- Cyprus International Trust Law
- February 22, 2013 | Author: Andreas P. Demetriades
- Law Firm: Andreas P. Demetriades & Associates - Advocates, Legal and Tax Consultants - Law Firm - Nicosia Office
- A. INTRODUCTION
On the 8th of March 2012 the House of Representatives enacted the long awaited International Trusts (Amending) Law of 2012 effecting various structural amendments to the International Trusts Law of 1992.
The amendments effected to the International Trusts Law of 1992 were necessary in order to adapt the Cyprus law on trusts to the current needs of international investors having in mind the new opportunities and the current investment practices.
The amendments are also aimed to strengthen Cyprus as an international financial center and increase its attractiveness as a trust jurisdiction.
A new era on Cyprus trusts begins with a new modern law on international trusts in place.
B. THE MAIN AMENDMENTS - NEW PROVISIONS
The below are the new provisions as enacted by the amending law.
Possibility for the settlor and beneficiaries to relocate to Cyprus after the establishment of the Cyprus International Trust.
According to the provisions of the 1992 Trust Law it was not clear whether the settler or the beneficiaries could relocate to Cyprus after establishing a Cyprus International Trust. The new law clarifies this uncertainty and gives the opportunity to the settlor and to the beneficiaries to relocate to Cyprus and become tax residents of Cyprus on the condition that both of them were not residents of Cyprus during the calendar year which precedes the year of the establishment of the trust. If such relocation takes place, it does not affect the validity of the Cyprus International Trust.
The notion of the trustee has now been clarified to include any legal or physical person who holds the trust property; (a) to the benefit of the beneficiaries irrespectively if the trustee is also a beneficiary of the trust; and/or (b) for any purpose, not exclusively to the benefit of the trustee.
Means, a legal or natural person, who grants trust property or makes a disposal for will purposes, subject to trust terms or to a trust.
Means, legal or natural person including a person not yet born on the date of the establishment of the trust or part of a class of persons, who have a right or interest in property, which is subject to a trust.
The protector is defined as a person other than the trustee to whom powers of any nature have been granted by the deed establishing the trust, including the power to advise the trustee regarding the exercise of his powers or with regards to the right of the protector to consent or to veto and includes also the power to appoint or cancel the appointment of the trustee.
Trust enforcement supervisor
A new person has been introduced as a part of the members of a trust, namely, the trust enforcement supervisor. The trust enforcement supervisor is the person or persons whose duty is to secure the execution of a Cyprus International Trust established for not charitable purposes.
Resident of Cyprus
The notion of resident of Cyprus has been clarified and has now the meaning given to it by the Income Tax Laws. In effect, a physical person is considered as a resident of Cyprus if he/she resides in Cyprus for a period which exceeds in aggregate 183 days in a tax year. A company is considered as resident of Cyprus if its management and control is exercised in Cyprus.
Clarification of other various terms
The meaning of: “objects of a discretionary trust”, “judgment”, “creditor”, “disposal”, “right to an estate”, “trust property”, “intention to defraud”, “personal relationship” and “obligation”, have also been defined in the new law.
Powers of a trustee, protector, settlor and trust enforcement supervisor
The powers and authorizations granted by the new law to a trustee, protector, settlor and trust enforcemet supervisor respectively, are in addition to the powers and authorizations which may have been granted to them under the trust deed. The powers and authorizations granted by the law apply only if and to the extent that there is no contrary intention expressed in the terms of the trust and apply subject to its terms.
Validity of Cyprus International Trusts
Any matters in relation to the validity, interpretation, amendments and revocation and inter alia, administration of a trust are determined in accordance with the law in force in Cyprus without reference to the law of any other jurisdiction. Further, the existing legislation of Cyprus or the legislation of any other country regarding inheritance of succession does not affect, according to the new trust law, in any way the transfer or disposal or validity of the Cyprus International Trust. In effect, with this new provision the terms of the Cyprus International Trust prevail over any legal provisions as to inheritance of property.
The validity of the Cyprus International Trust is also not affected or the eligibility of any settlor, trustee, trust enforcement supervisor, protector, beneficiary cannot be disputed and none of the above persons have any liability or obligation or may be deprived of any right, claim or interest by virtue of:
(A)any provisions of any law in any jurisdiction which do not recognize the notion of trusts or (b) that the trust or the disposal : (i) cancels rights, claims or interests, arising from the legal provisions of any jurisdiction due to personal relations with the settlor or beneficiary or due to rights in an estate or (ii) the trust or the disposal is contrary to any law, judgment or order in any other jurisdiction.
Asset protection clause
The existing asset protection clause has been amended giving additional protection to trust property in such a way that no action can be brought against assets of the trust which have been transferred to a Cyprus International Trust in case of subsequent bankruptcy or liquidation of the settlor or in case of actions brought by the creditors against the settlor irrespectively of the fact that the trust has been set up without consideration or to the benefit of the settlor or his/her wife or his children or to anyone of them, unless it can be proved that the Cyprus International Trust has been set up with the intention of the settlor to defraud his creditors at the time of transferring of his assets to the trust. The existing two-year time limit to file such an action has not changed.
