Establishing a Trust in Cyprus: Legal Framework, Benefits and Practical Considerations

Cyprus has established itself as a leading jurisdiction for the creation and administration of trusts, offering a robust legal framework, modern legislation, and an attractive tax environment. The Cyprus International Trust (CIT) in particular has become a preferred vehicle for asset protection, estate planning, and wealth management for both individuals and corporate structures globally.

1. Legal Framework

Trusts in Cyprus are governed by a combination of:

• The Trustees Law (Cap. 193), based on the English Trustee Act of 1925; and

• The International Trusts Law of 1992 (as amended in 2012 and 2013).

The amendments modernized the regime, making Cyprus one of the most progressive trust jurisdictions in Europe. The International Trusts Law applies to Cyprus International Trusts, provided certain criteria are met.

2. Key Requirements for a Cyprus International Trust

To establish a valid CIT:

• The settlor must not be a Cyprus tax resident during the year preceding the creation of the trust.

• At least one trustee must be a resident of Cyprus throughout the lifetime of the trust.

• The beneficiaries must also not be Cyprus residents during the year before the trust’s creation (unless income is sourced outside Cyprus).

The trust must be created in writing and can include individuals, legal entities, or other trusts as beneficiaries.

3. Main Advantages of the Cyprus Trust Regime

✅ Asset Protection

Cyprus law offers strong protection against claims from future creditors, provided the trust was not established with the intent to defraud. Assets settled into a trust are typically shielded from personal claims, family disputes, or political risk.

✅ Confidentiality

There is no public register of trusts in Cyprus. Although trusts must be registered with the Cyprus Securities and Exchange Commission (CySEC), this information is not available to the public, ensuring a high level of confidentiality.

✅ Flexibility

A Cyprus trust may be discretionary, fixed, revocable, irrevocable, charitable, or purpose-driven. There are no restrictions on asset classes or the number of beneficiaries. The trust can also last indefinitely.

✅ Tax Efficiency

• Income and gains of the trust derived from non-Cyprus sources are generally exempt from Cyprus taxation.

• Beneficiaries who are not Cyprus tax residents are not subject to tax in Cyprus on distributions.

• If the trust generates Cyprus-sourced income or has Cyprus-resident beneficiaries, normal tax rules apply, but tax planning options remain available.

• The non-domicile regime in Cyprus allows non-domiciled residents to benefit from tax exemptions on dividends and interest.

4. Common Uses of Cyprus Trusts

• Asset protection from potential legal or political risks

• Estate and succession planning for international families

• Holding companies or investments in a tax-efficient manner

• Charitable purposes or foundations

• Pre-IPO planning or holding of IP and royalties

• Family support structures, including education or medical care provisions

5. Trustee Duties and Regulation

Trustees in Cyprus owe fiduciary duties to act in the best interests of the beneficiaries. They must:

• Manage the trust property prudently

• Follow the terms of the trust deed

• Maintain proper accounting and records

Trustees may be individuals or corporate service providers licensed under the Cyprus Fiduciaries Law. The trust must be registered with CySEC (in a confidential register) within 15 days of creation by an eligible trustee.

6. Practical Considerations

• Trust Deed Drafting: Careful attention should be given to the drafting of the trust deed, including powers of trustees, rights of beneficiaries, and any reserved powers for the settlor.

• Choice of Trustee: The resident trustee must be reliable and competent to ensure compliance with local law and the trust’s objectives.

• Tax Advice: Beneficiaries and settlors should obtain professional advice to coordinate the trust structure with their country of tax residence.

Conclusion

The Cyprus International Trust offers a powerful and flexible vehicle for asset protection and international estate planning. With its favorable legal and tax regime, Cyprus continues to attract high-net-worth individuals and professionals seeking robust, EU-compliant structures for long-term wealth preservation.