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What is a Trust?

SzulcA Trust is a legal mechanism for separating the ownership of an asset into two parts: the “legal” ownership, or title to the asset and the “beneficial” ownership. Trusts are incredibly useful and flexible engines that people ignite for all sorts of different purposes.

The trust is established by an individual “the Settlor” and the Settlor appointed is either a person or a legal entity to hold legal ownership of assets in the Trust for the benefit of the Beneficiaries, hereby “the Trustee”. The Beneficiaries are any of the person(s) , legal entity(ies), charities who have the beneficial right to enjoy the assets in the Trust when the Trustee determines to make a distribution in their favour as discretionary Beneficiaries. Or the person(s) , legal entity(ies), charities who have the beneficial right to enjoy the assets in the Trust: the defined interest Beneficiaries.

The trust is created by a Deed or Declaration in a written document, executed under seal between the Settlor and the Trustee. In law the Trustees are the owners of the trust property, although they may not deal with it as absolute owners but rather in accordance with the provisions of the law. This legal separation between the legal and beneficial ownership is the actual reason why someone wants to form a Trust: the considerable flexibility in tax mitigation and financial planning, succession planning and asset protection planning.

In Cyprus, the Trusts are governed by the Cyprus International Trusts Law 1992 which complements the Trustees Law Chapter 193 of 1995 which it’s based on the English Trustees Act of 1925. In Cyprus anyone of right age and provident about his future can create a Cyprus International Trust. According to the Law, the Settlor must not be resident in Cyprus during the year preceding the creation of the Trust, the Trustee or one of the Trustees in the case of more than one must be resident in Cyprus for the whole life of the Cyprus International Trust, the Beneficiary or Beneficiaries must not be resident in Cyprus and the trust property must not include any immovable property in Cyprus.

A Trust can be either a Discretionary Trust (the trustees have the discretion about how to use the trust’s income and about how to distribute the trust’s capital), a Fixed Trust (preventing the trustees from using their full power in the way assets are distributed to the Beneficiaries as in that case the Trustees will have to follow the terms of the trust), a Purpose Trust (set up in order to advance a specific purpose has no beneficiaries as it is usually set up for a charitable purpose) or an Accumulation & Maintenance Trust (set up in those cases whereby assets are needed to be held on behalf of someone until a certain future event will take place, such as a child reaching adulthood or person getting married.

Where the trust is created by a will, then the particular requirements in relation to wills have to be observed. The trust must satisfy the three certainties: certainty of intention, subject-matter and objects. Therefore the Settlor must manifest an intention to create a trust, the trust fund must be specified with reasonable certainty and the beneficiaries under the trust must be significant.


Cyprus International Trusts are not taxed in Cyprus. The taxation of trusts are fairly complicated:

  • Income: All income whether trading or otherwise of an International Trust is not taxable in Cyprus
  • Dividends: Dividends interest or other income received by a Trust from a Cyprus company are also non-taxable nor subject to withholding tax.
  • Capital gains: Gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus.