TRUSTS

The choice of  an  appropriate  business  or  investment  structure  is  very  important  in  order  to  maximize  the client’s  returns  and  at  the  same  time  minimize  the  legal  and  economic  risks  as  the  owner. Establishing a trust as the means for the safekeeping, management and eventual disposal of your property provides the ideal flexibility your estate planning framework requires.

A trust is an obligation enforceable in court, which rests on the client (“the settlor”) transferring the legal ownership of the trust property, typically called the ‘trust fund’, to a person (the “trustee”) with specific instructions in order to deal with that property for the benefit of another person or persons (the “beneficiary”). The terms upon which the trustee acts and performs his duties are usually written and expressed in a trust deed.

Our specialist team has wide experience on dealing with the formation, management, administration and compliance issues of a trust, as well as liaising with other advisers – essential to make things run effortlessly and efficiently. We can provide advice at the outset on the most suitable trust structures for you to control your personal and business assets, as follows.

• Cyprus International Trust
• New Zealand Foreign Trust

Cyprus International Trust

Our team is equipped with the resources and knowledge to advise clients in all matters involved in the formation, management and administration of a Cyprus International Trust.

Cyprus International Trusts provide multiple benefits such as anonymity, asset protection, flexibility and taxation incentives and benefits, whereby clients around the world can use within the framework of their tax planning and investment strategies.

Trusts are mainly regulated by the Trustee Law, Chapter 193, enacted in 1955 and based on the English 1925 Trustees Act. This is supplemented by the English Doctrine of Equity and English case law prior to 1960. In 1992, Cyprus enacted the International Trusts Law, 69(1) I 1992 and in 2012, the Cyprus International Trusts law of 1992 was amended by the International Trust (Amending) Law of 2012 establishing Cyprus as the currently most favorable trust jurisdiction in the EU.

The new Cyprus International Trust (CIT) regime enables settlors and beneficiaries to enjoy the highest degree of protection internationally and formidable asset protection capability together with the unmatched tax advantages afforded in Cyprus.

The New Law provides that any matter relating to the validity or administration of an international trust, the trustees’ fiduciary powers and duties and the powers and duties of any protectors of the trusts are governed exclusively by Cyprus without reference to the laws of any other jurisdiction.

The validity of a CIT will depend on the existence of the following:

1. The “three certainties”:

• Certainty of intention – express intention of the settlor to create the trust;
• Certainty of subject matter – readily identifiable assets that will form the trust property;
• Certainty of objects – beneficiaries must be identified or ascertainable.

2. The Settlor of the CIT, being any person who is of full age and of sound mind, or a legal entity, must not be a resident of Cyprus in the year preceding the year of the creation of the trust;
3. No Beneficiary, other than a charity, should be a resident of Cyprus in the year preceding the year of the creation of the CIT;
4. There must be at least one Trustee resident in Cyprus at all times. This means that if the Settlor wants to appoint a Trustee who has his resident outside of Cyprus then he must appoint a second Trustee; and
5. Payment of stamp duty of €430

Types of Cyprus International Trusts

1. Express Private Trusts

The most common form of a Trust which is created by the Settlor expressly either by using a deed, in writing, by will and in some exceptional circumstances an oral statement could be seen as sufficient. The 3 certainties must be present at all times.

2. Charitable Trusts

A Cyprus International Trust shall be deemed to be charitable if the 3 certainties are present and if it falls under the provisions of s.7 of the International Trusts Law of 1992 (as amended) and the Trust must have as its main purpose the achievement of one or more of the following:

• the prevention or relief of poverty;
• the advancement of education;
• the advancement of religion;
• the advancement of health or the saving of lives;
• the advancement of citizenship or community development;
• the advancement of the arts, culture, heritage or science;
• the advancement of amateur sport;
• the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
• the advancement of environmental protection or improvement;
• the relief of those in need by reason of youth, age, ill health, disability, financial hardship or other disadvantage;
• the advancement of animal welfare and protection of animals;
• any other purposes beneficial to the public in general or which may reasonably be considered to be incidental to any purposes falling within any of the paragraphs above.

3. Fixed Trusts

Fixed Trusts provide that the Beneficiaries shall only be entitled to the specified trust property which is indicated by the Settlor upon the creation of the Trust.

4. Discretionary Trusts

With discretionary Trusts the Settlor has vested to the Trustees a discretion in regards to the sum each Beneficiary shall be entitled from the trust property.

