What are the two Cyprus trust frameworks?

Cyprus offers two: the Cyprus International Trust and the domestic trust. They operate under different rules on who can settle, who can benefit, how the trust interacts with Cyprus succession law, how tax is assessed, and how long the trust can run. Which one applies to you is decided by your facts, principally where you and the beneficiaries were tax resident in the calendar year before the trust is set up.

What happens if my residence changes after the trust is set up?

Nothing. The test looks at the calendar year before the year of creation, and it is applied once. A settlor or beneficiary who becomes a Cyprus tax resident afterwards does not displace the trust's status. The one condition that does run for the life of the trust is that at least one trustee remains a Cyprus resident. A settlor who was a Cyprus tax resident in the year before creation cannot cure that after the event; the route is a new trust, created once a full calendar year has passed in which they were not resident here.

Where do the two frameworks materially differ once the trust is settled?

In four places. Succession interaction (the CIT has specific provisions on statutory-portion and foreign-law claims; the domestic trust interacts with Cyprus succession rules more directly). Tax outcome (the two regimes are taxed differently under Cyprus rules, and the analysis depends on residence and source). Duration (the International Trusts Law removes any limit for the CIT; the domestic trust does not have that provision). Asset protection (the CIT carries provisions designed for the international settlor).

Cyprus International Trust or domestic trust?

Q: Can I choose between the CIT and the domestic trust?

Not usually. The frameworks are functionally mutually exclusive. The CIT carries eligibility criteria: neither the settlor nor the beneficiaries, charitable institutions excepted, may have been Cyprus tax residents in the calendar year before the year the trust is created, and at least one trustee must be a Cyprus resident throughout. If your facts meet the criteria the CIT is available. If they do not, the domestic route applies. You do not pick from a menu; your facts decide the framework.

Cyprus has two trust frameworks: the Cyprus International Trust and the domestic trust. Most families setting up a Cyprus trust do not know there are two. Which one applies to you is decided by your facts, principally where you and the beneficiaries were tax resident in the calendar year before the trust is set up. This piece explains what the two frameworks are, which fact patterns put you in each, and where they materially differ once you are in one.

Two frameworks in one country

Cyprus offers two trust frameworks. One is the Cyprus International Trust. The other is the domestic trust. The two operate under different rules on who can settle, who can benefit, how the trust interacts with succession, how tax is assessed, and how long the trust can run. Most families arriving at a Cyprus trust for the first time do not know there are two frameworks. The trust they end up with is determined by their own facts, not by a choice they make from a menu.

The Cyprus International Trust

The Cyprus International Trust (CIT) was designed for the international family. The settlor was not a Cyprus tax resident in the calendar year before the year the trust is created. The same is true of the beneficiaries, with charitable institutions excepted. At least one trustee is a Cyprus resident, and that one has to stay true for as long as the trust runs. The trust typically holds assets outside Cyprus, though Cyprus assets are permitted. The purpose is often multi-generational holding, cross-border succession planning, or asset protection.

The CIT was built with those families in mind. It includes provisions on the interaction with succession rules that give the settlor certainty on how the trust stands against statutory-portion or foreign-law forced-heirship claims. The International Trusts Law removes any limit on how long it can run. It carries asset-protection features designed for the international settlor, which are set out further down.

Where the facts meet those conditions, the CIT is generally the framework the family uses. Where they do not, the CIT is not available.

The Cyprus domestic trust

The Cyprus domestic trust is the framework that applies to Cyprus-resident settlors, Cyprus-resident families, and trusts holding predominantly Cyprus-based wealth. It is the framework used for family succession within Cyprus, protection of vulnerable beneficiaries in Cyprus-based families, and family wealth structuring where the family's centre of gravity is Cyprus.

The domestic trust operates under the general Cyprus trust framework. It is subject to Cyprus tax rules that apply to Cyprus-resident structures. It interacts with Cyprus succession rules more directly than the CIT does, including with the statutory portion regime. The Trustees Law has no duration or asset-protection provisions of its own, so the domestic trust takes the general position where the International Trusts Law legislates.

The fact that decides most cases

The single fact that decides most cases is where the settlor was tax resident in the calendar year before the year the trust is created. The statute names a calendar year, so what is being looked at is the whole of the previous year rather than the twelve months running back from the day the deed is signed.

Somebody who was a Cyprus tax resident last year cannot create a Cyprus International Trust this year. Somebody who has left Cyprus cannot create one immediately either, because the year being looked at is still one in which they were resident here. The position changes once enough time has passed that the whole of the previous calendar year was spent as a non-resident.

The beneficiaries are looked at in the same year and on the same basis, with charitable institutions excepted. Neither test carries on afterwards, so a settlor or a beneficiary who becomes a Cyprus tax resident once the trust exists does not affect it. The only condition that runs for the life of the trust is the one about the trustee, which requires at least one of them to be a Cyprus resident throughout.

Where the frameworks materially differ

Once the framework is fixed, the difference between the two commonly shows up in four places.

Succession interaction. Cyprus succession rules include a statutory portion, a fixed share of the estate reserved for close family that a will cannot displace. The CIT was designed with specific provisions on the interaction between the trust and statutory-portion or foreign-law forced-heirship claims where the settlor is not a Cyprus resident. The domestic trust interacts with the succession framework more directly and is walked in detail in Cyprus inheritance, forced heirship and the trust solution for Cyprus-resident settlors.

Tax outcome. The CIT and the domestic trust are taxed differently under Cyprus rules. The CIT was designed with non-resident settlors and non-resident beneficiaries in mind and its tax treatment reflects that. The domestic trust interacts with Cyprus tax rules in the way Cyprus-resident structures do. The specific tax analysis for the family is done with the family's tax advisor because it depends on residence, source of income, and the type and residence of the beneficiary.

Duration. The International Trusts Law removes any limit on how long a CIT can run and disapplies the rule against perpetuities. The domestic trust has no equivalent provision, so the common-law rule still applies to it.

Asset protection. Assets transferred to a CIT are protected from the settlor's creditors from the moment of transfer. The trust does not become void because the transfer was a gift, or because the settlor is a beneficiary. A creditor gets in only by proving to a court that the transfer was made to defraud them, and the burden of proving it is theirs. The protection is assessed transfer by transfer rather than across the trust as a whole, so a creditor reaches only what they can tie to the fraud they have proved, and only where two years have not yet passed since that particular contribution. The Trustees Law carries no equivalent provisions for the domestic trust.

The trust the family gets

Most families arriving at a Cyprus trust think they are picking a product. What they are actually doing is presenting a set of facts, and those facts place them in one of two frameworks. The Cyprus International Trust for the international family whose settlor and beneficiaries were not Cyprus tax residents in the year before it is created. The domestic trust for the Cyprus-resident family. Once inside the framework, the design work of the trust itself continues from there, including the structure that holds the family business. Where the trust is not the right instrument for the family at all, neither framework applies and the answer is not a Cyprus trust.

Cyprus International Trust. Or domestic trust?