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The trust concept is even older that the concept of
a limited liability company and starts in British
middle age. The main idea is that one person , trust
founder (Trustor / Settlor / Grantor), trust his
property to another person, the Trustee, so this
person could manage and operate this property for
the benefit of a third person, the beneficiary.
Historically, this idea had nothing to do with
the tax planning. For example a father who was
afraid that his property could disappear after his
death by his son, could found a trust and appoint as
trustee the family lawyer to act for the benefit of
his son. another most well known trust form is when
the trust is founded by a "will" for the benefit of
under age children. With such settlement , only the
necessary funds are spend for the life support and
education and after legal age the beneficiary
receives a part for the growth of his own business.
The rest of the property will be given for his own
disposal only after the expiry date of the trust.
Though no legal entity is formed when a trust is
founded, the property can not be arrested in case of
bankruptcy of the trustee. On behalf of the trust
can be opened bank account, can be made
investments and the trust has its own liabilities.
The trustee invests trusted funds as he consider
best but always in accordance with the terms and
conditions of trust. As far as concern payments to
the beneficiary, the dates of payment and
installments are also agreed in the trust. In the
end all the property and net income from the
investments returns to the full disposal of the
beneficiary.
Except the trust agreement the founder pass to the
trustee a memorandum with all his wishes concerning
property management and which is considered as the
legal document in which trustee's obligations are
indicated. A trust protector can be appointed. his
functions are to control the trustee and if needed
to change him with a more suitable person. There are
special procedures for the change of the trustee as
well as the change of beneficiaries.
At the present trust agreements are used both by
physical or legal entities clearly for tax planning.
By founding a trust in one of the tax free
jurisdictions , in most cases it is possible to get
free from taxation in country of residency of the
founder and the beneficiary. this mostly concern
property taxation as property passed by trust to
another entity is legally not belong to the founder
or the beneficiary. The same can be used for
taxation on capital growth. Beneficiary's income
from the trust agreement, they are usually taxed
according the law in the country of residence.
The same , in principle , concern taxes on capital
growth. Beneficiary's income from trust agreement,
are usually taxed in accordance to the legislation
of country of residence, but only after this income
is actually paid to him. this condition allow to
extend the time of payment and reinvest the profits.
In some cases it is possible to avoid the
inheritance taxes, but always take in mind , that
the transfer of property to a foreign trust is taxed
as donation. However, in every certain case, a
detailed analysis of the tax legislation of all the
countries , in which persons involved in the trust
agreement are residents, must be done.
Trust agreements and
personal Tax Planning
After adoption in 1992 of the law for International
Trusts, Cyprus offshore Trusts became very popular
and they are used in international Tax Planning.
Government trust registration fees are only 250 CYP,
and Cyprus International Trusts are free from any
taxation in Cyprus. As international is considered a
Trust founded by a non Cyprus resident in favor of
non Cyprus residents beneficiaries, and manage and
controls property registered in any country of the
world except Cyprus. The only condition is that one
of the Trusties must be Cyprus resident.
International Trusts can be used by physical
entities for more advantageous tax planning. They
can be formed under next conditions (always in
accordance with the legislation of country of
resident):
* physical persons, emigrated to a country of high
taxation, can found a Trust to manage their
property. The capital and the income from that
property (under the founded trust), are not taxed in
the country of residence , unless this income is
paid to the beneficiary by the trusties.
* Physical persons, that have investments abroad and
they don't wish to receive their income in country
of residence, they can found a Cyprus International
Trust for Foreign Investments abroad. Cyprus
international Trust can be used together with Cyprus
companies and receive the maximum profitability from
Cyprus International Double tax treaties.
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