Extended powers to settler
The new law specifically permits the settlor to reserve for himself certain powers and such reservation of rights, do not affect in any way the validity of the trust or the execution of it. Such powers may include any one of the following:
(a) to revoke, amend the terms of the trust;
(b) to grant, distribute, pay or dispose in any form, of income or capital of the trust or give instructions as to the above;
(c) to exercise the powers of a director or officer or give binding instructions regarding the appointment or removal of any director or officer of any company, which is owned wholly or partly by the trust;
(d) to give binding instructions to the trustee in relation to the purchase, retention, sale, administration, financing, pledging or encumbering of the trust property;
(e) to appoint or remove any trustee, trust enforcement supervisor, protector or beneficiary;
(f) to appoint or remove any investment manager or investment advisor;
(g) to change the applicable law which governs the trust or the forum of administration of the trust;
(h) to restrict the exercise of any power or discretion of the trustee demanding that these are exercised only with the consent of the settlor or any other person expressly referred to in the terms of the trust.
Duration of a Cyprus International Trust
The new trust law expressly provides that the Cyprus International Trust may exist in perpetuity and in effect cancels the previous existing limitation which restricted the duration of Cyprus International Trusts up to one hundred years.
Charitable Trusts - Purpose Trusts
The new law lists further purposes which constitute a trust to be a charitable trust. The law also recognizes trusts established for a particular purpose and such a trust is enforceable by the settlor or his personal representatives or the trust enforcement supervisor
Approved investments by the trustees
The new law has given extended powers to the trustees to invest as if they were the absolute owners of the trust property and also give them express freedom to invest in any property, movable or immovable, situated anywhere in the world including Cyprus.
Immovable property situated in Cyprus
It is now permitted for Cyprus International Trusts to invest in any movable or immovable property situated in Cyprus. The law makes specific reference as to the possibility of investments in shares of companies registered in Cyprus.
The provisions of the trust deed may now be amended according to the specific clauses of amendment provided in the trust deed itself. Amendments following an application in court are also possible.
Confidentiality of Cyprus International Trusts
The existing confidentiality provision has been extended. The new law provides that unless a court order is issued, the trustee, the protector, the enforcement inspector or any other person, cannot disclose to any person any documents or information, related to the trustees or to the beneficiaries, referring to the exercise of the powers of the trustees or related to the accounts of the Cyprus International Trust. The court may issue an order directing the disclosure of information provided it will consider such a disclosure order is important for the administration of justice. The trustees have the discretion whether they will disclose any account of the trust to the beneficiaries.
Application to court for an order for directions
The trustee may apply to the court to receive directions as to how he/she will act in relation to a particular matter. Also, the court may issue any relevant order as to the trust and such an application may be filed by the trustee, protector trust enforcement supervisor or any other person.
Taxation in relation to trust property and distributions to beneficiaries
The income and gains of a Cyprus International Trust which are acquired or deemed to be acquired from sources inside and outside of Cyprus, are subject to taxation imposed in Cyprus only in the case where the beneficiary is a tax resident of Cyprus.
In the case where the beneficiary is not a tax resident of Cyprus, then, only the income and gains of the Cyprus International Trust which are acquired or are deemed to be acquired from sources inside Cyprus, are subject to taxation in Cyprus. Income and gains of Cyprus International Trusts acquired or deemed to be acquired outside Cyprus and provided the beneficiaries are not tax residents of Cyprus, are not subject to any tax in Cyprus.
Governing law of the trust
As per a provision in the new law, any trust is governed by the law which the settler has chosen according to the terms of the trust deed. Where no applicable law has been chosen the trust is govern by the law that is more closely related to it. There are certain guidelines in the law by which the court will identify which is the law more closely related to the trust.
Exclusive jurisdiction of Cyprus courts
According to a provision in the new law, Cyprus courts have exclusive jurisdiction on a Cyprus International Trust once it is provided that the applicable law of the trust is the law of Cyprus or the trustee is a resident of Cyprus or any asset of the trust is situated in Cyprus or the administration of the trust is carried out in Cyprus or the parties accept the jurisdiction of Cyprus courts or the trust deed establishing the trust provides that any dispute will be decided by the Cyprus courts. In case of a foreign court judgment dealing with any issues of Cyprus International Trust on which Cyprus courts have exclusive jurisdiction, then a foreign court judgment might not be enforceable in Cyprus as being contrary to public policy issues.
Election of Cyprus Law in Cyprus International trusts
In the case where the Cyprus International Trust is governed by Cyprus Law, then the provisions of the new law apply irrespectively of any contrary provisions in any other law in Cyprus and as provided in the new law, the provisions of the trust law are of superior power of any other law in Cyprus and are considered to be provisions of public order.
Enforceability of foreign trust in Cyprus
Foreign trusts are enforceable in Cyprus unless the court declares that they contravene public interest.
Express duty of the trustee
The trustee is obliged to comply and apply the provisions of the Prevention and Suppression of Money Laundering Activities Law and hence is obliged to carry out proper due diligence by implementing the “know-your-client” principle and maintain an adequate record-keeping procedure.
Retrospective effect of the law
According to a particular provision the new law its provisions are applicable to all Cyprus International Trusts whenever established and the relevant provisions of the law do not affect the validity of any precedent valid, disposal or transfer.