Introduction
The trust Law applicable in Cyprus is the English Trust Law as applicable in the United Kingdom prior to 16 August 1960, and subsequent developments in the United Kingdom have not been adopted in Cyprus.

As a result of Cyprus status as an important offshore center trusts have been more in demand, and offshore trusts have been established.  These fall into two main groups, namely, fixed trusts or discretionary trusts.

Stated below are some of the advantages offered by Cyprus trusts:-

1. The availability of tax treaties between Cyprus and a number of other countries, together with the favourable tax status of trusts in Cyprus, provide the international tax planner with a favourable tool and are often useful in minimising the tax burden of a trust and its beneficiaries.  The following apply:-

Trusts are not taxable in Cyprus but the beneficiaries are taxed through the trustees.

Trusts and beneficiaries are not taxable in Cyprus, provided the settlor and the beneficiaries are non-residents of Cyprus and the trust property is not situated in Cyprus or consists of shares in Cyprus offshore companies.

Profits of offshore trust companies are taxed 10%.

2. Cyprus trusts are not subject to exchange control, provided the settlor and the beneficiaries are non residents of Cyprus, and the trust property is situated abroad.
3. The establishment of international trust companies and the high standing of the legal and accounting professions in Cyprus, ensure the availability of professional and expert advice as well as the management services by trusts created under the Cyprus trust law.
4. There are no registration or reporting requirements for trusts established in Cyprus, thus ensuring absolute confidentiality.  Furthermore, in cases where the settlor does not wish his identity to be known to any person who may access to the trust deed, the trustees may execute a declaration of trust in which the settlor is not named.  The trustees merely declare that they hold assets on certain trusts and for the benefit of certain beneficiaries as set out in the trust document.
5. Cyprus law allows the removal of a trust from its jurisdiction and vice versa, thus providing the necessary flexibility in cases where a change of circumstances may mean that such transfers would be advantageous for fiscal or other reasons.
6. There is no special offshore trust legislation in Cyprus and all trusts whether involving Cypriot parties or not, are created under the normal trust law.

International trust law
The House of Representatives of the Republic has passed the “International Trusts Law of 1992”, whose aim is to create the proper environment for the foreign investor to establish international trusts in Cyprus.

The main provisions of the law are as follows:-

An international trust is a trust where the settlor of which is not a permanent resident of Cyprus, where at least one of the trustees is at all times a permanent resident of Cyprus, where no beneficiary other than a charitable institution is a permanent resident of Cyprus and where there is no immovable property situated in Cyprus amongst the trust assets.

It also clarifies that a Cyprus offshore company or partnership could be beneficiaries or Trustees of a Cyprus international trust, thus fulfilling the requirement for at least one of the trustees to be resident of Cyprus.  It is therefore possible for an individual settlor to form a Cyprus offshore company, the shares of which may belong entirely to him and who can also be the sole director of such a company which could act as the sole trustee of an international trust to which the assets of the individual were transferred.

The duration of the trust, notwithstanding any provision in the law of Cyprus or of any other country, to be 100 years from the date of its creation, unless terminated earlier in relation to the terms in the instrument creating the trust.  Charitable and purpose trusts may be continued forever.

Under the new law a settlor is deemed to have ability to dispose of his assets to an international trust if at the time of such transfer he is of full age and sound mind under the law of the country in which he is a permanent resident.  The Inheritance Law of Cyprus or of any other country shall in no way affect any transfer or disposition made to a Cyprus international trust and the validity shall not be challenged.  In the absence of any express provision to the contrary contained in the instrument creating the international trust such a trust shall be deemed to be irrevocable by the settlor and his legal representatives notwithstanding that it is voluntary.

Notwithstanding the provisions of any bankruptcy or liquidation laws in Cyprus or in  any other country, and not withstanding the fact that the trust is voluntary and without consideration or is made for the benefit of the settlor and/or of the spouse of the settlor or any of them unless and to the extent that it is proven to the court that the trust was made with intent to defraud persons who, at the time when the payment or transfer of assets was made to the trust, were creditors of the settlor shall not be void or voidable.  The law specifies that the burden of proof of such intent of the settlor lies with the creditors seeking to annul the transfer made to a Cyprus international trust.  Such an action by such a creditors must be instituted within two years from the date of transfer or disposal of assets to the trust.

