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 the existing tax status for Cyprus international trusts – as per the International Trusts (Amendment) Law 1992, in force since March 23 2012 – Cyprus international trusts are subject to a tax as follows.

Income or profits

Income or profits received from sources located outside Cyprus are 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 local or overseas sources is taxable in Cyprus where the beneficiary is a Cyprus tax resident. In order to estimate the exact tax that may be imposed on a trust, it is necessary to consider its specifications, purpose and any other relevant circumstances.

Dividends

Dividends, interest and other income received by a trust from a Cyprus company is not taxable or subject to withholding tax.

Payments to beneficiaries

Non-resident beneficiaries are not subject to tax on the payments that 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 for Cyprus international trusts to hold assets in foreign countries so that beneficiaries may avoid capital gains 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 by a Cyprus international trust (ie, activities in Cyprus) are subject to local taxes (eg, value added tax, capital gains tax on the disposal of property and stamp duty).

In the event that a beneficiary is tax resident in Cyprus, the trustee must ensure that he or she are registered in Cyprus for tax purposes. If all beneficiaries of a Cyprus international trust are tax residents in Cyprus, the Inland Revenue may treat the international trust as a local trust which will effectively be subject to all forms of local taxation on all income regardless of the source. In the case of a mixture of beneficiaries in a Cyprus international trust (ie, tax residents and non-tax residents of Cyprus), the Inland Revenue will consider the percentage of beneficiaries who are Cyprus tax residents and will decide whether to treat the trust as a local or international trust. Therefore, all aspects of the trust, including the place or residence of the beneficiaries, must be considered before moving forward with the set up.

For further information on this topic please contact Angelos Paphitis at A G Paphitis & Co by telephone (+357 25 73 10 00) or by email (angelos.paphitis@agplaw.com). The A G Paphitis & Co website can be accessed at www.agplaw.com.

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