Spectrum of advantages presented by establishing a CIT:

• A CIT is exempted from Cypriot taxes where none of the beneficiaries other than a charitable body is a resident of Cyprus.
• CIT details required to be registered in the trusts registry of the competent fiduciary regulators are confined to the name of the CIT and the trustee, the date of its establishment and the relevant law.
• Confidentiality is granted on potential beneficiaries, as customer due diligence is required to be performed only on beneficiaries with an immediately secured right of present or future deployment, which cannot be taken away by any third party (a “vested interest”).
• A CIT may be used as an estate planning vehicle as there is no longer any estate duty in Cyprus.
• The Law permits the flexibility of migration of the trust from one jurisdiction to another. This ability is important in cases where a change in circumstances may render such a transfer advantageous or necessary for the protection of the trust assets.
• Cyprus law exclusively governs any matter relating to the validity or administration of a trust, the trustee’s fiduciary powers and duties, and the powers and duties of any protector; thus disregarding the laws of another jurisdiction which may not recognise the concept of trusts. Additionally, it offers protection from foreign judicial claims and forced heirship rules.
• The court may enforce trusts on behalf of beneficiaries. Furthermore, the court may appoint and replace trustees, as well as provide authorisation, indemnification and directions in certain circumstances.
• Creditor protection: requires a creditor claimant to prove on the balance of probabilities that at the time of settlement the settlor was trying to defraud him. Such proceedings are out of time if brought more than two years after the date of transfer of the relevant property.

From a tax perspective, it relieves the other parties of the trust from any adverse tax consequences which would arise if they were to be considered controlling persons – hence avoiding having the trust fund taxed in accordance with the provisions of the settlor’s (or protector’s) onshore jurisdiction of tax residence. It ensures asset protection against spendthrift beneficiaries, as potential beneficiaries without a vested interest cannot force the trustee to make a distribution which would not be deemed to be in the best interest of the beneficiaries as a whole.

Furthermore, provided the CIT is untainted and not created for the purpose of defrauding creditors, creditor protection is also achieved as the trust fund cannot be attached to settle creditor claims against the settlor. Finally, confidentiality may be preserved for potential beneficiaries until such time a distribution is made to them.

With the current legal regime and the benefits associated with the established of a CIT places Cyprus as one of the most modern, favourable and flexible trust jurisdictions.

For a tailored plan or if you are interested in requesting further information on this subject, please contact Andys Polydorou LLC by telephone (+357 22-677027) or by email (legal@apolydorou.com).

New Zealand Foreign Trust

A New Zealand Foreign Trust (NZFT) also known as a New Zealand (NZ) Offshore Trust or NZ Non-Resident Trusts has existed since 1988 with legislation going back to the Trustee Act of 1956. Since then, the jurisdiction has formed over eight thousand trusts, providing clients with a number of advantages not normally found within the offshore sector.

Because NZ is a traditional high-tax structured jurisdiction it does not carry with it a stigma normally associated with other offshore ‘tax heavens‘, providing many of the advantages in a traditional offshore financial centre, but without the undue scrutiny of foreign governments and financial regulatory agencies.

A NZFT is a legal entity established and owned by a settlor—a non-resident of NZ whose assets are held and under management of a NZ resident trustee. The NZ resident trustee manages the assets in accordance with the details outlined in the trust deed, under the instructions of the settlor for the benefit of an intended beneficiary.

NZFT has any number of arrangements and applications, as NZ legislation has given foreign trusts the ability to create a flexible management structure and conduct business in virtually any offshore or onshore sectors.

Successive NZ government administrations have supported their foreign trusts, which have been used as a means of attracting international investors, maintaining that their trusts are legitimate wealth management vehicles and lay well within the confines of the international regulatory standards.

A properly structured NZFT is a unique asset protection and business management investment vehicle that offers a number of benefits to foreign investors seeking confidentiality, low-level information disclosure and offshore security. Further, the trustee of a trust can be a natural person, or persons, or it can be a company (there is no need for the name of the company to refer to the trust).

Benefits of NZ Trust

• New Zealand provides all the advantages of traditional offshore financial centres, but remains primarily recognized as a mainstream onshore financial centre
• New Zealand is not a member of the EU and not influenced by the EU Savings Tax Directive
• A properly structured NZFT is eligible to enjoy 0% tax in NZ on all of its non-NZ sourced incomes
• New Zealand Foreign Trusts are not restricted in any type of business activities
• New Zealand is not perceived as being a ‘tax heaven‘ and has never been blacklisted by any jurisdiction or authority
• A New Zealand Foreign Trust allows for the separation of powers that enable a diverse structural arrangement, delegating roles and responsibilities to appointed trustees that give the settlor more control and reliability
• No restrictions on distribution of capital or assets
• Your own (newly formed) or appointed corporate trustee can trade and place assets into the foreign trusts
• Ability to ameliorate time zone difficulties by using NZ entity as custodian trustee with a managing co-trustee or investment manager resident in a more convenient time zone.

For a tailored plan or in case of any query or clarification, please contact us on legal@apolydorou.com.