Cyprus International Trust (CIT). Trust (Fiduciary) Services

Cyprus International Trust (CIT) is regulated by International Trusts Law No.69 (I) of 1992 and Trustees Law (Cap. 193) of 1955 and is a rather flexible instrument for asset structuring.

To establish such trust, all the following conditions must be met:

1. The settlor is a Cypriot non-resident;
2. The beneficiary is a Cypriot non-resident;
3. The trust fund does not include immovable property situated in Cyprus;
4. At least one of the trustees is a Cypriot resident throughout the existence of the trust.

CIT offers a sufficient degree of confidentiality even despite the public register of beneficial owners introduced from 23 February 2020 (under the Prevention and Suppression of Money Laundering and Terrorism Financing Law, 2007).

The information contained in the register is only provided to persons that have a legitimate interest related to combating money laundering and terrorist financing. Whether there is a legitimate interest or not in a particular case is assessed by the regulator (CySEC). Only certain government authorities of the Republic of Cyprus have full and unrestricted access to the register.

In relation to trusts, the following are considered as beneficial owners:

1. the settlor;
2. the trustee;
3. the protector;
4. beneficiaries or class of beneficiaries;
5. any other persons who may exercise control over the trust.

Also, where Cyprus law is chosen to govern the CIT, any matters concerning the validity, administration, revocation or interpretation of the trust must be determined in accordance with the laws of Cyprus. Foreign legislation regarding succession or forced heirship does not affect the validity of the CIT. Cyprus courts enjoy exclusive jurisdiction over CIT, and foreign judgments dealing with any issues concerning a CIT are not enforceable in Cyprus.

A trust can be an invaluable tool of tax, family or estate planning. Thanks to the flexibility of Cyprus law, a trust deed can be drafted to reflect the interests of the trust’s settlor and beneficiaries most effectively.

We offer to our clients establishing and administering CITs managed by a GSL Group company licensed in Cyprus to provide trustee services.

We will also take care of issues relating to transfer of assets into trust (corporate and tax aspects) and liaise with banks.

As a basic option, we suggest transferring into irrevocable discretionary trust shares in a holding company that in turn owns operational companies.

A discretionary trust differs from other types of trust in that such trust is established for the benefit of a certain group of beneficiaries, and under the terms of the trust deed the trustee uses its own discretion to distribute income among such beneficiaries and in such proportion as it deems necessary.

In other words, the trust deed does not contain provisions on fixed amounts or proportion of income distribution among beneficiaries.

Consequently, potential beneficiaries do not effectively become the beneficiaries of the trust UNTIL the trustee decides to make payment to them out of the trust fund.

However it should be underlined that upon settlement of the trust, the trustee becomes a rightful owner of the holding company’s shares, with all the consequences, except that the trustee is not entitled to any income from the shares – such income must be distributed to beneficiaries.

It should be mentioned that a trust is a good tool for estate planning because the property put by the settlor into trust is separated from his estate upon succession and can later be distributed as prescribed by the trust deed. The rights of beneficiaries are not inherited either.

The proposed arrangement is not the only way to structure assets and our specialists are happy to adapt it to the client’s needs.

Under subpara.2 para.3.1 art.23 of the Russian Tax Code every taxpayer must notify the tax authorities of the establishment of a foreign structure without legal personality. Therefore, the settlor has the obligation to submit a relevant notification to the tax office upon creation of the trust. As far as beneficiaries are concerned, they are currently not required to submit a notification of participation in a trust.

For the purposes of the Russian Tax Code, the controlling person in a foreign structure without legal personality is a settlor (founder) of such structure (para. 9 art. 25.13 of the Russian Tax Code, as amended by Law No. 150-FZ).

However, Law No. 150-FZ provides for several exemptions. In particular, a settlor (founder) of a foreign structure without legal personality is not treated as controlling person of this structure if such settlor (founder) meets all the following conditions (para. 10 art. 25.13 of the Russian Tax Code, as amended by Law No. 150-FZ):

• this person may not receive (or demand to receive) directly or indirectly any profit (income) from the structure in full or in part;
• this person may not dispose of any profit (income) from the structure or any part thereof;
• this person did not retain the title to the property transferred to the structure (property was transferred to the structure irrevocably);
• this person does not exercise control over the structure; exercise of control over a foreign structure without legal personality, for the purposes of the Tax Code, means exercise or ability to exercise the determining influence on decisions made by an officer that manages the assets of the structure with regard to distribution of after-tax profit (income) in accordance with the personal law and (or) constitutive documents of the structure (para. 8 art.25.13 of the Russian Tax Code).

In other words, if under the trust deed the settlor

а) does not belong to the class of beneficiaries,

b) may not dispose of the profit (income) of the trust,

c) does not have the right to retrieve the property transferred into trust (in particular, there is no such right in an irrevocable trust) and

d) does not exercise control over the trust, then the settlor can be said to have an only obligation to submit a notification of participation in a foreign structure without legal personality, i.e. only report the creation of a trust, as explained above.

A person other than settlor (founder) can also be treated as controlling person of a foreign structure without legal personality if such person exercises control over this structure and meets at least one of the below conditions:

• this person is beneficially entitled to (part of) income received by the structure;
• this person may dispose of the property of the structure;
• this person may receive the property of the structure upon its winding up (liquidation, termination of agreement).

A discretionary trust, provided that beneficiaries have no control, should not qualify as CFC, but upon receiving income out of trust fund, one would need to submit notice of participation as stated above.

Disclaimer: This document is not given in the form of a covered opinion, legal opinion or tax advice. You cannot rely upon any information contained in this document for the purposes of avoiding tax in any country of the world or for unlawful activities. No information contained in this document may be used to recommend a transaction to another party. The information contained in this document is intended only for the personal lawful use of the recipient and is confidential. For tax and legal implications of using this information it is recommended to seek additional advice from lawyers and auditors.