There is a variety of trusts that can be set up in Cyprus. The choice of the type of the trust depends on the requirements of the settlor and the objectives s/he wants to achieve. Among these are the following:
The Discretionary Trust is the most commonly used type of trust in Cyprus due to the many advantages it provides. Among these are the following:
- The beneficiaries cannot be taxed on the trust fund, because they have no legal right in the trust fund until the trustees exercise their discretion in their favour.
- The beneficiaries cannot be subject to local exchange control regulations regarding compulsory repatriation of assets until the trustees exercise their discretion.
- The beneficiaries’ trust assets are not available to their creditors in case of a bankruptcy.
- Flexibility. Trustees are allowed to vary the various interests under the trust, as and when circumstances change, without the need to have recourse to the procedures of variation of trusts (i.e. getting the agreement of all the beneficiaries or asking the court to vary the terms of the trust).
- Anonymity. Individuals interested in keeping their anonymity set up a discretionary trust, which owns the shares in their company.
The discretionary Trust allows trustees to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may also be given discretion in deciding when to pay any money to any of the members of the class. Thus, none of the beneficiaries has any right to be paid any money out of the trust fund, since the trustee may exercise his discretion and postpone any such payment or even decide not to pay a particular beneficiary at all. However, the Settlors in a “Letter of Wishes” may set out their intentions regarding the administration of the trust.
The Fixed Trust does not give the trustees any discretion when distributing the assets to the beneficiaries. An example of this type of trust is one which requires the trustees to distribute the income of the trust property to a particular individual, during that individual’s lifetime and thereafter distribute the capital to a named beneficiary or beneficiaries in specified shares.
Fixed and Discretionary Trust
It is possible to have establish a trust combining elements of a Fixed and a Discretionary Trust.
For instance, the trustees may have discretion regarding the distribution of income for a specified period of time, but ultimately they are required to distribute the capital in fixed proportions.
Under a Trading Trust, usually the trustee is a limited liability company. The trust has trading functions and the company’s employees manage its business. Third parties are not aware of the existence of the trust as all documentation used is in the name of the Trustee Company.
Under the Cyprus International Trusts Law of 1992, the Purpose Trust can be used to accumulate corporate earnings for general or specific corporate purposes instead of providing for a defined group of individuals.