Subject to the provisions of the instrument creating an international trust, the trustees will be allowed at any time to invest the whole or any part of the trust funds in any kind of investment wherever the investment is situated and whether or not the funds have already been invested.  Any investment made by the trustees may be varied or retain its original state as long as the trustee exercises diligence and prudence that a reasonable person would be expected to exercise in making such an investment.

The possibility to change the proper law of international trust is expressly provided in the new law both as regards a change to the law of Cyprus as well as to a change from the law of Cyprus to any other jurisdiction.  However, for such a change to be allowed under the law the following requirements must be met:-

• In case of a change from the law of Cyprus the new proper law recognizes the validity of the trust and the respective interest of the beneficiaries,
• In the case of a change to the law of Cyprus such change is recognized by the previous proper law of the trust.

Care has been taken in the new law for judicial approval of any arrangement which varies or revokes the terms of the international trust or enlarges or varies the powers of management or administration of the trustees under certain conditions.  The court shall not approve any proposed arrangement unless it is satisfied that such proposed arrangement appears to be for the benefit of the person applying for it without affecting the rights of other interested parties.

Confidentiality takes a prominent position in the new law and is imposed on the trustees and on any other persons not authorised by law to have knowledge of the information or documents which disclose the name of the settlor or any of the beneficiaries or of the trustees deliberations as to the manner in which a power or discretions was exercised or a duty conferred imposed by law or by the terms of international trust was performed.  Likewise disclosure of the reason for any particular exercise of such power or discretion or performance of duty or the material upon which such reason will be or might have been based is prohibited.

Furthermore, confidentiality extends to anything forming part of the accounts of an international trust.  Notwithstanding the above a procedure exists for disclosure of information through an application to the court but the law itself provides that the court shall issue an order for disclosure of information or the document require to be produced is of paramount importance to the outcome of the case.

Of great importance to an investor in deciding as to whether to establish a trust is the question of taxation.  The law makes it very clear that the income and gains of an international trust derived or deemed to be derived from sources outside Cyprus shall be exempted from all kinds of taxes in Cyprus and no estate duty shall be chargeable in respect of assets belonging to an international trust.  The only charge which will be payable to the revenue in Cyprus is fixed amount of C£250 in the form of stamp duty on the instrument creating the trust.  The law reserves the application of the laws of Cyprus applicable to trust and to transfer of assets to trusts immediately prior to the commencement of the international trust law to such international trusts except in so far as they are inconsistent with or have been modified by the provisions of the law.  Likewise the laws and regulations which are from time to time applicable to investments made in Cyprus by non-permanent residents of Cyprus, shall also apply to any investment in Cyprus made by an international trust.

No requirement for registration of the trust under any law is imposed.  On the contrary it is expressly provided that an international trust is exempted from any obligation for such registration. 

Use of trusts
Trusts offer several advantages and can be used in a number of ways:-

Individuals who have income arising outside their country of residence, which they do not wish to remit to that country, can arrange for such income to be remitted to the trustees of a settlement in another jurisdiction to be held in accordance with the trust deed and letter of wishes.

Individuals with substantial assets outside their country of residence, which country may in the future extend its exchange control restrictions to include the remittance of overseas funs, may wish to retain the flexibility of overseas funds by transferring these to a settlement.

Individuals who may wish to divest themselves of personal assets for fiscal or other reasons, can arrange for those assets to be transferred to the trustees of a settlement and to be invested in accordance with the trust deed and letter of wishes.

Persons permanently leaving one country and taking up residence in another may obtain maximum fiscal advantage, so far as the new country of residence is concerned, by placing assets in a suitable settlement.

Persons who wish to invest in businesses overseas but do not wish profits and dividends to be remitted to their country of residence, may set up a settlement to undertake the investment in the overseas business.