Taxation of Cyprus International Trusts | Update 02/2018

How are Cyprus International Trusts taxed?

Cyprus International Trusts provide a significant number of tax advantages and can be used as part of an international tax planning strategy.

With respect to current tax status for Cyprus International Trusts, as per provisions of the International Trusts (Amendment) Law of 1992, in force since March 23rd 2012, Cyprus International Trusts are subject to a tax as follows:

Income or Profits

  • Income or profits received from sources located outside Cyprus is not taxable in Cyprus if the beneficiary is not a Cyprus tax resident, while income received from local sources is taxable in Cyprus.
  • Income received from either local or overseas sources is taxable in Cyprus, in the event the beneficiary is a Cyprus tax resident.  However, it may be useful to consider our article Non-domicile rules for tax purposes in Cyprus.

Below you shall find general information on how trusts may be taxed in Cyprus.  However, please note that in order to estimate the exact tax that may be imposed on a trust, it is necessary to take into account its specifications, its purpose and any other relevant circumstances that may concern it.

Dividends

  • Dividends, interest or other income received by a Trust from a Cyprus company are not taxable nor subject to withholding tax.

Payments to beneficiaries

  • Non-resident beneficiaries are not subject to tax on the payments they receive from a Cyprus tax.

Capital gains

  • Capital Gains that occur after the disposal of assets of a Cyprus International Trust are not subject to capital gains tax in Cyprus.  It is common use for a Cyprus International Trust to hold assets in foreign countries so that beneficiaries may avoid capital gain tax in their countries of residence.

Estate duty

  • A Cyprus International Trust is not subject to estate duty in Cyprus.

Any local activities or operations of the Cyprus International Trust (i.e. activities in Cyprus) are subject to local taxes such as VAT, capital gains tax on the disposal of property in Cyprus, stamp duties etc.

It should be noted that in the event a beneficiary is tax resident of Cyprus then it is the Trustee’s duty to have him or her registered for Cyprus tax purposes (if they are not already registered).  If all beneficiaries of the Cyprus International Trust are tax residents of Cyprus then the Inland Revenue may treat the Cyprus International Trust as a local Trust and effectively will be subject to all forms of local taxation in Cyprus (on all income regardless the source).  In case of a mixture of beneficiaries in a Cyprus International Trust (tax residents and non-tax residents of Cyprus) the Inland Revenue will take into consideration the percentage of the beneficiaries who are Cyprus tax resident and subject to this will decide whether to treat the trust as Local or International Trust. Therefore, proper examination of all trust aspects, and the beneficiaries place or residence, need to be taken into consideration prior to moving forward with the set up.

Please note the above information is for general purposes only. For legal and tax advice on your particular case, you can get in touch with our team.

Published on 13/03/2015, updated on 26/02/2018.