT.

Asset protection may be defined as the implementation of advanced legal strategies which place the assets of a person beyond the reach of future creditors/claimants. Due to the fact that any assets transferred to a CIT no longer constitute part of the property of the Settlor (the person creating the trust) this protection is guaranteed. A CIT shall not be void or voidable in the event of the Settlor's bankruptcy or liquidation and no proceedings may be raised by creditors, unless it is proven in Court that the CIT was established with intention to defraud. Probate procedures in almost all jurisdictions are both time consuming and costly whereas, CITs facilitate the swift transfer of assets to the beneficiaries/heirs thereby, constituting an ideal vehicle for inheritance planning.

2. In terms of cost, how is the cost of a setting up a trust/foundation in your jurisdiction compare to other jurisdictions? If it’s more expensive, what is the additional value that a client receives for this?

Asset protection through a trust or a foundation is becoming increasingly popular for the Chinese HNWI and their families. Cyprus offers one of the most simple and cost effective trust structures when compared to other jurisdictions like Lichtenstein or Singapore.

Cyprus International Trusts (CIT) can be set up within a couple of days and the cost is minimal.
The mandatory government cost is a stamp duty of only €450 which is payable upon the creation of a CIT.  Additional costs to the registration of CIT  is the requirement that at least one of the Trustees (individual or legal entity)  must be a permanent resident in the Republic of Cyprus and should be licensed  by government regulatory authority in Cyprus . This requirement extends to the whole duration of the Cyprus International Trust.

The cost of appointing a Cyprus Trustee may vary between different service providers in Cyprus and can be more expensive when compared to other jurisdictions due to the obligations and the responsibilities the Cyprus Trustee has.  Further, due to the fact that the Cyprus Trustee is a licensed entity the Client shall be confident that they are investing in someone who is a professional, will administer the trust prudently and follow strictly the terms as stated in the Trust.

Individuals should not only examine and consider the cost for setting and maintaining a Cyprus International Trust but should focus at the flexibility and the tax effectiveness our jurisdiction has to offer.

3. What are some of the biggest issues & challenges you come across when planning for Chinese or Asian clients in general? What are the solutions that your jurisdiction provides for these issues?

1. Challenges faced by Chinese businesses in Cyprus.

1. What structure meets best my business needs?
2. What are the provisions of the local legislation that I need to comply with?
3. What are the statutory tax requirements?
4. Why to choose Cyprus for business?

2. Cyprus and its benefits.
   ECONOMY

• The Cyprus economy is based on professional services with three sectors;
• Banking
• Insurance
• Securities
  
  ENERGY

• The Government of Cyprus is planning the construction of an energy center (import and exploitation of nature gas).
  
  ADVANTAGEOUS TAX SYSTEM

• The corporate tax rate is 12.5% on trading profits.
• Business profits of non-resident companies are tax free.
• Cyprus is a signatory to over 45 Double Tax Treaties with other countries.
• The Double Tax Treaty between China and Cyprus strengthens the financial ties of the two countries.
  
  THE CYPRUS LEGAL SYSTEM:

• It is a mixture of both common law and civil law.
• The EU regulations are generally directly enforceable in Cyprus.
  
  BUSINESS VEHICLES

• By setting up a Cyprus Limited Liability Company.
• Alternative legal structures: Trusts or choosing to re-domicile an existing foreign company to Cyprus.
  
  EU MEMBERSHIP

• The principles of free movement of goods, services and capital apply.
  
  CITIZENSHIP AND PERMANENT RESIDENT PERMITS

• Attractive investor migration programs for the acquisition of the Cyprus Citizenship.
• Schemes for permanent residence permits.
• The Migration Department assesses applications on a fast track basis.

WHY CYPRUS

1. Strategic location between Europe, Africa and Asia.
2. Highly developed infrastructure.
3. Highly qualified, multilingual and multicultural workforce.
4. Business friendly and tax legal system.
5. Multi jurisdiction services depending on the origin and destination of investments.

4. What are some of the major features of the law that make the trust/foundation in your jurisdiction particularly attractive to investors?

Cyprus International Trusts (CIT) is governed by the International Trusts Law, 1992 (as amended in 2012). Trusts and foundations became more attractive to prospective investors mainly due to the following flexibilities of the Cyprus law:

• Great level of confidentiality and anonymity for beneficiaries since Trustees are not required to reveal any information or documents concerning the CIT unless ordered by a Court.
• Only one of the trustees must be a permanent resident in Cyprus for the duration of the trust.
• The Settlor and the beneficiaries, with the exception of a charitable institution, must not be permanent residents of Cyprus 1 year before the CIT is created.
• Income gains and profits are exempted from any taxes.
• There is no estate duty or inheritance tax.
• CIT’s are not subject to exchange control.
• No reporting requirements.
• CIT assets are protected against potential claims and are permanently separated from the Settlor’s personally-owned assets.
• The Trust may hold shares of a Cyprus and a foreign company.
• The Settlor has wide range of powers such as to revoke or modify the trust as well as to instruct the transfer and payment of capital.
• CIT income may be accumulated without limitations.
• Transfer of a foreign trust to Cyprus from its jurisdiction and vice versa is allowed by law.
• CIT may be challenged only on defraud of creditor grounds within a period of 2 years.
• Through a CIT a person may provide for a charity, promote a religious or artistic cause, or establish a foundation to support a worthy project.
• CIT may last for indefinite period.

5. Are there any recent developments in trust/foundation law in your jurisdiction that investors should be aware of?

Cyprus trust law is essentially based on the English system. In 1992, the International Trusts Law (L. 69(1)/1992) was enacted in Cyprus and two amendments have followed, in 2012 (L.20(I)2012) and 2013 (L.98(I)/2013, deletion of Section 15), respectively. In particular, the Amendment Law of 2012 attempts to respond to the needs of Investors/Estate Planners.

Specifically:

• Section 3(1)(a) states that Cypriot law (without reference to any foreign law) regulates any question related to the validity or administration of an international trust or a disposition to an international trust.

• Section 4A allows the settlor to reserve powers to himself, to retain beneficial interest in trust property, or to act as the protector or enforcer.

• Section 5(1) eliminates the limit on the duration of trusts (regarding the international trusts established after the enforcement of the Amended law).

• Section 8(1) introduces that the trustee may exercise his investment powers as if he was the owner of the asset.

• Section 10 states that any power contained in the trust instrument permitting variation of the trust is valid.

• Section 11(A) provides that “a trustee may file an application to the Court for directions concerning the manner in which the trustee should act in connection with any matter concerning an international trust”.

• Section 11(1) extends the duty of confidentiality to protectors, enforcers, and others.

• Section 12 introduces a uniform tax regime.

• Section 12B provides that the Cypriot Court has exclusive jurisdiction over international trusts as well as foreign trusts with significant connections to the Republic.

Contributed by: Bybloserve Management Ltd.