Trust & Corporate Services: PV Jan – swisspartners – The art of finance

SPMH (Cyprus) Limited – our new business venture out of Cyprus

swisspartners Marcuard Heritage Ltd., the international trust and company services branch of swisspartners Group, has recently established its own trust company in Cyprus, named SPMH (Cyprus) Limited. 

Why establishing a new trust company at all?

We are convinced that trusts and international companies have a bright future, in particular in the context of long-term estate planning of wealthy families and the protection of family assets.

Why in Cyprus?

We are also convinced that the future of trust business will be in reputable jurisdictions such as Switzerland, Cyprus or Singapore. Switzerland does not (yet) know a specific trust legislation but Singapore and Cyprus are jurisdictions with well-established trust laws hence we have decided to go European first.

What can swisspartners offer out of Cyprus?

Our services will comprise the full range of trust and trustee/company formation/company administration services, such as

  • Establishment and management of trusts
  • Trusteeships/Directorships
  • Formation/Administration of companies
  • Formation and management of private trustee companies (PTCs)
  • Tax and accounting services
  • FATCA/CRS consultancy services

It goes without saying that a trustee company established in Cyprus, will be able to act as a trustee for trusts from many jurisdictions, such as Cayman Islands, BVI, Nevis etc., depending always on specific local legislation and criteria of the jurisdiction to be appointed.  But for those clients which wish to have a pure European onshore trust arrangement, Cyprus may be the alternative to go for.

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In the following, we take the opportunity and let Andreas Hadjimichael, director of SPMH (Cyprus) Limited, talk about the trust business industry and the merits of forming trusts in Cyprus under Cyprus law.

 In a few words, what is a trust, and what is its relevance in Cyprus?

The flexibility of formal requirements for the creation and operation of trusts, and the incredible flexibility of trust instruments, make them uniquely useful vehicles for asset protection and succession planning.

In simple terms, a trust is an arrangement whereby property or assets are transferred from one person (the “settlor”) to another person (the “trustee”) to hold the property for the benefit of a specified list or class of persons (the “beneficiaries”). The protector (is not compulsory but if appointed) is the person that has the power to control key powers of the trustee, such as the power to add beneficiaries to the trust.

The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property i.e. the trustee, and those people that have the use or benefit of the property i.e. the beneficiaries.

The International Trusts Law of Cyprus builds on the well-established English principles of equity and trusts and has created one of the most attractive trusts legal frameworks in the world.

Give us some practical examples for the use of trusts

Cyprus International Trusts (“CITs”) can be used in unlimited circumstances. Here are some typical situations where trusts may help a family to preserve and grow its family wealth.

A trust can be used

  • to hold property for minors or successive generations of a family
  • to protect property against spendthrift members of a family
  • to establish a “fund” for the benefit of family members according to future needs as and when they arise
  • to provide secretly for others
  • to provide for a couple on their marriage whilst ensuring that the property so provided is “tied up” in the event of that marriage failing
  • as an investment vehicle
  • to enable charitable objects to be carried out

What is the legal framework of CITs?

The main legal framework governing trusts in Cyprus is a combination of English common law, the Trustees Law of Cyprus (Cap 193), which is modelled on the English Trustee Act of 1925, and the International Trusts Law of Cyprus (Law 69(I) of 1992 as amended by Law 20(I)/2012).

How will a CIT be established?

The procedure for establishing a CIT is straightforward and can be arranged in a relatively short period of time. As per the law, the following conditions must be met for the formation of a CIT:

  • The Settlor, whether a physical or legal person, must not be a tax resident of Cyprus during the calendar year which precedes the year of creation of the CIT; and
  • The Beneficiary(ies), either physical or legal person(s), with the exception of a charitable institution, must not be tax resident of Cyprus during the calendar year which precedes the year of creation of the CIT; and
  • At least one of the trustees is, for the duration of the CIT, a Cyprus tax resident person.

What do “reserved powers” mean for the settlor of a trust?

The settlor under a CIT is provided with a right to reserve certain powers, whether retained or given to him in his capacity as a protector for the application of the CIT or otherwise. Some examples of such reserved powers of the settlor are set out below:

  • the amendment or revocation of any terms of the CIT;
  • the allocation, distribution, payment or other disposition of income or capital from the CIT property;
  • to act as director or officer or give binding directions as to the appointment or removal of a director or officer of any company wholly or partly owned by the CIT;
  • the appointment or removal of any trustee, protector or beneficiary;
  • changing the applicable law governing the CIT or place (forum) of management of the CIT;
  • the restriction of the exercise of any power of the trustee, for example requesting that these be exercised only subject to the approval of the settlor or any other person expressly mentioned in the trust deed.

The retention of any of the above powers by a settlor of a CIT shall not, in accordance with the Law, in any way affect the validity of the CIT or delay the execution of the CIT.

In the world of increasing litigation, the protection of wealth becomes more and more important. What does Cyprus and CITs offer in this respect?

The CIT is irrevocable unless a specific power of revocation is reserved in it and cannot be set aside by the settlor’s creditors unless and to the extent that the creditors can show that the CIT was made with the intent to defraud them. The burden of proof of such intent lies with the creditors and an action against the trustees must be brought within two years from the date when the relevant transfer or disposition of assets is made to the CIT.

Also, in matters relating to CITs, only the law of the Republic of Cyprus will apply. In other words; succession, heirship or other laws applicable in foreign jurisdictions or court judgments, orders, arbitral awards or decisions by foreign competent authorities do not affect the validity of a CIT or the transfer of property to the trustee of a CIT. A CIT may only be challenged on defraud of creditor grounds with a two-year limitation period. The trustees of a CIT are bound by confidentiality and cannot disclose information or documents unless ordered by a Cyprus Court or required by law.

Which information on a CIT is on public record in Cyprus?

All CITs must be registered with one of the three authorities (ICPAC, CySec & The Bar Association) supervising and regulating the provision of trustee services. The supervising authorities maintain a trust registry containing the following information on CITs:

  • Name of the CIT;
  • Name and full address of every trustee at all material times;
  • Date of creation of the CIT;
  • Date of any change in the law governing the CIT to or from Cyprus law; and
  • Date of termination of the CIT.

Which taxes apply to CITs with foreign beneficiaries?

Beneficiaries who are not tax resident in Cyprus are subject to tax only on income and profits sourced in Cyprus. Capital gains tax applies only regarding gains from the disposal of real estate situated in Cyprus or shares of a company holding property situated in Cyprus. Dividends and interest from Cyprus companies are tax free and are not part of Cyprus sourced income.

CITs may fall within the scope of double tax treaties provided that the other contracting state recognizes trust structures and principles of equity and the CIT itself meets the eligibility criteria set out in the relevant treaty.

As a summary, what are the most interesting aspects of the Cyprus trust law and CITs?

Most trust jurisdictions in the world show similarities, but when looking at Cyprus specifically, here are the catchwords which speak for Cyprus as a modern trust law country:

  • Onshore jurisdiction and a full member of the European Union;
  • Trustees to touch and to establish a personal contact and relationship;
  • Strong asset protection features in the Law;
  • Strong privacy;
  • Exclusive jurisdiction of the Cyprus courts;
  • Significant tax benefits with a wide network of double tax treaties, including Switzerland and many other European countries.

For more information, please contact us!

David Sykes | Partner | Mitglied des Group Management Board

Christian Rockstroh | Partner