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International Trusts


Legal Framework
Trusts formed in Cyprus are governed by the Trustees Law, Cap. 193, which is based on the English law of trusts. The English Common Law and equity rules are also applicable.

International Trusts are regulated by the International Trusts Law 69(I)/92. The legislation is of particular importance to international business companies, and to international business partnerships amongst others, who may wish to take advantage of the benefits made possible by the trust regime.

By definition, a Cypriot, and/or a permanent resident of Cyprus, cannot set-up an international trust, as defined in the Law. However, international investors, or non-permanent residents in Cyprus, who wish to set-up a trust in Cyprus, enjoy substantial tax benefits, and flexibility in the management of their assets.

Conditions for the set-up of an International Trust

  • The settlor cannot be a permanent resident of Cyprus (nb: the settlor may be a partnership or a company;
  • At least one of the trustees must be a permanent resident of Cyprus, for the whole duration of the trust's life;
  • No beneficiary, with the sole exception of a charitable institution, may be a permanent resident of Cyprus;
  • The property of the trust must not include any immovable property situated in Cyprus.

By way of illustration...
By way of illustration, one can consider a company that is both the trustee and the beneficiary of the trust, and where the settlor is the sole owner of the company's shares, as well as its sole director. Property held by such a company as trustee would be exempt from estate duty, and would be safe from law suits against the settlor, bankruptcy, expropriation, or settlor’s business risks. Similarly, proceeds from the Trusts activities would be tax exempt.

No Exchange Control
Cyprus trusts are not subject to exchange control. Bank deposits with Cyprus banks, either onshore or offshore, are also not subject to exchange control. The absence of exchange control restrictions, and the availability of excellent communication and international banking services, makes Cyprus a convenient base for the remittance and transfer of funds.

Management Services
The existence of a number of reputable international fund management companies in Cyprus, combined with the high standing of the legal and accounting professions, ensure the availability of expert advice, as well as the competent management services required for the operation of a trust.

There are no registrations or reporting requirements for trusts established in Cyprus, nor are the names of the trust or of the persons referred to in the trust deed, disclosed. 

Removal from the Jurisdiction
Cyprus Law allows for the removal of a trust from its jurisdiction, hereby providing for the necessary flexibility, in cases where ,a change of circumstances may mean that such transfers would be advantageous, for fiscal, or other reasons.

The income and gains of an international trust derived, or deemed to be derived, from sources outside Cyprus are exempt  from tax in Cyprus and no estate duty shall be chargeable in respect of assets belonging to an international trust.

Stamp Duty
The creation of an international trust is liable to stamp duty at a fixed rate of €427.15

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Types of Trusts in Cyprus

Discretionary Trust
Under this trust, the trustees have a general discretion over the amount of benefits, and the manner by which the beneficiaries might enjoy such benefits. The beneficiaries may be defined according to name or reference to a class (i.e. the settlor's children) or simply left to the full discretion of the trustees. Usually, the settlor indicates to the trustees his wishes for the disposal of the trust property by means of a letter of wishes.

Should the settlor wish to give a more positive guidance than relying on a Letter of Wishes, it is possible to include a third party in the trust deed known as the "protector" or "nominator". The protector's role is to prevent the trustees from exercising their discretion in certain circumstances. The trustees will usually exercise their discretion with the prior consent of the protector or nominator.

Fixed Trust
Under a fixed trust, the trustees have no discretion in distributing the trust assets to the beneficiaries. For example, under such a trust the trustees are directed to distribute the income to a designated individual for a fixed period of time, and thereafter, distribute the capital of the trust to a specific beneficiary or beneficiaries.

Fixed and Discretionary Trust
This type of trust gives discretion to the trustees over the distribution of income for a period of time. However, they may be required to distribute the income to a specified individual or individuals, in fixed amounts, while maintaining discretion over the distribution of the capital amongst a class of beneficiaries.

Protective Trust
This trust is appropriate when a beneficiary is given a life interest, which may become discretionary on certain defined events, such as the bankruptcy of the beneficiary.

Declaration of Trust
This is a variation of the discretionary trust in which the settlor is not named in the trust deed, and the trustees declare that they hold the assets which were transferred to them on trust. In such a case, the trustees accept a letter of wishes.

Trading Trust
Under this trust, the trustee is usually a limited liability company which has powers to carry on business, and the trust has trading functions and employees to manage its business. Since all documentation used is in the name of the trust company, third parties are not aware of the existence of the trust.

Purpose Trust
A purpose trust, is a trust other than (a) a trust with beneficiaries, certain individual or legal persons, readily ascertainable or not and (b) a trust with beneficiaries, the whole of certain individuals or legal persons, which are ascertainable with reference to some personal relation or affinity. This type of trust can be a useful adjunct to international corporate planning, and can be used to accumulate corporate earnings for general corporate purposes, rather than for a defined group of individuals.

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